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Guest Post: Don't Worry - They'll Just Change The Rules
Submitted by Chris Martenson
Don't Worry; They'll Just Change the Rules
To anyone paying the slightest bit of attention, these remain very uncertain and trying times. On one side of the intellectual divide are the folks who are counting on deflationary forces overwhelming the normal credit-operated machinery of modern life, resulting in an implosion of economic activity. On the other side are those counting on hyperinflation as the most likely outcome of the grand printing experiment currently being conducted across the globe with its epicenter located within the United States.
In the middle of the intellectual divide are people like me, who are leaning slightly towards one view or the other. Not yet committed to any particular outcome, they are tensed and ready to spring in whichever direction necessary, like the last kids left standing in a game of dodge ball.
Some are expecting an imminent recovery (whatever that means), some a long, slow grind downwards, and others a rapid, if not chaotic, plunge into new and unwelcome territory of one sort or another.
There are no right or wrong views here. All sides are on equally firm intellectual standing. However, I want to let you know why it is that I lean towards the inflationary line a bit (okay, a lot, by some people's standards) and why I think that a wide-scale, final fiscal collapse is in the cards.
More than a year ago I wrote an article entitled The Sound of One Hand Clapping, in which I framed the recovery in terms of bent rules, as opposed to what should be happening.
[Despite the bursting of a massive credit bubble,] everything just keeps perking along. What gives?
The answer, I believe, requires us to ask a Zen-like question along the lines of, "What is the sound of one hand clapping?" That question is, "If nobody recognizes a defaulted debt on their balance sheet, does it exist?"
Suppose, for the sake of argument, that there is a world in which banks are allowed by their regulators to pretend their default losses simply do not exist. And, even more outlandishly, some of these banks are allowed to sell heavily damaged loans to their central bank at nearly their full original price.
What does "deflation" mean in such a world? Not much, as it turns out. At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults.
This is the world in which we currently live. Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt.
But let me ask this: What prevents the authorities from simply storing them out of sight forever? Or at least long enough to allow the wave of liquidity to work its inevitable magic? So far, much to my great surprise, they've managed to do exactly that, with hardly a squeak from the mainstream press (although the blogosphere is on the job, as usual). I am now wondering if they cannot keep this up indefinitely.
While I certainly took some heat from the deflation camp for these comments at the time, my words herald almost exactly what has happened since then. Losses have been ignored, the Fed has dedicated all of its efforts toward repairing bank balance sheets, and nothing really bad has happened to the financial system. Yet.
With the recent revelation that the Fed engaged with companies and banks headquartered here, there, and everywhere in over 21,000 separate transactions totaling $1.5 trillion dollars, in a successful effort to prevent bad investment decisions from turning into a series of cascading defaults, I think it's safe to say that what should have happened (i.e., deflationary defaults) didn't happen.
Fed Documents Breadth of Emergency Measures
WASHINGTON — As financial markets shuddered and then nearly imploded in 2008, the Federal Reserve opened its vault to the world on a scope much wider and deeper than previously disclosed.
Under orders from Congress, the Fed on Wednesday released details of more than 21,000 transactions under the array of emergency lending programs and other arrangements it conjured up in response to the crisis.
At its peak at the end of 2008, the Fed had about $1.5 trillion in outstanding credit on its books. The central bank, in essence, pumped liquidity, the lifeblood of credit markets, into the circulatory system of an economy that was experiencing a potentially fatal heart attack.
At a recent event that I attended, which was heavily populated by political and monetary leadership, the view of most of the money types was that the "extend and pretend" strategy was a good and effective one. Others, like myself, argue that this 'mission creep' by the Fed involves taking on too many roles, doing none of them especially well, and risking much, including the Fed's reputation and autonomy (such as they are).
Changing the Rules
The theme here is simple enough: If and whenever the circumstances justify a major response, existing rules will be changed, altered, bent, or broken.
Because of this, I routinely argue that what should happen won't happen, at least not right away, and that there's really no such thing as investing anymore, only speculating -- unless you are a big bank, favored by the Fed, with advance information.
To the first point, what should be happening right now, with consumer credit well below its 2007 peak and the housing market in disarray, is a massive deflationary spiral. Losses should be piling up and swamping bank balance sheets.
But they're not. Big banks are reporting record revenues and near-record profits, all thanks to Ben Bernanke's unshakeable decision to prop them up and bail them out.
Wall Street banks see record revenue in recovery
Wall Street's biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever. Even if this quarter only matches the third, the banks' revenue will top that of any year except 2009.
The surge has come after the five banks took a combined $135 billion from the Treasury Department's Troubled Asset Relief Program and borrowed billions more from the Federal Reserve's emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Bros. Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed's purchases of fixed-income securities.
"This is a once-in-a-lifetime opportunity for most of these banks, and I think they've recognized it as that," said Charles Geisst, a finance professor at Manhattan College in Riverdale, N.Y., who has written about Wall Street's history. "The profits they're making now will allow them to replenish their capital and take care of the other things they need to do."
Obviously, when you or I lose money on a bad investment decision, it's our own tough luck and we have to manage the fallout from it even if it wipes us out. But big banks? They get a free pass to go along with free money, and they are not even required to make a non-binding commitment that they'll try to lose less next time. I would absolutely love the opportunity to borrow money from the government at a low rate and lend it back to the government at a higher rate, but that program is not available to me.
It is not at all clear that the Fed isn't breaking a few rules along the way that supposedly govern what they can and cannot buy. Certainly they are bending the rule that forbids the Fed from directly participating in government debt auctions by turning around and buying that same government paper from big banks only a week after it was sold at auction by the Treasury Dept.
So I would invite you to consider that our expectations of what should happen, whatever they might be, should be tempered by the high likelihood that the rules will be changed as much as and whenever needed in order to keep the game working.
So far the deflationary impact that should have arrived by now hasn't, and a big reason why is because the rules have been changed along the way.
Here are some other "rules" that have turned out to be less concrete than they appear in print:
- In the world of market trading, a trade is a trade. No backsies. Shortly after the Flash Crash™ happened on May 6, 2010, the NYSE (New York Stock Exchange) stepped in and arbitrarily drew a line above and below which trades that day were 'broken' or cancelled (effectively treating them as if they had never happened). The move to break trades was historically unprecedented. Many small-time traders felt that where the line was drawn favored big players who could influence exactly where the NYSE decided to wipe out trades. Confidence in the markets took a big hit, both because the Flash Crash happened in the first place (and was never satisfactorily explained, which suggests the root cause could still be in place) and because of the opaque and arbitrary manner in which the NYSE broke trades.
- The CTFC (Commodity Futures Trading Commission) has position limits that regulate how many contracts, long or short, any one market participant can hold. At least on paper, anyway. In reality, J. P. Morgan and HSBC hold many times the position limit of silver shorts, and the CFTC has known this for years without taking any action besides holding a few meetings on the subject after much public pressure. Undoubtedly if you or I (or the Hunt brothers) were to try to amass a silver position that breached the position limit, we would be immediately and soundly prevented from doing so. Again, there is one set of rules for the big banks and a very different set for everyone else.
- High-frequency trading exists where certain participants are allowed to front-run sub-millisecond quotes, sometimes numbering in the tens of thousands per 'event' in order to divine price points and scrape pennies from every transaction using non-public data. Submitting a quote without the intention of having it filled is still against the rules, as is the use of non-public data, but the SEC (Securities Exchange Commission) has decided to prosecute a few penny-stock bucket shops instead of the probable culprits of the Flash Crash and provable destroyers of market confidence.
Again, the theme here is that when the circumstances call for it, the rules can and will be amended, ignored, or broken. Count on it. The sub-theme is that the well-connected get to play by one set of highly pliable rules, while everyone else must adhere to the much smaller footprint of hard-and-fast rules.
Conclusion - Part I
The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that. But the alternative has had costs that are only now becoming better appreciated. With constant bending of the rules, the only constant was that every bent rule favored the big banks, often uniquely so.
With this special attention given to a favored few, the social mood darkened considerably among U.S. citizens, especially those far removed from the beneficial impacts of the Fed's largesse. Where states are struggling with extremely painful budget deficits measured in the single billions (in most cases), the Fed has been busy printing up and handing out some $75 billion per month to its coziest clients.
While millions of people ran out of extended unemployment benefits and lost houses due to completely fraudulent and illegal banking practices, nothing was ultimately fixed and (seemingly) nobody went to jail or was charged with anything. Small, regional banks without access to unlimited and essentially free capital from the Fed are now forced to compete with big national banks that have been granted an unlimited backstop by the Fed.
This is how too big to fail leads to too small to succeed.
But anything that is unsustainable will someday stop, bent rules or not. In Part II of this report, I explore the idea of How This All Ends (free executive summary; paid enrollment required to access) by looking at the fiscal situation of the federal government and individual states and deriving a calculated estimate of when a final fiscal deterioration will overwhelm even the best of intentions.
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"The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that."
STFU--TARD! Worst for WHOM!?!?! The filthy banksters!?!?
Piss off you worthless shill!
You go thank your worthless masters, I'll have none of it!
+1
I read it more along the lines of "Thank god for small favors", kindof a damning with faint praise type of thing. After all, he does go on to say they only made it worse.
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.
The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.
About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks.
http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/
Thanks!
Government meddling created much of this mess in the first place. Another manufactured crisis where they could then rush in and grab more of our freedoms. Americans have a very limited amount of time, if it's not too late already, to get their head out of their collective asses.
To be thankful for this would be akin to making the fireman, who set the fire in the first place for fame, the hero even though the building was badly damaged.
Thomas Jefferson, paraphrasing: The governemt that is big enough to give you everything is also big enough to take it all away.
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off gthe books of the banks.
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.
The potential writeoffs could be even larger should home prices continue to weaken, placing more homes in the nomnperforming category on bank balance sheets.
About 6 million homes are still at risk, according to Schnapp, and at least 10% of them are 25% underwater, meaning their market value is 25% less than the mortgage– but the owners are still paying interest to their banks.
http://blogs.forbes.com/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/
America bitchez!
http://www.youtube.com/watch?v=6iQWZQNQWmk
Take your guido assholes back home. We punch people in the mouth!
Angry MOB JUSTICE!
http://www.youtube.com/watch?v=SUgCxVbtlMQ
I feel bad for people in retirement who are watching their monthly income evaporate and for others like my family and I that played by the so called "good homeowner rules" and watch our home value drop every month.
"The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that."
I'm not thankful for that. A systemic financial breakdown was what we needed, and it was the only way for the central bankers and their cohorts to lose and for everyone else to win. The only thing the Fed "saved" was itself and its Wall Street chums, and the rest of us will pay for it. As long as people believe the Fed "saved" us we will be in macroeconomic indentured servitude.
Im not thankful at all either for the FED giving out trillions to overseas banks 'to avert the financial system breakdown' which only served the bankster criminal class to hoard as many more free billions as they want and the tab placed on the bankrupt unemployed taxpayer. Fuck them very much.
+10000000000000000000000000000000000000000
Inflation, you know.
Still waiting for the Bank of America leaks Julian!
right? I wanna buy the dip! FTW! BITCHES!!
Nothing is coming. Just more upside.
Drop your shorts. Get Long and get Hard my friend
I am into the whole China Solar things nowa days... at least until I am done...
Of course it is physical solar... and wind turbines, physical as well.
Silver, Seeds and BJs
I have some gold but I went huge on silver... coins. based on the ability to use them to trade? honestly. Boxes are now $15k(ish) but just 2 months ago it was much easier to find them and buy them. Gold I am in twice.. $600's and then again when I got nervous at $900's...
I am so pissed at the stupid people (Masses), I am ready to dump my gold and buy stocks... I am serious. that is how pissed I am about the idiot masses!
THE FED HAS SPOKEN: NO BAILOUT FOR MAIN STREET
Ellen Brown
January 11, 2011
www.webofdebt.com
The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.
On January 7, according to the Wall Street Journal, Federal Reserve Chairman Ben Bernanke announced that the Fed had ruled out a central bank bailout of state and local governments. "We have no expectation or intention to get involved in state and local finance," he said in testimony before the Senate Budget Committee. The states "should not expect loans from the Fed."
So much for the proposal of President Barack Obama, reported in Reuters a year ago, to have the Fed buy municipal bonds to cut the heavy borrowing costs of cash-strapped cities and states.
The credit woes of state and municipal governments are a direct result of Wall Street’s malfeasance. Their borrowing costs first shot up in 2008, when the “monoline” bond insurers lost their own credit ratings after gambling in derivatives. The Fed’s low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks. But Chairman Bernanke has now vetoed that plan.
Why? It can hardly be argued that the Fed doesn’t have the money. The collective budget deficit of the states for 2011 is projected at $140 billion, a mere drop in the bucket compared to the sums the Fed managed to come up with to bail out the banks. According to data recently released, the central bank provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008.
The argument may be that continuing the Fed’s controversial “quantitative easing” program (easing credit conditions by creating money with accounting entries) will drive the economy into hyperinflation. But creating $12.3 trillion for the banks – nearly 100 times the sum needed by state governments -- did not have that dire effect. Rather, the money supply is shrinking – by some estimates, at the fastest rate since the Great Depression. Creating another $140 billion would hardly affect the money supply at all.
Why didn’t the $12.3 trillion drive the economy into hyperinflation? Because, contrary to popular belief, when the Fed engages in “quantitative easing,” it is not simply printing money and giving it away. It is merely extending CREDIT, creating an overdraft on the account of the borrower to be paid back in due course. The Fed is simply replacing expensive credit from private banks (which also create the loan money on their books) with cheap credit from the central bank.
So why isn’t the Fed open to advancing this cheap credit to the states? According to Mr. Bernanke, its hands are tied. He says the Fed is limited by statute to buying municipal government debt with maturities of six months or less that is directly backed by tax or other assured revenue, a form of debt that makes up less than 2% of the overall muni market. Congress imposed that restriction, and only Congress can change it.
That may sound like he is passing the buck, but he is probably right. Bailing out state and local governments IS outside the Fed’s mandate. The Federal Reserve Act was drafted by bankers to create a banker’s bank that would serve their interests. No others need apply. The Federal Reserve is the bankers’ own private club, and its legal structure keeps all non-members out.
Earlier Central Bank Ventures into Commercial Lending
That is how the Fed is structured today, but it hasn’t always been that way. In 1934, Section 13(b) was added to the Federal Reserve Act, authorizing the Fed to “make credit available for the purpose of supplying working capital to established industrial and commercial businesses.” This long-forgotten section was implemented and remained in effect for 24 years. In a 2002 article called “Lender of More Than Last Resort” posted on the Minneapolis Fed’s website, David Fettig summarized its provisions as follows:
Today, that venture into commercial banking sounds like a radical departure from the Fed’s given role; but at the time it evidently seemed like a reasonable alternative. Fettig notes that “the Fed was still less than 20 years old and many likely remembered the arguments put forth during the System's founding, when some advocated that the discount window should be open to all comers, not just member banks.” In Australia and other countries, the central bank was then assuming commercial as well as central bank functions.
Section 13(b) was repealed in 1958, but one state has kept its memory alive. In North Dakota, the publicly owned Bank of North Dakota (BND) acts as a “mini-Fed” for the state. Like the Federal Reserve of the 1930s and 1940s, the BND makes loans to local businesses and participates in loans made by local banks.
The BND has helped North Dakota escape the credit crisis. In 2009, when other states were teetering on bankruptcy, North Dakota sported the largest surplus it had ever had. Other states, prompted by their own budget crises to explore alternatives, are now looking to North Dakota for inspiration.
The “Unusual and Exigent Circumstances” Exception
Although Section 13(b) was repealed, the Federal Reserve Act retained enough vestiges of it in 2008 to allow the Fed to intervene to save a variety of non-bank entities from bankruptcy. The problem was that the tool was applied selectively. The recipients were major corporate players, not local businesses or local governments. Fettig writes:
Section 13(b) may be a memory, . . . but Section 13 paragraph 3 . . . is alive and well in the Federal Reserve Act. . . . [T]his amendment allows, "in unusual and exigent circumstances," a Reserve bank to advance credit to individuals, partnerships and corporations that are not depository institutions.
In 2008, the Fed bailed out investment company Bear Stearns and insurer AIG, neither of which was a bank. John Nichols reports in The Nation that Bear Stearns got almost $1 trillion in short-term loans, with interest rates as low as 0.5%. The Fed also made loans to other corporations, including GE, McDonald’s, and Verizon.
In 2010, Section 13(3) was modified by the Dodd-Frank bill, which replaced the phrase “individuals, partnerships and corporations” with the vaguer phrase “any program or facility with broad-based eligibility.” As explained in the notes to the bill:
Only Broad-Based Facilities Permitted. Section 13(3) is modified to remove the authority to extend credit to specific individuals, partnerships and corporations. Instead, the Board may authorize credit under section 13(3) only under a program or facility with “broad-based eligibility.”
What programs have “broad-based eligibility” isn’t clear from a reading of the Section, but long-term municipal bonds are evidently excluded. Mr. Bernanke said that if municipal defaults became a problem, it would be in Congress’ hands, not his.
Congress could change the law, just as it did in 1934, 1958, and 2010. It could change the law to allow the Fed to help Main Street just as it helped Wall Street. But as Senator Dick Durbin blurted out on a radio program in April 2009, Congress is owned by the banks. Changes in the law today are more likely to go the other way. Mike Whitney, writing in December 2010, noted:
So far, not one CEO or CFO of a major investment bank or financial institution has been charged, arrested, prosecuted, or convicted in what amounts to the largest incident of securities fraud in history. In the much-smaller Savings and Loan investigation, more than 1,000 people were charged and convicted. . . . [T]he system is broken and the old rules no longer apply.
The old rules no longer apply because they have been changed to suit the moneyed interests that hold Congress and the Fed captive. The law has been changed not only to keep the guilty out of jail but to preserve their exorbitant profits and bonuses at the expense of their victims.
To do this, the Federal Reserve had to take “extraordinary measures.” They were extraordinary but not illegal, because the Fed’s congressional mandate made them legal. Nobody’s permission even had to be sought. Section 13(3) of the Federal Reserve Act allows it to do what it needs to do in “unusual and exigent circumstances” to save its constituents.
If you’re a bank, it seems, anything goes. If you’re not a bank, you’re on your own.
So Who Will Save the States?
Highlighting the immediacy of the local government budget crisis, The Wall Street Journal quoted Meredith Whitney, a banking analyst who recently turned to analyzing state and local finances. She said on a recent broadcast of CBS's "60 Minutes" that the U.S. could see "50 to 100 sizable defaults" in 2011 among its local governments, amounting to "hundreds of billions of dollars."
If the Fed could so easily come up with 12.3 trillion dollars to save the banks, why can’t it find a few hundred billion under the mattress to save the states? Obviously it could, if Congress were inclined to put non-bank lending back into the Fed’s job description. Then why isn’t that being done? The cynical view is that the states are purposely being kept on the edge of bankruptcy, because the banks that hold Congress hostage want the interest income and the control.
Whatever the reason, Congress is standing down while the nation is sinking. Congress must summon the courage to take needed action; and that action is not to impose “austerity” by cutting services, at a time when an already-squeezed populace most needs them. Rather, it is to create the jobs that will generate real productivity. To do this, Congress would not even have to go through the Federal Reserve. It could issue its own debt-free money and spend it on repairing and modernizing our decaying infrastructure, among other needed works. Congress’ task will become easier if the people stand with them in demanding action, but Congress is now so gridlocked that change may still be long in coming.
In the meantime, the states could take matters in their own hands and set up their own state-owned banks, on the model of the Bank of North Dakota. They could then have their own very-low-interest credit lines, just as the Wall Street banks do. Rather than spending or selling off valuable public assets, or hoarding them in massive rainy day funds made necessary by the lack of ready credit, states could LEVERAGE their assets into a very strong and abundant local credit system, following the accepted business practices of the Wall Street banks themselves.
The Public Banking Institute is being launched on January 13 to explore that alternative. For more information, see http://PublicBankingInstitute.org.
Ellen Brown is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.
Great piece! Ive said it before, all those thinking the FED will go out and bail out state and local municipalities are DREAMING! Theres NO benefit to them to bail them out, sink or swim slave states! Only world central banksters get the free money! Bankrupt states and cities...you are SCREWED unless you have a plan to run your OWN banking system from scratch! Got stockpiles of food, ammo, and guns?
+2 Simply Super Great. Don't forget stockpiles of Cash, Silver, Gold, Platinum, Palladium and Rhodium.
I told ZHers long ago about Rhodium. It just might be the best of all. Don't open it if it is in powder form.
Besides, bailing out the States is just kicking another can down another road. The States which do not deal with their continuing liabilities and legacy debts cannot recover. We complain about the issuance of debt by the Fed which is floating the banks, but we should also eschew the option of doing the same thing for the States. Allow bankruptcies and failure, just as we advocated for the "Banks" (and never got). I, for one, do not want the Fed meddling in my State's affairs or any other.
We have a Constitution and it enables the states to get even with the Feds. The states should get together and hold a Consitutional Convention and draft several new amendments to the Constitution. One amendment would abolish "Federal Banks". Another amendment would establish a limit to the size of the Federal government via a percentage of GDP (say 15%) along with a balance budget. The best amendment to the Constitution would be simple rule that if fewer than 50% of the eligible voters turned out for an election all incumbents would be removed from office permanently.
Thats right if the states had any balls they'd convene a Constitutional Convention and stop it all in its tracks. Unfortuantely the states are all federal lapdogs because they all got on the gravy train of federal funding with strings attached, if they say a word the money spigot is turned off. Theyre damned if they do and damned if they dont, lets see if any states grow a pair. But Im not holding my breath for it.
Every State has a pair -- they're called Senators. Nuts all.
Ellen, if you are reading this, you really need to extend your analysis to the interaction and codependence of the States and DC in acquiring and using limited tax on labor. This is a battle of limited (finite) real worth as tax on labor, and in the end the states have the upper hand. The notion of the FED bailing out the states is conceptually wrong. The notion of the states sustaining a central government in debt peonage is also unworkable. What is lost in many of the discussion of sovereign debt are the unpopular systemic problems of negative real growth, addressing the constitutionality of continual debt peonange, elimination of services and restructuring of benefits (loss).
Mark Beck
The terms inflation and deflation are getting watered down and misused, intentionally I believe. Divide, conquer, and confuse, just like the perceived "choice" between the democrats and republicans. If inflation is a monetary phenomenon, then you can't have biflation, can you? But we do have falling prices in some areas and rising prices in others. Even the definitions of the money supply can be a bit misleading in terms of the effects.
Misallocation seems to best capture what's happening. We have distortions in virtually everything, and fundamentals are virtually meaningless. As long as the favored class gets their virtually free money, the distortions will continue, and Gresham's Law will continue to be the way of our economy. As long as we have this misallocation, there will be no recovery, only looting.
Gratuitous Monty Python Dennis Moore skit: "... this redistribution of wealth is trickier than I thought."
http://www.youtube.com/watch?v=kp-R1o753pM
It is obvious that the Government prop-up of Banks and general interference in free markets will now result in deflationary stagnation with high unemployment in the U.S. while strong growth in Emerging markets will cause commodity inflation. Thus the average U.S. citizen will get the double whammy as the Banksters kick back in the Hamptons and their Government co-horts live and retire in comfort.
chris is right so far
what should be happening isn't
can they keep it up un til the debt slaves are ready to borrow again?
tthats what they are clearly aiming for
whatI don;t get is the NEW world order theories?
surely then they would allow the collapse?
Everyones got to be in the boat before they sink it. Theyve tried the world order before, this time theyre leaving nothing to chance as everything will be ensured to be totaly bankrupt so theres no way out, and theyre very close to that point right now.
Probably there is a "civil war" behind the scenes at this point. The confederation of corporate, military, media, government, etc. compartmental chiefs and their lieutenants do not act with a unified agenda. Some of them may have "switched sides" when they figured out that the New World Order wasn't actually going in the direction they thought it was going. If the New World Order is intended to be run by atheists, deceived theists will stop aiding the plan when they see coming atheism. If fhe NWO is intended to be anti-nationalistic, that would mean that the people who were aiding it for reasons of nationalism bail when they realize their country is going to be reduced to an administrative district for local population control. If you thought money was pure and represented value or worth, you might bail when you realize the fraudulent and unstable nature of thin-air debt-money creation, and that the brazenest Wall Street insider assholes in the world would get seats at or near the head of the coming NWO table.
Then there are the people who were serving the NWO agenda without realizing it, realized it, and put their feet down and stopped.
I've heard several claims that insurrections are currently going on behind the scenes against the NWO pushers. For example, the writings of Benjamin Fulford, or the Christian-founded Restore America Plan, and a non-religious movement by some States to dissolve the Federal Corporation. So maybe some factions are resisting the will of the NWO agenda successfully for now and delaying the crash.
The NWO agenda never has proceeded according to any perfect plan (failed Treaty of Ghent --> failed League of Nations --> potential United Nations and NATO success --> (if that fails, something else). I'm pretty sure that the Copenhagen Treaty, carbon taxes paid to a "bank of the world", cap-and-trade carbon markets were supposed to have been enacted in 2009, but these plans failed and they had to take one step back and plan their next half-step forward. Likewise for the "North American Union" plan that died behind the scenes in early 2008.
The people who would support a New World Order agenda by their nature are liars and back-stabbers, so they can't work together in unison. Michael Ruppert says "It's like these guys have their own private crap game, and occasionally one of them shoots another. But as soon as somebody comes along to threaten their crap game, they all turn at once and shoot him."
So it's naïve to think new world order theories are erroneous just because "surely the NWO would allow the collapse". There are too many variables behind the scenes to assume we can predict what should have happened and what will happen next.
Spot on!
I expect Fed, Treasury and Congress to do this till they feel otherwise. In the meanwhile posture around on debt ceiling etc..
The only rub in the ointment is the interconnected of the global economy.. so even if somewhere else in the globe also wheels come off then that is it!
Upon completion of the capacity upgrade, NYSE Arca and NYSE Amex will be capable of doubling their processing to 1 million orders and 8.4 million quotes per second with sub-millisecond average acknowledgment (ACK) times, up from 500,000 orders and 4.2 million quotes previously. Together, these options exchanges, which utilize both open-outcry trading facilities and electronic trading platforms, present a "compelling dual market structure," states the release, offering the choice of price-time priority with maker-taker pricing on NYSE Arca options or pro-rata allocation with customer priority on NYSE Amex options.
http://www.wallstreetandtech.com/articles/229000629?cid=nl_wallstreettech_daily
**********************************************************************************
Rules are for you... not them.
I am still greatly concerned about the abrupt call by Speaker Boehner to adjorn congress for a week in the aftermath of the Arizona shooting. This was an unprecedented move by a leader who was elected only a few days prior.
Rep. Boehner has moved up the ranks of the GOP on the failings of his prior leaders, especially Tom DeLay, who on Monday was convicted of money laundering, though his attorney says his client will never spend a day in prison.
http://www.reuters.com/article/idUSTRE70C4J820110113
Whether or not DeLay serves time, his underling, John Boehner, is now the most powerful man in Washington, leading the Republican-controlled House. His first major decision was to shut down for a week, cowering inside the Beltway instead of standing up like a real leader would. With congress in their private enclaves this week, one can only wonder at what they are planning in terms of legislation, posturing, pandering and continuing the falsehoods and deceit begun by DeLay and no doubt continued under Boehner.
Canceling business for the week has troubled me since I first heard it; there was no real cause for it except for the congress to operate under a cloak of secrecy out of the view of the C-Span cameras and the normal functioning of the highly-controlled MSM.
Boehner is a dangerous man in a dangerous place. I do not see him as a natural leader, only one who has used guile and cunning and the "lucky" departure of his immediate superior. He has proven over and over that his words are hollow and that he cannot be trusted. I seek the truth while this man consorts to hide it from public view.
I agree, as soon as the douchebag tanned asshole Boehner ran out and closed congress, huge red flags went up... and I never trusted the 'perfect tan' type like he is....everyone Ive ever known who had the Peru tan all the time has always been a total scumbag.
http://www.dickipedia.org/dick.php?title=John_Boehner
John Andrew Boehner (born November 17, 1949) is an American Republican politician, United States Representative from Ohio, tanorexia sufferer, House Minority Leader, Nancy Pelosi nemesis, and a dick.
In May 2009, weekly tracking polls indicated that Boehner remained the most unpopular politician in the United States, though it is unclear if this statistic factored in his favorability among elderly conservative women or the staff of Jamaica Me Tan in Cincinnati, Ohio.
Boehner spent most of his political career railing against corruption and scandal in Washington, though—ironically—it was a series of Washington scandals that directly resulted in the few professional successes Boehner's had, including his Congressional seat and House Majority leadership.
Undoubtedly eliciting countless giggles in high school Civics classrooms nationwide, the Congressman's surname is correctly pronounced "BAY-ner." Though—fittingly—its phonetic pronunciation is a colloquial term for an erection of the male reproductive organ.
Handing out those checks from the tobacco companies on the floor should have sunk him forever. Why did it not? The answer to that question will give you a major hint at why the system does not work. The general populace could not relate the details of that stupid move on Boner's part.
The reason is can't go on is that it is choking the economy. True, the banks are hiding losses and trying to delay. But in the meantime, the debtors can't move. They can't get new jobs, they can't borrow any more, they can't do anything economically. This can go on for a while - never underestimate the power of denial - but not for decades.
It's coming to a head in five years, max.
http://strikelawyer.wordpress.com
The reason is can't go on is that it is choking the economy. True, the banks are hiding losses and trying to delay. But in the meantime, the debtors can't move. They can't get new jobs, they can't borrow any more, they can't do anything economically. This can go on for a while - never underestimate the power of denial - but not for decades.
It's coming to a head in five years, max.
http://strikelawyer.wordpress.com
Excellent Analysis Chris
It's a good thing for the Ruling Bankster Class that the Amerikan public can't/won't read...
Sheeple: "Wait Chris! Lindsey Lohan latest gossip video! Got to go, read later..."
Note to Tyler: More Martenson, less NIA...
Rules?
Let's play the Bend it like Cambridge word game.
Lures?
ORI
http://aadivaahan.wordpress.com
Chris, exactly what are you saying?
Experienced people looking at the many financial issues know that a couple of key questions will discredit the majority of the people who present an opinion. For example;
"the view of most of the money types was that the "extend and pretend" strategy was a good and effective one."
How is it effective exactly and over what time frame? Even the CBO can kill this argument.
This talking head stuff is business as usual. Not even sure why you are responding to it.
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At times it seems that somehow people do not look at current events. For example; we have a divided congress with an upcoming debt ceiling vote and a Treasury sectretary implying a rejection will force default. To use the word recovery in terms of long term growth given the volitility is undefensible.
So I am not sure what you are saying specifically.
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I am not sure the worse did not happen. To me the transfer of wealth from taxpayer to wallstreet to cover bad debt was worse, from an investment standpoint, then letting the banks go through bankruptcy court. Given the implied backing of the FDIC, I would have liked to have seen a financial bankruptcy crisis.
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I am really not sure what rules you are talking about and what aspect of the game they relate to? and exactly what new magic the FED is doing with its balance sheet?
Beyond trade offsets and pegisms, the one question that has not been address "publically" by the CBO is the world capacity for soverign debt. That is, true available surplus not based on debt itself, with some intrinsic backing of real worth. So if we look at the driver of QE to try and offset debt with debt, we see debasement effects are slightly delayed. But, the lag is being compressed. Meaning, default will occur.
For the US it will start through open debasement of the currency (now). The FED is the largest holder of our own debt. Actually, the SS fund is a large holder also, but the FED is the only means of funding government. There really is no other politically viable path than to let the FED debase the currency until crisis (debt market).
If we look ahead to what a FED centric debt rollover (Japanish) cycle may look like. We see the the big winners are the banks who administer FED purchase of debt. FED debt buying in perpetuity is really just a way to transfer taxpayer wealth through tax on labor to the banks. A garaunteed profit percent in perpetuity straight off the top. Couple this with the old LTCM scheme of interdependance for TBTF, and you have a big enough political stick to get your way.
Mark Beck
The REAL Dr. Doom!
http://youtu.be/SlC1_HrQgog
(WERE SCREWED, folks)
http://preview.tinyurl.com/ylkothp
I think it all depends on whether economics is "real", like physics, or whether it is all smoke and mirrors. If it is smoke and mirrors, then Wyle E. Coyote can just keep running as long as they extend and pretend. If it is real, then the illusion of running is going to end as soon as his feet hit the ground at terminal velocity.
It is truth to say that only a full-on, raging forest fire, burning down all the trees and brush, could rid the floor of all the garbage that is choking growth, through waste, fraud and inefficiencies, returning the ground to fertile, productive condition again.
Bernanke is simply delaying this mechanism from playing out, and allowing grand theft larceny from the taxpayers, at the same time.
If the forest fire were allowed to rage, it wouldn't bring us down to the abyss. It would open up new opportunities by cleaning the slate and allowing for fresh and vibrant regrowth.
An added bonus would be deflation, which would boost purchasing power.
Bernanke has us on the ZIRP/Inflationary/Jobless-JobMinus/WageDeflation/FinancialCorruption treadmill.
The biggest fallacy in all this is that money was borrowed. There was nothing lent , there was nothing borrowed. Please tell me out of what preexisting account the originators drew money from? They didn't draw any money. They simply monetized the alleged borrowers note. I thought you guys where smarter than that. There is a Public Law that specifically allows this new money creation into printable notes. Public Law 106–122 106th Congress. new If people where actually redeeming FRN's at the FED for lawful money I would be taking a difference stance. No on is doing this though so the FED's collateral is never at risk because the collateral that backed the FRN's was the house itself. We can see they are not taking notes out of circulation that weren't printed on the basis of residential mortages.
It seems like you all can't seem to believe that this is a huge fuck job.
+1. They have to take the physical depreciating asset and put it on their books. Tough Titty.
But no, with all the OTC derivatives bound to the underlying mortgages , it would kill the banksters so we have PPIP and the like buying crap assets at massive premiums because all the derivative counterparty garbage with the NWO types imploded on them.
yeap, that sounds about right. The stock market aint nuttin but welfare for zombie banksters.
"The worst that might have happened - a systemic financial breakdown - did not happen, and we can be thankful for that."
Whatever. Wall Street versus Main Street. Main Street is certainly not better off because of this fraud. Main Street has already lost their homes, jobs, credit, and retirements and now are hanging out on the sidelines waiting for the imminent collapse so they will be able to continue their lives. Yipee, Chris, let's give the Fed a big applause.
As for deflation versus inflation, the only idiots left arguing this moot point are Wall Street, beltway politicians, the deflation camp, and Chris. The rest of us have experienced 40%-90% deflation on all of our assets and 50%-200% inflation on our food, fuel, and taxes. Yipee. We are just sitting waiting for the new set of rules so we can play again.
Yeah a little 'master of the obvious' observation, but still good nonetheless. Of course they'll change rules, that's what they've been doing since the start.
It can be hyperinflationary collapse, or deflationary collapse. Physical economy goes down either way. The outcome is wholly determined by what power the powerful have at any given moment.
The fed will print until people stop it.
The Austrians will cut until people throw them out.
Either way, in the end, the funny money stops, and things start imploding.
That is, unless we Glass-Steagall everything in full bankruptcy reorganization. Derivatives. Mortgages. CMBS. State balance sheets. Take back the Bailouts.
Now, if the people can't do this, hyperinflation will be the result (before its collapse) (and of course, wild swings...20 percent daily (rough guess) either way will ocurr and not be a part of either the total hyperinflation, or its collapse)
If the people take over (austrians), they'll cut everything (see California...with over 25 billion in budget cuts since 08, and DIRECTLY BECAUSE OF THESE CUTS, they now have their BIGGEST deficit...THIS YEAR....AFTER THE CUTS. (and with much more on the way)
This is Ron Paul's dream for America (or his nightmare). That and throwing you to the corporate wolves in the name of THEIR freedom (not yours idiot).
Now, the Austrian way WILL be full on collapse. BUT. The people won't stand by while such FASICSM kills them.
Thus we probably won't go that FAR down that road. But we can. Sometimes in collapse things spiral, so the Ron Paul hell could be our future for the next century.
OR we can realize that both sides are folly, and implement Glass-Steagall (remember BEFORE IT WAS A RULE as a regulation standard to uphold, it was a STANDARD the BANKS were PUT THROUGH for things on the book [bank holliday])
So with the Glass-Steagall (removing those rule changes), and wiping out derivatives, CMBS, RBS, Bailouts, State Balance Sheets, and obviously tons of our national debt, we can embark on credit creation for projects that will really turn around the economy, improve our quality of life, give us a future, and overall have many ancilliary benefits.
Glass-Steagall is the key
25th Ammendment for Obama (since this IS the judgment of whether or not he is capable..he isn't..and WON'T implement Glass-Stegall)
So we can debate about Inflation/Deflation and all the things in between, or go after the real root cause that will determine either. The money printing for fraudulent debt worldwide.
It's not so up in the air, it solely depends on who's in charge. The people, the Austrian fascists, or the Keynesian fascists.
Because no matter what side it is, the rubber will hit the road soon. 1 month? 6? 12? Not very long, especially since we're on the Keynesian fascist approach, and staples amongst other commodities are in a hyperinflationary period ALREADY.
Not sure where this 'Austrian fascism' notion comes from. Sounds like you just made it up.
Sign for a mortgage and fail to pay? Lose the house.
Engage in a fraudulent transaction? Lose the asset.
Hold no direct claim to the asset or asset's transfer was fraudulent? Lose the asset.
Bank goes belly up as it loses assets, but not liabilities? Equity and bondholders take the entire hit.
Make false claims on a promissory note or loan application? Fine or jail.
Construct a fraudulent loan or encourage fraudulent behavior on the part of a borrower? Fine (personal and corporate) or jail.
Construct a "product" designed to fail, but market it as an investment? Fine (personal and corporate) or jail.
Clawback bonuses paid on frontloaded "gains" when asset subsequently went bad.
Government auctions off seized assets, whether homes or entire banks, uses proceeds to cover liabilities such as deposits, merchants/vendors, senior debtholders, junior debtholders, equity holders until funds are gone. If a "Bad Bank" is a short term necessary evil, so be it, but make sure ALL management that led failed institutions is removed and banned for life from the industry.
Debase a currency? Suffer the penalty according to the Coinage Act of 1792.
Nothing new or novel here; it's all in the laws that (should have) governed the country.
Capitalism. It's not just for Joe Sixpack anymore.
Now it's back to sleep to that other dream world.
Excellent post. Of course you are forgetting the even larger "change the rules" - the fraud that doesn't get prosecuted unless you are "too small".
I had thought about the losses that don't get recognized, but I had never drawn out the full implications before, like you just did. Thanks.
"It has been frequently remarked that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force. If there be any truth in the remark, the crisis at which we are arrived may with propriety be regarded as the era in which that decision is to be made; and a wrong election of the part we shall act may, in this view, deserve to be considered as the general misfortune of mankind."
-AH
"Why Steal a Little, when you can Steal Alot?"
Sayeth Mr.Bankster
What about velocity?
OK the debt is still on the balance sheets but it's utterly illiquid. Not only that, but all the crap leveraged against it is too. Plus the additional "mutual mistrust" factor where, not knowing how bad off my neighbor is I start to shun him (his paper). In this light what makes that makes this "money" any better than cash that you bury in a pirate chest on a deserted island? It's out of the game.
Yes the Fed can assume a lot of this crap and swap it for freshly minted crap but it still comes down to "is more air leaving the ballon then entering?" and AFAICT that's a big advantage for "leaving" a.k.a. deflation.
I'm ignorant and deserve the abuse so have at it ZHers. I'll enjoy the spectcle...
P.S. Got my kid the A-team remake DVD for xmas. You know that scene where they're flying the tank? "BLAM!" Another $85 billion. "BLAM!" Another $85 billion...
'Rollerball' bitchez... Jon-a-thon. Jon-a-thon
Interesting commentary. I'm not financially savvy or have extraordinary business investing acumen. What I see is a business model being run into the ground in the name of globalizing economies that are on unequal playing fields. Everyman for himself in fine 'Katrina' fashion as the fallout plays itself out in the very near future. Also, I see a shift coming. Much as the medellin line (sp) was an awesome defense structure built in europe against german advance. The US economy is soon to be out-flanked in like fashion. Local small communities will be popular thriving places once more but imo there will not be much more than this left to build upon.
What do you mean the FED has no assets? They have a first lien on bought with their paper.
Oh I agree they will change the rules, but it still won't help. Because the return you will get from the rule changing every time there is a problem will be just like a long time user of drugs. The first hit of a whatever drug seem to last a long time then as you take more the time high is reduced in time until you only living on the benefit of a few minutes high. Same with the rule change, it will stop the problem for a length of time until another one comes up and then you have less of an impact until the solution or drug has become the problem. You change rules at your peril, because you change enough it makes the US not safe for any investment.
As to where the blame lies look no further than here:
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/arch...
How can anyone say it is the homeowners fault, sure in a few cases they got greedy but how can that greed be matched by the sheer unbridled greed of the bankers! It was them, was it not, that created the whole derivative ponzi sheme, and as shown in the article above it was the banks that employed sub companies such as countrywide to fraudulently cook the paper work and allow people mortgages who would not have ordinarily been given a hope in hell. You seem to put everyone in the category of Mcmansion owners but this is simply not the case, these are honest hard working people who are now being illegally thrown out of their houses and made a scapegoat for the sheer evil of the banking cartels.
I mean come on you bunch of fuckwits, the proof is in the pudding, surely if blame was equal amongst homeowners and banker wankers then the man in the street would be bailed out in the form of some mortgage relief, wouldn't this do more to help than round after round of QE, which is crippling the same people who have been foreclosed upon.
The facts are obvious, the sub prime fiasco was financial terrorism, yes I will use that word and not bat an eyelid, there's nothing else to label it as. It was preordained, the domino's were set in place and the bailouts which followed and are still systemic were part of the package. The ongoing foreclosure debacle is nothing more than to hide the murder weapon, foreclose on as many properties as possible, in some cases foreclose on people with no repayment issues I hasten to add, to hide the fact that some $96 trillion in MBS derivatives are worthless junk.
I can see the argument coming down on two sides, part of the readership here are obviously employed by the zombie banks and for you it is far too much to admit that you in fact represent the devil/Rothschild empire and instead fuel your denial with an almost masochistic tendency to label the blame on the widely recognized innocent party. I tell you, the game is up let the fireworks begin!