This page has been archived and commenting is disabled.

Eric Sprott: A Busted Formula

Tyler Durden's picture





 

A Busted Formula, by Eric Sprott and David Franklin

There’s nothing wrong with throwing a little money at a problem to make it go away. There’s equally nothing wrong with throwing a little borrowed money at a problem to make it disappear, as long as you have the means to pay that borrowed money back.

But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away? If you’ve ever experienced a situation like that you can probably understand how Europe feels right now. It just unleashed a magnificent $1 trillion euro bailout and the market responded with a selloff by the end of the week! So what happened? That money was supposed to make the problem go away, after all. And it was a lot of money. Why did the market respond to it with such disdain?

We believe the market’s reaction is confirming what we have long suspected: that these bailouts provide next to no long-term value. They don’t produce real jobs. They don’t improve productivity. They just prolong the precarious leverage game played by the financial sector, and do so at tremendous cost to taxpayers. "Bailout and Stimulate" has been the rallying call for governments and central banks since the beginning of this financial crisis – and it has certainly had its impact over the last two years, but not the type of impact we need to propel real, sustainable growth. There are three recent, glaring examples of this busted "Bailout and Stimulate" formula in action:

Exhibit A: The United States

From the outset of this financial crisis, the US Government and Federal Reserve have spent prolific amounts of money to save its banks and stimulate its economy. According to Neil Barofsky, special investigator general for the Troubled Asset Relief Program, the United States has now spent approximately $3 trillion on various programs to stem the financial crisis.1 This figure is expected to be updated again in July.

This $3 trillion expenditure includes stimulus programs like ‘cash for clunkers’, the extension of unemployment benefits, infrastructure spending, the "Making Home Affordable" program, as well as the activities of the Federal Reserve. To measure what the fiscal stimulus has actually accomplished we looked to the US Federal budget outlays/receipts to gauge the impact of the stimulus on GDP.
Table A presents current dollar GDP increases year-over-year alongside current dollar budget deficits. Comparing the two in current dollars provides a sense of the hard dollar impact that stimulus spending has had on the economy. As the chart illustrates, the net impact of the stimulus contributions and promises made since 2008 have resulted in a combined budget deficit of close to $2.5 trillion dollars and an incremental net increase in GDP of $200 billion. A $200 billion return for a $2.5 trillion increase in debt represents a terrible return on investment. It implies that the net impact of the stimulus on GDP since 2008 has been a mere 9 cents for every deficit dollar spent. Buying dimes with dollars is bad business, government-funded or not.

Another troubling statistic relates to the cost of job creation for the American Recovery and Reinvestment Act (that’s the $787 billion program designed to produce real jobs in the United States). The White House estimates that it takes approximately $92,000 of government spending to create one job in the US. The White House justifies this exorbitant amount by stating that at the current employment level, each job in the US economy generates $105,000 in GDP, thus resulting in good "bang for the (taxpayer) buck".5 Spending $92,000 to generate $105,000 in GDP seems justifiable on the surface. But further digging reveals that the actual cost to save or create one job in the US was $117,933 per job from February to December 2009.6 That’s well over $92,000, and more than the $105,000 "return" each job is supposed to provide in GDP. If this metric is correct, it means the US government is actually suffering a negative return from its job stimulus.

To further convolute the issue, one must also consider that the supposed $105,000 GDP return for each new job doesn’t incorporate the fact that the $92,000 (or $117,933) spent to create it was BORROWED. Why does this aspect of government expenditure never make it into the analysis? Spending $92,000 for a $105,000 pop in GDP represents bad logic when that $92,000 isn’t yours to spend. If we incorporate the interest costs required to borrow the $92,000, are we really producing value or just digging a deeper hole?

Numerical discrepancies aside, the fact remains that GDP is a terrible metric to measure the return of a job program. GDP is technically the value of all finished goods and services produced in an economy. From a business perspective, GDP is akin to revenue, which isn’t an asset, and is different from ‘earnings’ or ‘profits’. Businesses don’t hire additional workers for their marginal increase to ‘revenue’ – they hire to increase their marginal ‘profit’. The White House approach to job stimulus will maximize spending, not profit. Rather than maximize spending, why not maximize actual employment by finding a way to produce a job for less than $92,000? Surely some of the fifteen million unemployed workers in the US would appreciate some help in that area.7

Exhibit B: The Latest Bailout Failure in Europe

In a show of force designed to impress the world markets, the European Union pieced together an unprecedented loan fund worth almost €1 trillion euros. The fund’s capital was made available to rescue euro zone countries in financial trouble. The European Central Bank announced it was ready to buy euro zone government and private bonds "to ensure depth and liquidity." The US Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank announced that temporary US dollar swap facilities would be opened to provide liquidity. Never have so many organizations coordinated and contributed so much to a single bailout effort!

So what was the ultimate effect of this shock and awe campaign? After enjoying a short-lived obligatory rally, the market for stocks, bonds, and the euro (in terms of USD) traded lower by the end of the week. Gold, a barometer of fear, appreciated almost 6% in euro terms over that same week.

Which brings us to the crux of the problem…

Exhibit C: Over-Levered Banks

Banks are at the epicenter of this financial crisis. The reason? Leverage. We outlined our measurement of bank leverage in our article Don’t bank on the Banks in November 2009. As equity investors we worry about the impact a change in assets will have on a banks’ tangible common equity. Readers will note that the German financial regulator recently banned naked credit-default swaps of euro-area government bonds and banned naked short selling in ten German banks and insurers. It shouldn’t surprise you to learn that, according to their most recent filings, German banks are some of the most levered in the world. Table B shows the leverage calculation for each of the four largest banking institutions in Germany as of March 2010.

Commerzbank has the highest leverage of the German banks at 124:1. This means that if their assets drop in value by a mere 0.8%, their tangible shareholders equity is effectively wiped out. How many asset classes do you think have dropped by 0.8% since Commerzbank’s last filing in March? We would guess almost all of them have (except gold of course). Hence the recent ban on naked short selling of German bank shares. They’re too vulnerable to handle the market’s wrath.

The German banks are not alone. Most large banks around the globe are operating with too much leverage. The governments can keep the "Bailout and Stimulate" game going, but it won’t amount to much in the long-term unless the leverage issue is wrung out of the banking system. Until that happens, bailing out the banks is akin to pouring money down a bottomless pit.

The key point to remember with bailouts and stimulus is that it’s ultimately your money that the government is spending – and your children’s money. The numbers strongly suggest that your money isn’t being spent wisely. We need real jobs and real growth, not bigger, more leveraged banks. The market isn’t oblivious – it can see what’s happening. Gold’s recent strength in lieu of seemingly ‘deflationary’ economic data confirms the market’s doubts over government intervention in the financial system.

Needless to say, we remain bearish.

 

 


 

1  Heflin, Jay (April 20, 2010). Government has spent $3 trillion (and counting) on financial crisis. The Hill. Retrieved on May 27, 2010 from:
http://thehill.com/blogs/on-the-money/banking-financial-institutions/93285-government-has-spent-3-trillion-and-counting-on-financial-crisis

2 We used current-dollar GDP numbers provided by the BEA to determine the marginal impact of deficit spending on GDP. There is no separate data set generated by the BEA, however the number is published in their news releases. It is also worth noting the divergence between reported numbers from the BEA. While the current dollar measurement of GDP decreased by $185.1 billion or 1.3% on 2009, real GDP was widely reported as increasing by 0.1%. This divergence is due to seasonality adjustments in real GDP and the percentage change reported is a blended increase over the 4 quarters in 2009.

3 Bureau of Economic Analysis (March 26, 2010) Gross Domestic Product: Fourth Quarter 2009 (Third Estimate) and Corporate Profits, 4th quarter 2009. Retrieved on May 25, 2010 from: http://www.bea.gov/newsreleases/national/gdp/2010/gdp4q09_3rd.htm.

4 Financial Management Service, A Bureau of the United States Departement of the Treasury. Monthly Receipts, Outlays, and Deficit or Surplus, Fiscal Years 1981-2010. Retireved on May 25, 2010 from: http://www.fms.treas.gov/mts/index.html. We adjusted the cash flows to a calendar year period to match GDP reporting.

5 Executive Office of the President Council of Economic Advisers. (May 2009) Estimates of Job Creation from the American Recovery and Reinvestment Act of 2009. Council of Economic Advisers. Retrieved on May 27, 2010 from: http://www.whitehouse.gov/administration/eop/cea/estimate-of-job-creatio...

6 McPheters, Lee (February 3, 2010) What Is the Cost per Stimulus Job? Knowledge @ W.P. Carey. Retrieved on May 27, 2009 from:
http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1857

7 Bureau of Labor Statistics, U.S. Department of Labor. (May 7, 2010) The Employment Situation-April 2010. Retrieved on May 27, 2010 from: http://www.bls.gov/news.release/pdf/empsit.pdf

8 Reported figures for each institution as of Q1 ended March 2010

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 05/28/2010 - 16:47 | Link to Comment George the baby...
George the baby crusher's picture

There are a thousand ways to say we're fucked, this is a rather convincing one.

Fri, 05/28/2010 - 16:54 | Link to Comment mikla
mikla's picture

+1 LOL!

Great quote.

Fri, 05/28/2010 - 19:07 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

I think that Sprott is one of the brightest billionaires out there.

So many problems, so much pain coming soon.

Sat, 05/29/2010 - 03:47 | Link to Comment jeff montanye
jeff montanye's picture

for more evidence of the impotence of what could be termed the "japanese/u.s/euro model" of bailout/extend-pretend/zombie banks, see bill hester's comparative analysis of japanese banking results vs. nordic countries' banking results (latter using the old fdic type receivership/nationalization model) on john hussman's website (and meet aunt minnie).  also fairly convincing.

Fri, 05/28/2010 - 18:27 | Link to Comment silvertrain
silvertrain's picture

They have it all under control, heres how there going to soak it up, too funny..

http://news.yahoo.com/s/ap/20100528/ap_on_bi_ge/us_fed_exit_strategy_1

Fri, 05/28/2010 - 19:13 | Link to Comment huntergvl
huntergvl's picture

This is a little dated, but obviously still soooo relevant....

http://www.theonion.com/video/in-the-know-should-the-government-stop-dumping-mon,14289/

 

"I love the Money Fires!"

Priceless.

Fri, 05/28/2010 - 20:04 | Link to Comment silvertrain
silvertrain's picture

 Thx hunter, I had not seen that..And ill see your bet and raise you this, just for you

 http://www.wnd.com/index.php?fa=PAGE.view&pageID=159485

 

Fri, 05/28/2010 - 20:00 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

These dates to open CDs coincide with the Hollywood Futures Index openings, if it is deemed appropriate by Congress.  Hoolywood is scheduled to go bubblistic on June 8th and June 28th I believe.

Fri, 05/28/2010 - 20:38 | Link to Comment Hansel
Hansel's picture

Yep, Fed thinks it's going to fix the problem by issuing short term debt, competing with all the other people issuing short term debt.

Sat, 05/29/2010 - 00:13 | Link to Comment john milton
john milton's picture

pls can anyone illustrade me in chart when have the main indexis rose, when hundreds

of banks keep on falling firstly in us and secondly in europe except the last run??

 

robo..(with a nice girl

 

 

 

 

 

 

 

 

 

 

 

Sat, 05/29/2010 - 10:30 | Link to Comment john milton
john milton's picture

frob will be spain fdic..

frob (fondo de reestructuracion ordenada bancaria)
The Fund for Orderly Bank Restructuring has been created by the Royal Decree - law 9/2009, of June 26, on credit institution restructuring processes and enhancement of their equity.

The Fund for Orderly Bank Restructuring was created to manage the restructuring processes of credit institutions and assist in the enhancement of their equity, on the terms laid down by this Royal Decree-Law.

The Fund for Orderly Bank Restructuring has mixed funding, 9 billion Euros, from the General State Budgets and from the contributions of the Deposit Guarantee Funds of banks, savings banks and credit cooperatives:

* The amount of funding charged to the General State Budgets will be 6.75 billion Euros
* The amount of the contribution from the Deposit Guarantee Funds will be 2.25 billion Euros. This amount will be distributed among the Bank Deposit Guarantee Fund, the Savings Bank Deposit Guarantee Fund and the Credit Cooperative Deposit Guarantee Fund according to the percentage of the total deposits in credit institutions at the end of the 2008 financial year represented by the deposits in the institutions attached to each of those Funds at that date.

Finance

* In order to meet its objectives, the Fund for Orderly Bank Restructuring may secure funding on the securities markets by issuing fixed income securities, receive loans, apply to open credit facilities and undertake other borrowing transactions.
Outside resources obtained by the Fund for Orderly Bank Restructuring, whatever their form of instrumentation, may not exceed the sum of 3 times the funding available at any time. However, after January 1, 2010, the Minister for the Economy and Finance may give authority for this limit to be exceeded; nevertheless, outside funding for the Fund for Orderly Bank Restructuring may never exceed 10 times its funding.
* Unassigned property of the Fund must be materialized into public debt or into other high liquidity, low risk assets.
* Under Article 114 of General Budget Law 47/2003, of 26 November, the General State Administration is authorised to issue guarantees to secure the economic obligations enforceable against the Fund for Orderly Bank Restructuring, derived from issues of financial instruments, agreements for loan and credit transactions and realisation of any other borrowing transactions made by this Fund.
* Issuance of guarantees which will not earn any commission, must be agreed by the Minister for the Economy and Finance, in accordance with the provisions of General State Budget Law 47/2003, of 26 November.
* Issuance of guarantees, limits:
o Until December 31, 2009, the General State administration may provide guarantees for a maxium sum of 27 billion Euros.
o For subsequent financial periods, the maximum amounts for the issuance of guarantees will be as determined by the corresponding General State Budget

I think this entity will be in the main news the next couple of months when these spanish banks start falling...

Sat, 05/29/2010 - 10:57 | Link to Comment Ophiuchus
Ophiuchus's picture

 

 

"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

 

http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded

Sat, 05/29/2010 - 11:37 | Link to Comment bmwmc
Fri, 05/28/2010 - 16:54 | Link to Comment Crab Cake
Crab Cake's picture

But what happens if you throw a lot of borrowed money at a problem, and the problem doesn’t go away?

Apparently the answer to your question is Martingale system.  Lever up, and double down as many times as it takes. 

That is the smart thing to do right?

Fri, 05/28/2010 - 16:55 | Link to Comment mikla
mikla's picture

It's fine if you sell each unit at a loss, as long as you make it up in volume.  ;-))

Fri, 05/28/2010 - 17:31 | Link to Comment MarketTruth
MarketTruth's picture

It is like telling a fat guy the best way to lose weight is to double up on the donuts.

Fri, 05/28/2010 - 17:32 | Link to Comment faustian bargain
faustian bargain's picture

Or only eat the holes, but you can eat as many as you want.

Fri, 05/28/2010 - 22:21 | Link to Comment M.B. Drapier
M.B. Drapier's picture

Yes, it's the Global Financial Martingale.

Fri, 05/28/2010 - 16:58 | Link to Comment Fish Gone Bad
Fish Gone Bad's picture

If people were to step back from watching the stock market tick by tick, they would see that we are in the process of repeating history.  Yes, there will be days when all looks hopeless and the market still rallies 200-300 points, but that does not change the fact that bankers packaged up a bunch of very bad loans and sold them to institutions, just so they could make some commissions.  Maybe not today, maybe not next week, and maybe not for quite a while, but all this propping up of things that are not "real money", will eventually come apart.  How do I know this?  Bankers, the pillars of our society, and their political friends have done this exact same thing, over and over again. 

Borrowing money to throw it down a rat hole is never a productive use of money.

Fri, 05/28/2010 - 22:18 | Link to Comment jailnotbail
jailnotbail's picture

Maybe not today, maybe not next week, and maybe not for quite a while, but all this propping up of things that are not "real money", will eventually come apart.  How do I know this?  Bankers, the pillars of our society, and their political friends have done this exact same thing, over and over again.

Of course the bankers know that. But they're into the end game now, where they keep this thing going as long as possible and extract the last possible increment of payment on debt they know is going to be defaulted on.  The trick is to squeeze as much as possible out of their creditors, realize the highest possible 'bonuses', and convert it all to hard assets before the 'big reset' comes, and everybody starts over with a clean, if much smaller, slate.

Fri, 05/28/2010 - 17:00 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Seems like an offshoot of David Einhorn's op-ed article in the NYT, Easy Money, Hard Truths.

 

"So Leo, you want to know why the world is coming to an end?"

                                                                 - Eric Sprott, May 2003*

*(if I remember correctly)

Fri, 05/28/2010 - 17:13 | Link to Comment Goods
Goods's picture

Hi Leo,

U suck... always.

Regards.

Fri, 05/28/2010 - 17:15 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Goods, is that why you love my pic so much? What a moron!

Sat, 05/29/2010 - 02:40 | Link to Comment Howard_Beale
Howard_Beale's picture

I appreciate you Leo. Just keep using the STFU with these morons. I do worry about your financial position buying on dips because liquidity from QE 2 will not launch the market again. That was a bear market rally. With credit seized on a global level, no amount of QE will help the market. So Leo, please be careful and get out of the market. Or not, your choice.

Fri, 05/28/2010 - 19:05 | Link to Comment Miss Expectations
Miss Expectations's picture

I really, really miss Project Mayhem.

Sat, 05/29/2010 - 02:44 | Link to Comment Howard_Beale
Fri, 05/28/2010 - 19:49 | Link to Comment OldTrooper
OldTrooper's picture

Thanks for the reset.

Fri, 05/28/2010 - 17:05 | Link to Comment Bay of Pigs
Bay of Pigs's picture

Eric Sprott is one plain talking Gold Bitch....

Fri, 05/28/2010 - 17:38 | Link to Comment MarketTruth
MarketTruth's picture

Yes he is. Sprott also has one of the very few ever made Royal Canadian Mint (RCM) 2007 $1,000,000 (Canadian) Maple Leaf. This 220.5 pound (3,215 troy ounces) coin contains 99.999% gold, making it the purest coin of its size in the world. It has a face value of $1,000,000 yet is obviously worth far more.

www.mint.ca/store/mint/learn/million-dollar-coin-1600006

 

Fri, 05/28/2010 - 22:03 | Link to Comment pan-the-ist
pan-the-ist's picture

If I touched that coin I would "toss one out" right there.

Sat, 05/29/2010 - 13:27 | Link to Comment KevinB
KevinB's picture

A buddy of mine works at the Mint, and he was the driving force behind that coin.

He says right now, he could sell twice as much bullion as he is, if he could only get his hands on it.

Fri, 05/28/2010 - 19:52 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Here's another one (possibly front-running dumpster, but, hey life is unfair):

 

Jim Sinclair’s Commentary

The East will lead. The West has given away their inheritance from the founding fathers.

Gold is your only insurance as all fiat currency, if even in an index, have but only one way to go as storehouses of value – down.

An SDR or whatever finally becomes the virtual reserve currency, if not tied to gold in the manner I have outlined many times, will in a short time fail.

Fri, 05/28/2010 - 20:42 | Link to Comment Segestan
Segestan's picture

Mr. Sinclair is a smart guy, but like Faber and Rogers and many others he is wrong on the east. China has 100,000 spies in Germany alone. Chinese copy not innovate. When push come to shove the West will retake the lead in every way. If ever the western mind stops with the ideas of humanity to man and brotherhood of man the west will take the throne. Don't get me wrong I respect Chinese hard work but no race or culture can beat Western ability. It comes down to people not numbers.

Fri, 05/28/2010 - 22:07 | Link to Comment pan-the-ist
pan-the-ist's picture

I am afraid you are mistaken.  There are too many Chinese and too much competition in China for that to be true.

Fri, 05/28/2010 - 23:07 | Link to Comment AccreditedEYE
AccreditedEYE's picture

He's right Pan. They have a saying over there: "The nail that sticks up gets hammered down" Unique thought is not encouraged. Part government, part thousands of years of the same.

Fri, 05/28/2010 - 23:15 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Also, please note that through China's very long history you can see that just when China gets strong, strong enough to be Numero Uno, they always find a way to mess things up.  Every dynasty was like this.

The Communist Dynasty will be similar.

China also has LOTS of problems: demography, horrible pollution, totalitarianism, etc.

Long as we stay cool (via good diplomacy) with them and avoid a war, we will do better than they will.  Though things here don't look so hot right now...

Sat, 05/29/2010 - 02:52 | Link to Comment Howard_Beale
Howard_Beale's picture

The Mongolian Empire, i.e. the Khans took over China for over 100 years and took over every country/nation known at the time but Annam--Vietnam in present day terms.

China is a disaster waiting to happen. It won't be the Mongols this time but their own doing.

Fri, 05/28/2010 - 23:18 | Link to Comment Eally Ucked
Eally Ucked's picture

It's just plain false, if you remember junk japanese were mass producing in 60-thies and you look at their technological might now you would understand how fast everything changes, and at present is much faster than you think.

You have to understand that if your manufacturing capabilities are gone so is your research and engineering, whatever is left for you is to invent some financial tricks, and it works for some time to mask your inability to generate real income.

So good luck if you believe in western ability to produce some great ideas in the future. For now we are leaders in military technology (but not for long), shitty music videos, Hollywood products (maybe Bollywood will get better soon), genetically altered agriculture and ...... I don't know. I'm sorry, we know how to build 700 thousand $ houses from 2x4.

 

 

Sat, 05/29/2010 - 03:12 | Link to Comment Howard_Beale
Howard_Beale's picture

Oh here we go again. Why I even bother with you is beyond me. But Eally Ucked, I will try to be kind.

Japan in the 60's was indeed crap. I'm old enough to remember that it was a stamp that told you it was junk.

Made in China is basically junk now, although major corporations have had their production there for years, until of course it became cheaper to produce elsewhere.

The problem is, there is now a toxicity level that is monitored by consumer groups finding lead and other toxic crap going into children's jewelry from China, not to mention Ebay jewelry for women. Furthmore, if you order an item from China directly in the electronics department forget about support, an answer, or a warranty. My son is a Locksmith and bought a product straight from China. He will never do it again. It all comes back to haunt them. 

Japan wasn't trying to poison the world with their cheap shit (including the first Honda toaster that cost $1500 in 1971 that was as safe as the 2009 India $2500 car).

China actually produced a way to stop the manufacturing of baby cribs with a drop down side because they shipped out DYI products that killed children. It's insane. Those type of cribs worked for 50 years, until stupid Chinese instructions like put C into A with #8 screw just took away easy lifting or changing of a baby away from the West.

So Eally, while you can say China can do it cheaper and that they will become the Japan of the mid-70's in the car department, and more, I think not. They are an early industrial nation that will fuck up big time and the best yet to come is a long ways into the future.

Sat, 05/29/2010 - 14:40 | Link to Comment GoinFawr
GoinFawr's picture

"Oh the west, the west, the west is so best! Oh the west, the west..." (rubes' mantra)

Haha, good luck with that mindset!  Eally Ucked has made an excellent point about the all important 'means of production'; I notice you avoided that one with the whole 'its all poison from China, Japan, wherever (as long as it's not 'Merika), schmeeee..' ten foot pole.  Pah, as if all the 'innovations' the US has come up with in the last twenty years have been 100% certified pristine and safe (other than by the industry owned FDA, I mean). "Just because a US company tells you what's good for you, it must be." Stupid stupid, real dumb.

 eg.Last time I checked even dogs won't eat GMO foods when given the choice between them and unaltered products. American people on the other hand can't tell the diff as long as you add enough fat and salt.

Americans have great memories: they are apparently just really really short, and focussed on their own 'wins'  whether real, imagined, or hyped. A lot of them remind me of the Dentist character in K. Vonnegut's "Mother Night":  Absolutely skilled in many ways, until they get to that driving cog in their brains that has had a tooth knocked out by the constant barrage of 'Rah rah rah, shish boom ba: Am-er-I-ca!" they've heard from birth. Then even the most intelligent of them get violently defensive at even the faintest hint of a slight and start ranting and raving incoherently like lunatics despite all evidenciary support of the opposite of their point.

Yes, China is copying, but only insomuch as to steal your tools. So its highly likely that they keep the best for domestic consumption. Eg. You just might be able to comprehend: do you really think the French export the best of their wines?

I believe the incredibly valid (and IMHO obvious) point that Eally was trying to make, and you either totally missed, or just skipped over to avoid having to face, is that the US has moved most of their production to the East, which leaves the East in a much better position when pulling out of a recession than a state that only makes CDO's, CDS's, Viagra, very very fat people (FTR Insulin came from Canada, is that an innovation the US finds useful, you think?), etc. etc. Also, once the YUAN is depegged from the USD, and repegged to something of actual value, like PM's (which the Gov't there has been encouraging their citizenry to load up on), then every Chinese person will have a little bit of money to buy the locally produced goods that the West will no longer be able to afford, and no longer has the means to manufacture.

Sorry if it is diffcult for you...

Regards

 

 

 

Sat, 05/29/2010 - 15:25 | Link to Comment Howard_Beale
Howard_Beale's picture

I have posted several times that the shift of power from the West to the East will occur in the next decade, however, China is not going to escape the global calamity that ensues when credit seizes 10 times worse than 2008 in every developed nation.

China does not have organic growth. They need the rest of the world to consume their poorly made junk. There will be no consumers. They will need skills like these to pass the time:

http://www.youtube.com/watch?v=-ptYTGTNiyQ

 

Sun, 05/30/2010 - 00:36 | Link to Comment GoinFawr
GoinFawr's picture

"China does not have organic growth. They need the rest of the world to consume their poorly made junk. There will be no consumers."

Uh, 1.5 billion + people is a vast untapped potential market, especially compared to the US' broke 300 mill or so; not to mention the other countries with responsible gov'ts who will still be lending to their peers following a new international credit crunk. Unless of course, as I suspect, you consider the US to be the only entity comprising 'the rest of the world'. Also, any country that expands its manufacturing capacity at the rate the Chinese have is bound to produce some 'junk'. eg. If it was 1974, would you buy a Vega? It certainly doesn't mean they export the best to you who have always expected to pay the least.

 

Regards

 

 

Sat, 05/29/2010 - 16:33 | Link to Comment velobabe
velobabe's picture

beale, you are one old fart crack up.

you get it said, though†

Fri, 05/28/2010 - 23:20 | Link to Comment Bazza McKenzie
Bazza McKenzie's picture

"Chinese copy not innovate".

Those of us who have lived long enough to have observed and not yet forgotten some history remember this was precisely the path followed by Japan and South Korea.  In the 50s, Japan copied and Japanese product was synonymous with low quality. They reverse engineered products developed elsewhere, built up scale, then invested in their own R&D and innovated.  Same with South Korea.

But as a society, Japan became burdened with its own version of social welfare, that has had over-employment in service industries and agriculture propped up at the expense of its manufacturing industries.

China, has its own problems, but right now they are probably less than those of the US and Europe.  Yes it has been copying.  Of course Western companies and governments fell over themselves to hand technology over to China (hello Bill Clinton, hello Steve Jobs) in a way that never occurred for Japan and South Korea, so they have got a hell of a good start.

But Chinese will innovate and invest in R&D.  In most of Asia, local Chinese are resented by indigenes for their entrepreneurism and business success. In a number of areas (eg mobile phone and internet use), China now has a larger internal market than the US or Europe, and potential for further rapid increase.  That will happen in auto and domestic goods and many other areas. So China's potential for economies of scale actually exceeds that of the US and Europe.  At the moment their economy depends heavily on exporting but ultimately the balance will shift to expanding and serving internal markets. There will be pain in doing so but it will be pain with an upside.

China is now communist in name only.  It is certainly statist, but so are Europe (think of the unelected EU Commission that actually runs the EU and the complete unwillingness to have referenda on increasing EU powers and ignoring the results in the few countries where it happened). The US is becoming increasing statist. Yes there is plenty of corruption in China but Washington and Congress are enormously corrupt. The difference in this regard between China and the US is that corruption is widespread throughout the whole of Chinese society but not yet in the US, though there are clearly strong and expanding pockets in the US (hello NJ, and all power to Christie to reverse it).

But China's big advantage is that it has not developed the nanny state that is sinking the US and Europe, the enormous social welfare system and enormous system of business regulation that both taxes and frustrates production and requires a huge army of bureaucrats to create and enforce the regulations.

As things currently stand I would, with sorrow, put my money on China rather than the US for success in future decades.

The US can reverse this situation but only if it undertakes a revolution as sweeping as the one that founded it.  Unless it can sweep away all the political and bureaucratic class that exist as parasites on the productive class, and put to work the existing class of welfare dependents, remove the federal power to levy income tax and create money out of the breath of politicians, both of which were prohibited by the founding fathers, then it will inevitably become a second rate power to China.

If it can reinvigorate the basis of personal liberty and personal responsibility upon which it was founded then, and only then, can it remain the pre-eminent economy and society in the world. Very few of the current crop in Washington (and most state capitals) and in Wall Street will support this. In fact, every one of their efforts is in the contrary direction.

 

Fri, 05/28/2010 - 23:32 | Link to Comment M.B. Drapier
M.B. Drapier's picture

Back in the day, the low quality of cheap gerry-built goods was a commonplace. IIRC the Prussians played fast and loose with UK patents during their industrial buildup too. Unfortunately the comparison of China to pre-war Germany is much less encouraging in other respects.

Sat, 05/29/2010 - 01:36 | Link to Comment akak
akak's picture

Back in which day?

Sat, 05/29/2010 - 03:17 | Link to Comment M.B. Drapier
M.B. Drapier's picture

In the C19. Prussian industrialisation began around the 1830s, apparently. However it seems that actually the phrase 'jerry-built' had nothing to do with Germans (at least originally), so scratch that: apologies for the misinformation.

Sat, 05/29/2010 - 14:22 | Link to Comment Kayman
Kayman's picture

I stand to be corrected, but I think the term is "Gerry-rigged" not Gerry built. And it referred to the ingenious ways the Germans hay-wired and patched up damaged equipment in the field during WWII.

I have never seen poorly engineered or built products from Germany, past or present.

Sat, 05/29/2010 - 15:39 | Link to Comment Gully Foyle
Gully Foyle's picture

Kayman

http://www.merriam-webster.com/dictionary/jerry-rigged
Etymology: probably blend of jerry-built and jury-rigged
Date: 1959

: organized or constructed in a crude or improvised manner

jury-rigged

[From jury-rig, jury-rigging, improvised rigging on a ship, modeled on jury-mast, temporary mast, perhaps ultimately from Old French ajurie, help, from aider, to help; see aid.]

http://www.urbandictionary.com/define.php?term=nigger-rigged

nigger-rigged

to rig something up half assed so that it works well enough, but doesn't work the way it is supposed to.
I had to nigger rig up my cd player in my car.

Sun, 05/30/2010 - 12:38 | Link to Comment Kayman
Kayman's picture

Uhh...

I was out with Cave Woman- no want movie, want shopping...

I did not run to a  dictionary- I knew soldiers that returned from North Africa and they used the term Gerry-rigged and Gerry-can constantly.

If something was "hay-wired" together they would call it Gerry-rigged, ie, if something was fixed with whatever was available and the machine still ran, it was Gerry-rigged.

My apologies to Merriam-Webster if I have offended them.

Thanks for the info.

Best you do your cd repairs in your garage.

Sat, 05/29/2010 - 17:10 | Link to Comment velobabe
velobabe's picture

you guys are funny, reading your gentlemanly correctness, posts.

i second that motion, fine, very fine german engineering.

Sat, 05/29/2010 - 02:52 | Link to Comment AnAnonymous
AnAnonymous's picture

Innovation seldom starts without copying at first. But reminding that is useless. Most US citizens do not try to assess the validity of their assertions but are imbued with gang mentality. That is quash a rival gang for adopting a way known to lead to success.

Therefore they are ready to produce any kind of stories.

It is not about knowing if the copying process the Chinese will lead them to innovation, it is all about crushing a potential rival.

Sun, 05/30/2010 - 12:53 | Link to Comment Kayman
Kayman's picture

AnAnon y mouse

You have many unfounded, unprovable opinions:

"Innovation seldom starts without copying first."  Exactly WRONG. Innovation starts by thinking outside the box, by doing the unconventional, by challenging contemporary precepts and authority. Tweeking with existing ideas is hardly innovation.

And what exactly do you think China is up to ?  They are gathering, copying and stealing everything possible to "crush" a potention rival.

Unfortunately for them, China is on the Beggar-thy-Neighbor policy.  Their Neighbors are their customers, the very countries necessary to keep all those Chinese Exporting Crap Factories running.

Good luck on developing that Middle Class thing. 

 

Sat, 05/29/2010 - 04:58 | Link to Comment Howard_Beale
Howard_Beale's picture

Put your money in cash (or PM) for the next 3 years. China will not deliver you any profits, nor will Europe or the US. It's called a depression.

So short it or save it. I do believe the shift of economic power from West to East will occur by 2015. In the meantime, the world of hurt we all wish would happen, will happen, and there will be no safe haven. You can believe the dollar will be worth nothing, you can believe gold is the new currency---matters not to me--I have both.

But to think that China will flip on a dime and become an export nation of high quality products with no one to buy, well that changes the analogy to Japan and Korea right there.

Once the global debt bubble will burst, it will happen and it will be ugly, and then you can go and worship at the alter of China. Until then, if you believe in Chinese organic growth, I have some great Florida property for your consideration. Also some great HY paper that trades at 20 cents....it can only go to zero. Catching a falling knife will only yield pain...in every part oriface it is directed at.

OK?

Sat, 05/29/2010 - 07:12 | Link to Comment chumbawamba
chumbawamba's picture

Simma don naw, Howard!

Simma. Don. Naw!

I am Chumbawamba.

Sat, 05/29/2010 - 15:27 | Link to Comment Howard_Beale
Howard_Beale's picture

LMAO Chumba!

Sat, 05/29/2010 - 14:30 | Link to Comment Kayman
Kayman's picture

Come on now Howard

Don't be so hard on the China apologists. Everyday China needs to sell more Great Expectations.  And everyday they loose more customers.

Under Promise and Over Deliver is not in their lexicon.

I wonder if Wallymart ever considered raising prices and offering higher quality. After all used French safes are the lowest price.

Sat, 05/29/2010 - 13:36 | Link to Comment DaveyJones
DaveyJones's picture

"no race or culture can beat Western ability"

guess that's why the Chinese invented gunpowder, the printing press (woodblock and movable) and so many other things. Racial bias and ignorance are such a chicken and egg

Sat, 05/29/2010 - 13:49 | Link to Comment KevinB
KevinB's picture

What a moronic comment. Let's see now.. the Chinese invented paper, pasta, gunpowder, ceramics (why do you think they call it "china"?!), among other things.Anyone who reads about the latest breakthroughs in math, physics, and electronics will note that Chinese names are prominent in the lists.

Oh, and the Chinese sneer at the Japanese as "copycats" who appropriated much of Chinese culture.

Sat, 05/29/2010 - 14:29 | Link to Comment AnAnonymous
AnAnonymous's picture

There are a lot of racists against Chinese.

Racism against Chinese is rather welcome on this site. So is racism to blacks and prejudice against Muslims.

Sun, 05/30/2010 - 13:01 | Link to Comment Kayman
Kayman's picture

 

to AnAnon y mouse

The first defense for a weak argument is to pull the race card.

The Chinese people are human just like all the rest of us.  The Chinese Communist Fascist are just like Stalin and Hitler- a flash in the economic pan.

Calling people racists is rascist itself. 

Maybe you should set up a parallel ZERO HEDGE site in China and see how long it takes before you get the knock on the door.

Provide an argument sans Non Sequiturs and start again.

Sat, 05/29/2010 - 16:20 | Link to Comment Kali
Kali's picture

As long as 30yrs ago, when I was in engineering school, white boys were already 50% or less of my classes.  Even then, maybe 10% were Chinese, 10% Middle Eastern and the rest, us girls and few other assorted nationalities.  Now, many more foreigners and women.  We gave up a lot of tech edge a long time ago.  We import a lot of engineers and scientists now.  Many, who tell me they are ready to go home, not liking what they see here anymore.

The US must give up this crippling exceptionalism.  My state just reported only 53% of students finish high school (VERY white state, dont blame it on the ghettos).  We are a nation of dummies.

Sat, 05/29/2010 - 17:06 | Link to Comment velobabe
velobabe's picture

Kali

W E L C O M E  T O  Z H  M E N ' S  C L U B

you get to go right up to the head of the class.

way before me, dear.

Kali.........engineer

mscreant...... professor

beats anything i can add here,

love a smart female brain around the man cave,

for some back up, though†

Sat, 05/29/2010 - 17:17 | Link to Comment Kali
Kali's picture

Sistas! It is overwhelmingly white male around here.  The patriarchy still has a firm grip on itself. (pun intended)

Sat, 05/29/2010 - 14:48 | Link to Comment dumpster
dumpster's picture

me sinclair is wrong faber is wrong rogers is wrong

hubris speaking segestan ... i be right  

Sat, 05/29/2010 - 14:44 | Link to Comment dumpster
dumpster's picture

LOL   

Sat, 05/29/2010 - 14:45 | Link to Comment dumpster
dumpster's picture

lol

Sat, 05/29/2010 - 18:46 | Link to Comment dumpster
dumpster's picture

Here's another one (possibly front-running dumpster, but, hey life is unfair):

 

spread the word  ,, every one should take a look at mine set each day..

DoChen a taco on the ment

 

Fri, 05/28/2010 - 17:06 | Link to Comment ratava
ratava's picture

I will say it again just in case, EUR has a confidence problem that won't go away until the political elites realize they need to stop covering each others ass. If a company had an employee who lied to everyone, ended up costing the company millions in damages and the company did not fire him, took full responsibility and even promoted him for it, would you buy their stock?

Fri, 05/28/2010 - 17:13 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

"We can't just do nothing. We must do something"!!

A quote from the PM of Australia, Kevin Rudd, (Krudd) just prior to throwing hundreds of billion$ at the credit crunch. Of course, they are claiming success for the strategy, ignoring every other calamity around the world and the never ending price hikes of essentials.

Now the socialist shitfuckbitchcunt (I never use the term lightly), wants to slap a 40% tax on the mining industry to pay for it. 

Fri, 05/28/2010 - 19:15 | Link to Comment DosZap
DosZap's picture

wants to slap a 40% tax on the mining industry to pay for it. 

 

I believe that was fought so hard, they backed off SIGNIFICANTLY.

Fri, 05/28/2010 - 20:34 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

No, they (Govt, shitfuckbitchcunts) have just started a $30 million advertising campaign, promoting their spin, on how it (quasi nationalization) would benefit all Australians.

White-anting, mother-fucking, parasitical, Shitfuckbitchcunts! 

Crabcake, you're not Robinson Crusoe! There is anger aplenty, worldwide.  

Fri, 05/28/2010 - 23:23 | Link to Comment faustian bargain
faustian bargain's picture

Aw, man. Discouraging to hear about this happening in Australia. Please tell me people down there are more upset than those here in the US.

Sat, 05/29/2010 - 00:19 | Link to Comment Bazza McKenzie
Bazza McKenzie's picture

Fortunately we have a federal election coming up this year and Rudd looks like being a one term PM. There are shades of Obama, though in terms of personality and style Rudd is rather more like Jimmy Carter.

A year ago, Rudd seemed right on top. In the space of 2 years he had 2 leaders of the opposition, neither of whom managed to lay a glove on him. Then before Copenhagen, the opposition changed its leader and brought in someone (Tony Abbott) who could fight, is prepared to do so, and is more a "man of the people" (Rudd is as much a "man of the people" as Carter was, or Obama is).

Everything the Rudd government has done has been a disaster, covered up with lies.  As with Obama, the media supported him. Now that Abbott has taken the fight to Rudd, the public is getting fed up with the policy disasters and lies.  If there comes a point where the public is convinced you are fundamentally incompetent and an out and out liar, there is no way back.  It seems Rudd is already there, as I suspect is Obama.

Re the tax on mining, Abbott who blocked Rudd's cap and tax scheme before Copenhagen (Rudd told us it was the greatest moral issue of the age and then promptly forgot about it after the Copenhagen fiasco), has said the opposition is totally opposed, so it will not get through the Senate before the election and will be one of many big election issues. The mining industry has come out in united opposition, and have not backed down, and the government is now trying to find a face-saving solution but neither the opposition nor the mining industry is interested in giving it one.

Nothing is certain in politics of course, but picking a fight with very wealthy opponents (big international mining companies and wealthy local mining magnates) is not terribly smart, especially given that the economies of two of our six states are very heavily dependent on mining. The government's seats in those states are now in great jeopardy.

Sat, 05/29/2010 - 07:22 | Link to Comment chumbawamba
chumbawamba's picture

If there comes a point where the public is convinced you are fundamentally incompetent and an out and out liar, there is no way back.  It seems Rudd is already there, as I suspect is Obama.

Never underestimate the hope of an obamanoid.  There are still "true believers" out there that think he's just trying to untangle the mess that Bush left for him and to give him a chance, as if we need 8 years of Obama incompetence to undo 8 years of Bush incompetence.  It would be amusing if it weren't so serious, but then it's always good to laugh at oneself and one's own situation.  And in this case we should be laughing a lot, because the joke's on us.

Fortunately, I see more and more true believers being replaced by cynical realists as people are slowly starting to wake up.  I don't think this is it as far as the social upheavel.  I keep thinking it's truly going to be a "hot summer" but I think we'll have to wait until next year for that.

I am Chumbawamba.

Sat, 05/29/2010 - 04:42 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

Still locked in the bi-party mindset. The Liberals will save me, oh man didn't they fuck things up. The Labor blokes will save us, oh didn't they fuck things up. The Libs will save............... me.....shitfuckbitchcunts!

Sat, 05/29/2010 - 14:54 | Link to Comment GoinFawr
GoinFawr's picture

'Quasi nationaliztion' of the Oil industry has worked out pretty well for Norway...

Its not a bad idea to build up a sovereign wealth fund, that, if correctly managed, can provide for a decent dose of social programs (including UHC) without driving your country into debt, no? 

Just sayin'

 

Sat, 05/29/2010 - 17:23 | Link to Comment DaveyJones
DaveyJones's picture

someone here, a while back, was betting peak oil will dictate nationalization. Not the worst prediction

Sun, 05/30/2010 - 13:14 | Link to Comment Kayman
Kayman's picture

PEAK OIL

Nothing but a marketing ploy.  Invented by the Oil Industry and the Oil Cartel to keep prices up.  

The supply of oil ( and energy) is relative, not absolute, as against the world economy.

We will have many viable alternatives to oil, long before the oil industry sucks the last oil out of the ground, or cooks the last oil out of the tar sands.

You might as well be arguing that we are running out of coal- a hundred years ago.

Oil has one thing and one thing only over all other energy- its portability.

That my friend will end long before you see the last drop in the bottom of the oil can.

Fri, 05/28/2010 - 19:55 | Link to Comment OldTrooper
OldTrooper's picture

Amen brother.

He is suffering from a common ailment - "dosomethingitis".  We've had an outbreak of that here in the States too - though the Gulf of Mexico seems strangely unaffected.

Fri, 05/28/2010 - 20:40 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

I'm with Chumba when it comes to a physical assault on Krudd. Chumba said he would punch Hugh Henry in the cunt if he ever got his hands on him. Where would you target krudd to realise the same result. Pasty faced bastard.

Fri, 05/28/2010 - 21:19 | Link to Comment Busy-Body
Busy-Body's picture

I doubt Chumba said that about Hendry - he was probably referring to that fucktard Sachs.

Fri, 05/28/2010 - 22:00 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

Yes, you are correct about that on both counts. It was Sachs and he is a smug fucktard.

Fri, 05/28/2010 - 22:36 | Link to Comment Yes We Can. But...
Yes We Can. But Lets Not.'s picture

dosomethingitis.  German pronunciation: 'geithner'.

 

Fri, 05/28/2010 - 17:08 | Link to Comment deadparrot
deadparrot's picture

It's a no-brainer for politicians to attempt to solve a problem by throwing money at it. One, its not their money, and two, if they can postpone the inevitable until they are no longer in office, its not their problem either.

Fri, 05/28/2010 - 17:09 | Link to Comment Augustus
Augustus's picture

We’re too broke to be this stupid

Mark Steyn

http://www2.macleans.ca/2010/05/27/were-too-broke-to-be-this-stupid/

Fri, 05/28/2010 - 19:56 | Link to Comment OldTrooper
OldTrooper's picture

Apparently not.

Fri, 05/28/2010 - 17:10 | Link to Comment Innocent Bystander
Innocent Bystander's picture

Excess generally causes reaction, and produces a change in the opposite direction, whether it be in the seasons, or in individuals, or in governments. - Plato

Fri, 05/28/2010 - 17:11 | Link to Comment Gwaihir
Gwaihir's picture

And for the nth-time: Derivatives accounting in the US and in Germany is different. Therefore the leverage figure cannot be compared with US banks. In a meaningful way that is.

Fri, 05/28/2010 - 17:43 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

BINGO! Comparing apples to oranges here!

Fri, 05/28/2010 - 18:03 | Link to Comment akak
akak's picture

Indeed --- the comparison of rotten apples to moldy oranges is grossly misleading.

I prefer unspoiled, and unspoilable, gold.

Fri, 05/28/2010 - 18:23 | Link to Comment Hephasteus
Hephasteus's picture

Mmm spoiled food. To be a dog. Able to devour gross food because your immune system is so far advanced and powerful compared to humans that you can eat things they have to gag and wrench in fear at to shut down their desire to feast.

Release the stock humans who think they are dogs.

Fri, 05/28/2010 - 18:40 | Link to Comment akak
akak's picture

You are SO correct about canines and their desire/ability to eat the most repugnant of "foods"!

I had a pet wolf whose penchant for eating the most vile, decomposed, maggot-infested carrion literally made me vomit while he happily munched and slurped away.

Fri, 05/28/2010 - 18:57 | Link to Comment Hephasteus
Hephasteus's picture

If you think dogs immune systems are amazing. You should check out horses. They are all like. Haha. Is that poison. Stupid snake. LOL

Fri, 05/28/2010 - 19:26 | Link to Comment drwells
drwells's picture

As Dave Barry put it, why not eat it? You can always throw it up later. It's an asymmetric bet.

Fri, 05/28/2010 - 19:59 | Link to Comment OldTrooper
OldTrooper's picture

But can horses or dogs compare to the amazing capacity of Goldman to process pure shit?

Fri, 05/28/2010 - 23:03 | Link to Comment akak
akak's picture

+1,000,000 turds

Fri, 05/28/2010 - 23:52 | Link to Comment AccreditedEYE
AccreditedEYE's picture

LMAO!!!!! or +1,000,000 douche bags. LMAO (Folks, wine and ZH don't mix) lol

Sat, 05/29/2010 - 15:57 | Link to Comment Kali
Kali's picture

Lol, I love dave barry.

Sat, 05/29/2010 - 14:22 | Link to Comment Gully Foyle
Gully Foyle's picture

Hephasteus

Nick Chen: Beef intestine noodle?
Danny Wallace: Uh, no.
Nick Chen: You wanna be Chinese, you gotta eat the gross stuff.

Fri, 05/28/2010 - 17:16 | Link to Comment Segestan
Segestan's picture

The US government , and European Governments and the banks all thought in the 80's they could grow out of the growing budget problems, they all needed new ways and financial tools to try and do this , thus we have the current over leverage. How can the over leverage be rung out of the system anyway? Of course be bearish. 

 

Fri, 05/28/2010 - 17:21 | Link to Comment carbonmutant
carbonmutant's picture

 The problem here is that Government bailouts are being used as substitute for an economy

Fri, 05/28/2010 - 18:12 | Link to Comment AccreditedEYE
AccreditedEYE's picture

Yes indeed. You can fuss, kick, scream and wail but you cannot escape the simple fact that the system MUST purge itself... by choice or by force. It's coming and there ain't a thing to be done to stop it.

Fri, 05/28/2010 - 19:54 | Link to Comment Bolweevil
Bolweevil's picture

"That money was supposed to make the problem go away, after all."

wrong!

It was supposed to bail out a bunch of cronies. Again. Which it probably did.  It'll take a while to get the money offshore or wherever then we'll hear about it. Again.

Fri, 05/28/2010 - 17:30 | Link to Comment HayeksConscience
HayeksConscience's picture

The only solution is to get rid of the debt.  We're in a debt trap already (along with most of the developed world) and we can't pay it back.  I think there are ways to force everybody to take a haircut (public included) and reinvigorate aggregate demand.  But, nobody seems to think that will happen.  The sociopathic narcissitics that in charge of the banks and washington are going to blow this thing up first.  Once the reset button is pushed, very hard to predict what will come out of it, but it doesn't look pretty.  Eric Sprott, Hugh Hendry and the like are at least trying to warn folks of what's coming.

Fri, 05/28/2010 - 17:42 | Link to Comment Segestan
Segestan's picture

It's beyond a hair cut. The derivatives market is bigger than the CB's , bigger than the world GDP. Who is going to accept a hair cut when all they need do is arm 200 million soldiers?

Fri, 05/28/2010 - 18:17 | Link to Comment Rick64
Rick64's picture

And they have done nothing to control or even subdue the derivitives market.

Fri, 05/28/2010 - 18:33 | Link to Comment Segestan
Segestan's picture

It can't be subdued... their is no collateral, it's a house of cards to subdue it means collapse. To late for that game. A revaluation of gold is the only way forward.

Sat, 05/29/2010 - 03:04 | Link to Comment Rick64
Rick64's picture

I know its out of control and a complicated mess, but anything can be regulated and eventually brought under control. The problem is it would send us into a depression, but whats the alternative to extend and pretend until it blows up. Fucked if we do and fucked if we don't. A revaluation of gold would help but hardly a cure all.

Sat, 05/29/2010 - 17:30 | Link to Comment DaveyJones
DaveyJones's picture

del

Fri, 05/28/2010 - 17:30 | Link to Comment chistletoe
chistletoe's picture

Let us go back to basics,

let us travel out into the galexy and have alook from a great distance.

 

The whole economy operates via money, right?

But what is money (also known as "fiat currency?)

 

Another question, closely linked, is what is capitalism?

 

Does not the whole system depend on an expectation of growth?

Who is going to borrow money to buy a house,

unless he believes that after a few years,

either the amount of his salary will increase

or the appraisal value of the house will increase

or both.  Else he would rent, right?

Who is going to start a business

and spend his hard-earned savings

unless he believes that demand for his products and services will increase over time?

 

But look what has happened.

Moore's Law broke.

Hubbert's law became generally known.  We have peak oil.

The planet has reached peak food production

and pretty close to peak water use.

 

We realized that, contrary to science fiction,

man is never going to colonize the moon and planets.

 

There are no new undiscovered massively-overpopulated, desperately poor

countries for us to deceive into selling us hard stuff in trade for worthless paper.

So we have the end of capitalism.  Its quite clear, quite obvious, from a distance.

Even some of the bankers get it.

They realize that they might as well party now, because the show is over for everybody.

Fri, 05/28/2010 - 17:35 | Link to Comment faustian bargain
faustian bargain's picture

So we have the end of capitalism.

Uhm, no. We have the end of a fatally flawed misconception of capitalism. But make whatever lofty pronouncements you like.

Fri, 05/28/2010 - 18:37 | Link to Comment Spitzer
Spitzer's picture

you need a crash course, read Peter Schiffs new book, How an Economy Grows and Why it Crashes.

 

You make it sound like if everyone was prudent with their money, we would still be broke. Give your head a shake.

Fri, 05/28/2010 - 20:43 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

More to the point: give yourself an uppercut.

Fri, 05/28/2010 - 21:27 | Link to Comment yakmerchant
yakmerchant's picture

God I hate the whole blame capitalism thing.   We haven't had pure capitalism in over a hundred years.   This half Marxist, half crony capitalist kakistocracy is as about as detrimental as you can get to true market forces.   Government has it's fingers in every orifice of the economy finger banging away.   What really pisses me off, when this whole thing blows up they'll declare martial law, accidentally filter the Internet and really turn up the propaganda machine to blame evil capitalism for the reset.   History books will be rewritten, and true capitalism will not be tried again for generations and probably not again until mother nature clears about 3/4 of the population off the earth.   

Fri, 05/28/2010 - 22:50 | Link to Comment Yes We Can. But...
Yes We Can. But Lets Not.'s picture

+1.  Thank you.

Fri, 05/28/2010 - 23:07 | Link to Comment pan-the-ist
pan-the-ist's picture

I'd give anything to go back 100+ years to when we had true Capitalism.  The proletariat vs. the petite bourgeoisie.  It was so much easier for the poor to see whose boot was pushing down on their neck, and for the bankers/capitalists to push that boot.  Goddamn labor unions ruined everything...

Sat, 05/29/2010 - 01:35 | Link to Comment faustian bargain
faustian bargain's picture

you're trying to participate in the conversation, but it's like you don't understand the language.

Sat, 05/29/2010 - 03:00 | Link to Comment AnAnonymous
AnAnonymous's picture

How? The remark was itself funny.

 

Never read somewhere, especially on this forum, on how people conciliate the reality of the nineteenth century and their fabled version of what capitalism should be.

All I was able to collect is that most often, the propaganda is spread by people wanted at all costs manufacturing to come back to the US (for what it means). Naturally, they consider the vast land transfer and the supply of jobs following the injection of land in an agrarian/miner society as the Eden of capitalism.

But how they conciliate the massive land grabbing and their propaganda over capitalism, well, they never told about that save gross rationalization.

Feel free to provide though.

Sat, 05/29/2010 - 05:25 | Link to Comment bookwurm
bookwurm's picture

What makes you think it will be "Mother nature"???

Sat, 05/29/2010 - 13:26 | Link to Comment yakmerchant
yakmerchant's picture

I don't like to discuss the "great culling" in public.  Either I'll get deemed a wacko, or else I'll get put on some list.

  

Sat, 05/29/2010 - 16:01 | Link to Comment Kali
Kali's picture

Sigh, reality bites.

Sat, 05/29/2010 - 18:15 | Link to Comment DaveyJones
DaveyJones's picture

well said yakmerchant. They won't just blame capitalism. As you noted, they will blame democracy and the first amendment  - of course calling it something else. They have already made sure that very few gigantic corporations own most of the media. The prior team cut a deal with one the largest to spy on everything we did. The new team said it was "wrong" and did absolutely nothing about it. The Supreme Court has now made sure we can not limit corporate political donations. Didn't Obama recently announce they will begin to focus the war on terror on "domestic terrorism." Can't wait to watch that definition evolve.    

Sun, 05/30/2010 - 13:26 | Link to Comment Kayman
Kayman's picture

Money, and other paper and electronic promises to pay, are entirely trust. And moneys value is directly proportional to the trust in it. Ergo, money is becoming increasingly worthless as our current masters flail around trying to solve a problem that they cannot grasp.

Malthus was wrong then and he is wrong now. The rate of growth of population has peaked and as other country's economies grow the available recreation will compete with rolling Momma over.  Ergo, the rate of growth of world population will continue to shrink.

We will not run out of oil, energy or food. All this scarcity bullshit is talking book.

The only scarcity we have is responsibility and leadership.

Fri, 05/28/2010 - 17:35 | Link to Comment Crab Cake
Crab Cake's picture

"The numbers strongly suggest that your money isn’t being spent wisely."

You think? 

This makes me want to laugh, to keep from crying.

You mean to say that privatizing profit, and socializing the losses, isn't going well?  The whole, paying tribute to the thieves, after they rob you so they don't finish the job and burn down the house.... thing?  Not going well, unwise? 

The Fed and the bankster cohort with the backing of super wealthy individuals, corporations, and the fully corrupted two party system have lied, defrauded, and raped the people of the United States.  

Our government is hostage.  There was a coup, and you didn't even here about it. We are being sold up the river, blindfolded, and told to row. 

You folks can go ahead and row if you want, and I'll bet when they tell you to dig a hole that will eventually be your grave you won't give it a second thought.

We are not being represented, which means we don't owe squat to those fuckers in DC; they're a defacto hybrid dictatorship with two faces.  Stop Work = Stop Tax.  No more work, and no more income tax, until we get a few ducks in a row; that's what I say.

I am so raging pissed, and I have been for so long, that it feels liking biting icewater in my veins.... I have to stop.... I've tried continuing this paragraph several times, but all that comes out is... hatred.  Fuck.

Fri, 05/28/2010 - 17:37 | Link to Comment faustian bargain
faustian bargain's picture

"Buy the dips!"

</sarcasm>

Fri, 05/28/2010 - 17:46 | Link to Comment Ragnarok
Ragnarok's picture

CC,

I got to wondering the other day, which administration/President was the first owned by the financial system? Which was the first who sold this nation into slavery? I venture sometime in the late 1800's.

 

Thoughts?

Fri, 05/28/2010 - 18:01 | Link to Comment lostinmissouri
lostinmissouri's picture

I vote Woodrow Wilson.  He signed the Fed into existance

 

 

 

Fri, 05/28/2010 - 18:07 | Link to Comment akak
akak's picture

Shit, it was the tyrant Lincoln at least, but a fairly damning case can even be made for George Washington himself, with his close ties to that nascent Wilsonian statist Alexander Hamilton.

Fri, 05/28/2010 - 20:07 | Link to Comment OldTrooper
OldTrooper's picture

I take it you're not a Hamilton fan, akak?

Fri, 05/28/2010 - 22:21 | Link to Comment pan-the-ist
pan-the-ist's picture

It's Hamilton.  The Federalists we're obviously responsible for the strong central government and probably used the same false flag attacks to scare that states into giving up their rights.  You can't blame Washington, it would be like blaming God.

Ironically, the other party 'back in the day' were the Democratic-Republicans.

Fri, 05/28/2010 - 18:12 | Link to Comment Crab Cake
Crab Cake's picture

Good pick, Wilson that is, also one of the first modern globalists as he fathered the aborted League of Nations.

Sat, 05/29/2010 - 03:04 | Link to Comment AnAnonymous
AnAnonymous's picture

Modern globalist? Globalization is part of the modern era. The North American continent as it is known now is a product of globalization.

Everywhere you go, US citizens seem to struggle with their past.

Fri, 05/28/2010 - 19:28 | Link to Comment DosZap
DosZap's picture

Wilson gave in, but this started it.

 

J.P. Morgan and the Panic of 1907
It was J.P. Morgan who forced the government into acting on the central banking plans it had been considering off and on for almost a century. During the Bank Panic of 1907, Wall Street turned to J.P. Morgan to steer the country through the crisis that was threatening to push the economy over the edge into a full crash and depression. Morgan was able to convene all the principal players at his mansion and command all their capital to flood the system, thus floating the banks that, in turn, helped to float the businesses until the panic passed.

The fact that the government owed its economic survival to a private banker forced the necessary legislation to create a central bank and the Federal Reserve. (Keep reading about this in Get To Know The Major Central Banks.)

Fri, 05/28/2010 - 18:13 | Link to Comment Crab Cake
Crab Cake's picture

Hmmm.... I'm going to go with Reagan.

http://websitebuilding.biz/wp-content/uploads/2009/08/total-us-debt-vs-g...

Tell me where the ramp starts on this graph?

I could argue anyone post Kennedy though (attempted to create currency free from Fed, Executive Order No. 11110), especially that POS Nixon who instituted the Drug War.

If you want to go back further the Eisenhower, and Roosevelt both, spoke and warned of greater shadowy spiders spinning dangerous webs in our country. Lincoln also mentioned the banksters as the enemy at the rear of the Republic, and more dangerous than the Confederates. 

Really.... Our country has been at war with the elite/aristocracy and the banksters right from the point of original revolution.  It has been an ebb and flow, but recently (the last 30-40 years) the enemy has become stronger.  The income distribution has diverged into a pattern that is unsuggestive of a "free" country and economy.  The policies are one sided in their boons, and the politicians and parties have never been as openly two faced in their loyalties.  We have turned a new radical corner in this ongoing struggle, and it appears that the aristocracy/elites/corporations/banksters are finally within a hairsbreadth of pulling off their coup in total.  Where did it begin?  This struggle has always been with us, but it was in the 70's and 80's that the People begun to systematically have the legs of their stool sawed off one by one, that's where the radical turn took place. 

Fri, 05/28/2010 - 18:34 | Link to Comment Al Gorerhythm
Al Gorerhythm's picture

A litany of crimes against the constitution and a parade of criminal Quislings gives an insight into how tyrants are born. Watch that the pendulum does not swing too far.

Fri, 05/28/2010 - 19:30 | Link to Comment drwells
drwells's picture

+1 for using the word "Quislings". Not one I hear very often.

Fri, 05/28/2010 - 19:02 | Link to Comment Augustus
Augustus's picture

The ramp starts with the implementation of the LB Johnson Great Society guarantees of comfort without contribution.  Reagan's tax policies had little to do with it.  The chart only shows the admitted debt.  So that is is only the admitted version of what was also happening with the Social Security obligations and Medicare/Medicade obligations.

Fri, 05/28/2010 - 19:31 | Link to Comment drwells
drwells's picture

Yep. Just drive a big fucking chasm between savings and investment, as the Austrians put it.

Fri, 05/28/2010 - 19:43 | Link to Comment DosZap
DosZap's picture

IMHO,

JFK was murdered precisely because of his stand against the Fed.

If you remember he instituted the United States Note.......

A $5.00 Bill, with a Red Seal( still can be bought in coin shops today).Tens, Twenties, Fifties were planned for future printing.( maybe all).

Shortly before the Dallas trip, he made a public announcement on a plot he has discovered that the American people would be made aware of, when he had a few more facts.............he was afraid, and he was pissed.

He never got to clue us in on WHAT the hell it was.

But, arbitraily printing US Bank Notes, (cutting out the Fed, IMHO, got him shot).

No way to prove that, but...............he knew the power to print money & coin belonged to the Congress.

He took it upon himself, to end around a lot of Uber weathy dudes.

Kennedy understood, it was stupid, to pay the Fed to have the Treasury print FRN's, and then charge us for the notes, and the face value therof.

Plus, interest on these notes when we had the power to do so, with NO interest charged against the People.

This is the way I remember it,and it's my opinion.........fire away.

I may be way off base,  I thought this just was really coincedental............at the time.

Fri, 05/28/2010 - 21:03 | Link to Comment Temporalist
Temporalist's picture

That means the system to dispose of him was in place well before he was in power.

Sat, 05/29/2010 - 10:02 | Link to Comment Mesquite
Mesquite's picture

<smile>

Fri, 05/28/2010 - 21:37 | Link to Comment Busy-Body
Busy-Body's picture

Correct - what do Abraham Lincoln, Andrew Jackson, James Garfield, and JFK all have in common?  They all were advocates of killing the bank that has had the grip (at various times/intervals) over the United States for centuries.  Lincoln and Jackson were successful, Garfield and JFK were not.  Of the four, three were assassinated while in office; Andrew Jackson escaped with his life after a faulty attempt (botched gun/shooter).  Also credit Thomas Jefferson and James Madison for their efforts in breaking the very first attempt at fraudulent ponzi central banking, the Bank of North America (which was the predecessor to the other fraudulent central banks - 1st Bank of the United States, 2nd Bank of the United States and the Federal Reserve Bank, respectively).

Sat, 05/29/2010 - 01:46 | Link to Comment palmereldritch
palmereldritch's picture

I think you also have to factor in at that time Kennedy's reluctance to expand the war in South East Asia which among many things would have most importantly enlarged and rewarded the MIC and reinvigorated a generation of opium war exploitation in the Golden Triangle for the same elite families that have always served the shareholders of the private central banks and profited accordingly: providing new markets of death and corruption and new liquidity channels for dirty ponzi funds... not unlike the USD and GBP denominated oil bourses...

These people aren't just banksters, they're aristocratic feudal drug gangsters... and so the Opium Wars continue...

http://statismwatch.ca/2009/08/29/afghanistans-hidden-heroin-addicts/

Fri, 05/28/2010 - 20:06 | Link to Comment OldTrooper
OldTrooper's picture

Lincoln.  Destoryed the Republic to save the 'Union'.  The Republic never recovered.  Ended the injustice of slavery by setting the  stage for us all so be Slaves.

Fri, 05/28/2010 - 20:43 | Link to Comment Crab Cake
Crab Cake's picture

Oh, come on, I'm not saying that Lincoln was a saint, he was a politician, and a wartime president with blood and atrocities on his hands, but he was definitely not a sell out.  He did what he thought was right, and he was no friend to the banksters; the gist of the current discussion.  In fact Lincoln's greatest fault IMO is that he died too quickly, and that ushered in Radical Reconstruction.  Radical Reconstruction, and the carpet bagger onslaught, created more bad blood than the war ever did.  The Civil War was inevitable, it almost happened 20 years before it did, and as it goes it could have been much much worse than Lincoln. 

Fri, 05/28/2010 - 21:45 | Link to Comment Busy-Body
Busy-Body's picture

fyi - the Civil War had nothing to do with slavery.  The abolition of slavery was merely a benevolent outcome.  As with other wars (including all of the most modern ones), the civil war was about money and control over a newly prosperous nation.  The North and the South were both instigated (through separate trade relations with Europe as the North was mainly industrial and the South was primarily agrarian) and subsequently financed by large European investment houses and governments, primarily the Bank of England (through the Rothschilds).  The intent was to fracture the country so that foreign banking interests would be better repre$ented during and after the war.

Fri, 05/28/2010 - 23:02 | Link to Comment Crab Cake
Crab Cake's picture

Did I mention slavery as the prime cause of the Civil War?  No.  Slavery was a sideshow to a greater conflict of cultures and economies, agreed, and the only reason it was repealed was as an act of economic warfare.  Slavery was also nearly obsolete by the time of the Civil War anyway, and machines were replacing them.  Your conclusion on the intent of foreign interest in the conflict is sound, and many quotes and sources are documented that support your case.

"My paramount object in this struggle is to save the Union, and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that. What I do about slavery, and the colored race, I do because I believe it helps to save the Union; and what I forbear, I forbear because I do not believe it would help to save the Union. I shall do less whenever I shall believe what I am doing hurts the cause, and I shall do more whenever I shall believe doing more will help the cause." - Abraham Lincoln

“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.”
- Abraham Lincoln

“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.” –
Abraham Lincoln - In a letter written to William Elkin

Sat, 05/29/2010 - 03:07 | Link to Comment AnAnonymous
AnAnonymous's picture

Ummmm, slavery was connected to the Civil War. The abolition of slavery was not a finality. But slavery as it rigged the political game in favour of slaver states was definitively part of the issue. Without that rigged game, Jefferson's election would have been much tighter.

Do NOT follow this link or you will be banned from the site!