Great Depression

To those who have already submitted their applications to launder their cash buy an apartment or better yet, have already wired the money to purchase any of the still to be built residences at 432 Park, the 84-story giant that is set to become the tallest residential building in the Western hemisphere, congratulations. Although that is technically inappropriate: for full effect we would have to say "congratulations" in the buyers' native tongue, be it Russian, Mandarin, Spanish or Arabic, because it sure won't be English in the ongoing scramble to park trillions in cash away from a global banking system now hell bent on confiscating it, especially away from Europe's insolvent and massively levered banks as shown yesterday, and in the Cyprus template aftermath, the cleanest dirty shirt has once again emerged as midtown Manhattan real estate just as we said would happen last September. However, to call the emerging, full-blown panic scramble to park cash sight unseen, with zero regard for asking price "a bubble", would a slap in the face of all calm, cool and collected bubbles everywhere. Because any time someone is willing to pay $95 million for a non-duplex one-floor apartment, $44.8 million for a 4-bedroom apartment, $10 million for a two-bedroom, or a paltry $3.9 million for a maid's quarters studio (no really), something far more profound is going on beneath the surface than a simple asset bubble.

Read 'Em and Weep

With home prices rising at near-record paces in SoCal, corporate debt yields at record-lows, equity markets surging at near-record rates, and high quality assets dwindling by the minute under the heel of a central bank jack boot; it is perhaps no surprise that investors have switched from finding leverage through the balance sheet (i.e. crappy quality firms) to finding leverage through the instrument (i.e. structured credit). The trouble this time is that yields (and spreads) being so low, the creators of the new-normal ABS, CDOs, and CLOs have to stoop to the old tricks to make their money (as we noted here). As Bloomberg reports, bond issuers are once again exploiting the credit rating agency pay-for-performance business model to create "high-quality" collateralizable assets from utter garbage - such as auto loans.

History never changes. Or, at least it changes very slowly indeed. So here we are, like those before us, warning of our own Great Depression, of our own World War, or of even larger cycles like the fall of the English, Spanish, or Roman empires. And so far as we can tell, few listen and nothing changes. Why? Because it isn’t time. Understanding long-term cycles, and how they shape our spectrum of responses in periods of crisis and transformation is key to comprehending what is to come (and how we will allow it to affect us). Do you really think your ancestors didn’t see the Depression coming in 1921 or in 1929? Of course they did. The Balloon Option-ARM mortgage had just been invented, creating a housing boom larger and even more groundless as our own, immortalized by the Marx Brothers in The Cocoanuts. They warned the world then just as we do now, and no one listened then, just as they don’t now. Why? It wasn’t time.

Why There Is So Much Pro-War Reporting

I'm a selfish prick. A hot, rich, pampered intellectual with a big dick and a marathon tongue. I'm young enough to do it often and old enough to do it right.

In chapter 8 of David Stockman's new book The Great Deformation, the power-that-be-turned-anti-establishment-reality-seeker explains his perspective on the myths of the New Deal Recovery: "The new deal was a political gong show, not a golden era of enlightened economic policy. It shattered the foundation of sound money and inaugurated a régime of capricious fiscal and regulatory activism that inexorably fueled the growth of state power and the crony capitalism which thrives on it. But it did not end the Great Depression or save capitalism from the alleged shortcomings which led to the crash. In fact, the New Deal introduced a severe dose of economic nationalism and autarky at a time when the only hope for speedy recovery was a reopening of world trade and reestablishment of a stable international monetary régime.... in reality, the notion that the New Deal had pioneered a road map to recovery by means of countercyclical fiscal policy is mostly a postwar academic legend."

The Chairman is about to take the lectern to discuss bank structure and competition at the SIFI conference at the Chicago Fed. His prepared remarks are likely to be a little less exciting than the Q&A where the world will be watching for the words "buy, buy, buy", "mission accomplished", or "taper". Charles Evans will be his lead out man. Finally, since Bernanke will be discussing shadow banking, or the source of some $30 trillion in shadow money always ignored by Keynesians, Monetarists and Magic Money Tree (MMT) growers, a topic we have discussed over the past three years, here is the TBAC's own summary on how Modern Money really works.

If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately.  It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people. The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years. The Fed creates our "booms" and our "busts", and they have done an absolutely miserable job of managing our economy. So why is the Federal Reserve doing it?  Sadly, this is the way it works all over the globe today.  In fact, all 187 nations that belong to the IMF have a central bank.  But the truth is that there are much better alternatives.

The policy approach that no one dares to question - "In the long-term, we need to fix our public finances. We’re on an unsustainable path that needs to be corrected to protect younger and future generations. But in the short-term, we need to focus on growth. The economy stinks and people are suffering. Any attempt to lower debt in these conditions would be folly. On the contrary, the government needs to provide more stimulus to promote growth" has no support to its key premise in business cycle history, the idea that the economy will return to full employment and stick there, allowing ample time for debt reduction. Once stimulus is removed, expansions often struggle to continue for much longer. And if the stimulus is replaced with restraint, it seems logical that the expansion’s expected life shortens further. In other words, there is no Magic Pendulum. What’s the typical life of an unassisted expansion? Based on the data presented here, I’ll call it two years.

Last week at its regular policy-setting meeting, the Federal Reserve affirmed that it is prepared to increase its monthly purchases of Treasuries and mortgage-backed securities if things don’t start looking up. In all, the Fed has pumped more than a half trillion dollars into the economy since announcing its latest round of “quantitative easing” (QE3) in September 2012. With no recovery in sight, where’s all this money going? It is creating bubbles. Bubbles in the housing sector, the stock market, and government debt. In the meantime, real families are suffering. We are certainly not in a recovery. We don’t see the long unemployment and soup kitchen lines like in the Great Depression, but that’s just because the lines are electronic now. We know what the real solution is: allow the marketplace to work. Restore sound money to the economy and the American people. Sound money is the bedrock for prosperity and the best check on big government and crony capitalism.

Nomura's Richard Koo destroys the backbone of the modern central bankers only tool in the tool-box in his latest paper. "As more and more people began to realize that increases in monetary base via QE during balance sheet recessions do not mean equivalent increases in money supply, the hype over QEs in the FX market is likely to calm down ...The only way quantitative easing can have a positive impact on economic activity is if the authorities’ purchase of assets from the private sector boosts asset prices, making people feel wealthier and thereby encouraging them to consume more. This is the wealth effect, often referred to by the Fed chairman Bernanke as the portfolio rebalancing effect, but even he has acknowledged that it has a very limitmed impact... In a sense, quantitative easing is meant to benefit the wealthy. After all, it can contribute to GDP only by making those with assets feel wealthier and encouraging them to consume more."

The next Great Depression is already happening - it just hasn't reached the United States yet.  Things in Europe just continue to get worse and worse, and yet most people in the United States still don't get it.  We have been warning that the next major wave of the ongoing economic collapse would begin in Europe, and that is exactly what is happening.  In fact, both Greece and Spain already have levels of unemployment that are greater than anything the U.S. experienced during the Great Depression of the 1930s. Pay close attention to what is happening over there, because it is coming here too.  A full-blown economic depression is raging across southern Europe and it is rapidly spreading into northern Europe.  Eventually it will spread to the rest of the globe as well. The U.S. economy has become a miserable junkie that is completely and totally addicted to reckless money printing and gigantic mountains of debt. If we stop printing money and going into unprecedented amounts of debt we are finished. If we continue printing money and going into unprecedented amounts of debt we are finished. Either way, this is all going to end very, very badly.

Wait for it... Fauxterity Austerity's fault!

The world is heading into a horrific economic nightmare, and an inordinate amount of the suffering is going to fall on innocent children.  If you want to get an idea of what America is going to look like in the not too distant future, just check out what is happening in Greece.  At this point, Greece is experiencing a full-blown economic depression. And as you will read about below, child hunger is absolutely exploding in Greece right now.  Some families are literally trying to survive on pasta and ketchup.  But don't think for a moment that it can't happen here.Sadly, the truth is that child hunger is already rising very rapidly in our poverty-stricken cities.  Never before have we had so many Americans unable to take care of themselves. Unfortunately, more poor families slip through the cracks with each passing day, and these are supposedly times in which we are experiencing an "economic recovery".  So what are things going to look like when the next major economic downturn strikes?