Oil's energy contribution has declined by about 12% since 1999. The world's economies have also declined by about 12%. (Using conventional metrics, which are time delayed determinations, this will only be seen in hind sight). The massive destruction of asset values now occurring testifies to it happening.
Peak is well behind us, world economies have peaked and will continue to decline.
Posted: Tue Sep 23, 2008 8:28 am Post subject: Paulson bailout plan is attempt to avoid hyperinflation
According to this writer, the Federal Reserve's balance sheet is used up and it can no longer loan money using treasuries. You may remember that last week, there was a credit pinch in the system and they literally printed out $40billion dollars out of thin air (classic hyperinflation). This writer says that to avoid further hyperinflation, they US gov't must now become the lender.
Notice the writer also writes an interesting proposition, which a friend raised with me just last night, and that is this, maybe, just maybe, the boys in power are sacking the last loot out of Rome before fleeing the jurisdiction. They have 4 months left in office to take as much booty as they can. If America fails, what do they care, they will be long gone, literally, and physically, out of the country. Keep in mind that the Bush family bought a huge ranch in Paraguay just a few years ago.
Quote:
Paulson and Bernanke ratchet up the blackmail talk
by Jerome a Paris
Tue Sep 23, 2008 at 06:09:36 AM PDT
Paulson, Bernanke Tell Lawmakers Urgent Action Needed on Treasury Plan
WASHINGTON -- U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged swift action on a Treasury Department plan to buy illiquid mortgage-linked securities and avoid severe spillover effects on the economy.
Mr. Paulson cautioned lawmakers against letting the plan get bogged down in a debate over unnecessary additions.
"Unnecessary additions" - things like accountability, transparency, making sure that the crisis does not happen again, and making sure that it solves the underlying problem. But nope, no "bogging down"
* Jerome a Paris's diary :: ::
*
The message could not be clearer - they are not avoiding the brinkmanship - they are escalating it, in the (not wholly unreasonable, given the recent past) expectation that the Democrats in Congress will fold, out of fear of being blamed for the tumbling stock market prices as the plan is delayed.
So, just for the record, a few arguments:
* the stock market is going down again NOT because the plan is delayed but because, even if the $700 billion gift to the banks is granted, it will still not solve the underlying situation;
* as the plan is currently drafted, giving $700 billion to the banks to relieve them of their bad assets protects the very institutions or people that lost money by taking stupid risks (and having seen it from the inside, believe me, it was truly stupid) without proposing any upside for taxpayers, nor any reform that would at least avoid the same mistakes from happening again;
* in the up leg of the bubble, the problem WAS too much liquidity (which helped take silly risks when these were not properly assessed); today's problem is massive deleveraging - that deleveraging is NOT caused by lack of liquidity, but by risk aversion (investors no longer want to invest in anything that looks even remotely risky). Throwing more money at that problem will do nothing to solve it. It will create simply a circuit whereby the government creates new Treasuries, hands them over to the FED, which uses them to create more cash, which it trades with the banks for dubious assets; the banks will use the cash to buy Treasuries. It's a closed circle which helps no one but the banks (and the Fed, see below).
* the real worry is on actual economic activity, which is straining under the twin burdens of asset price depreciation (house prices crashing, leading to lower incomes for people, less construction activity and foreclosures) and the credit crunch (business no longer having access to credit to develop their activity). Given that companies and households are also deleveraging (reducing their debts or increasing their savings), or are about to be forced to do so, the real need is to inject actual revenues, ie wages coming from real activity, in the economy, and NOT debt. What government needs to do is to spur real economic activity - as it were, there are whole sectors begging for it, like investment in public transporation or renewable energy infrastructure.
The plan from the Bushies helps stricly no one beyond providing TEMPORARY relief to banks, which might be enough but does not quite explain their willingness to engage in such brinkmanship.
Which makes the following suggestion, emailed to me by a US central banker friend, all the more intriguing:
Jerome,
I've been puzzling why Paulson would propose legislation which is so obviously dictatorial, extra-legal and dangerous, even with the careful orchestration of the Lehman Brothers/Reichstag Fire.
I think I've just figured out why they are doing it.
All the Fed's alphabet soup of emergency liquidity facilities innovated over the past year were structured around repurchase agreements. Toxic waste securities were used as collateral for US Treasuries and dollar credit at 85 percent of face value. But as each facility expires, it has to be rolled over and increased to keep pace with the implosion of credit in the interbank markets. Well over half the balance sheet assets of the Fed have been loaned out in this way, perhaps a critical amount in excess of this estimate. Without recapitalisation, the Fed is at risk of failure in the midst of this crisis. Its Enron-style accounting for the toxic waste makes it very vulnerable to a default by any of the repo counterparties it oversees and limits its ability to enforce any constraints as well.
The Paulson plan will provide a one off opportunity for banks to take their toxic collateral back and sell it at a Paulson-determined price for cash. He issues Treasuries to finance the plan which increases the supply available. He selectively decides winners and losers, of course in making the scheme available and pricing assets, creating arbitrage opportunities and survivor bias in the process.
In the meanwhile, the removal of the toxic waste from the Fed balance sheet and redeposit of Treasuries and cash as the repos unwind gets the Fed off the hook for having hypothecated most of its assets against worthless toxic waste at Enron-styled false valuations.
If I'm right, the Paulson Plan recapitalises the Fed without ever publicly admitting that it was dangerously overextended.
My friend provides this video which says Fed has lent out $600 billion of its $800 billion balance sheet.
Real question in my mind is whether the $1 trillion from the Paulson Plan goes to recapitalise the Fed as I suggest, or whether it goes into offshore flight capital before the criminal mafia in Washington and Wall Street flees the jurisdiction.
The theory here is that the Fed has destroyed its balance sheet by taking on increasingly large chunks of non performing assets (the "toxic waste" made from mortgage-backed securities and the like) in exchange for loans of "real" cash to banks that may still end up not repaying them.
It is effectively "broke." This is not what is supposed to happen to a central bank, which can print money without restriction, so let me explain what this means: it can no longer help the banks in a non-inflationary way. In order to take on more toxic collateral from the banks, it would need to actually print money, which would immediately be visible and would be seen as very inflationary. Instead, by getting government to take on more public debt, the impact is diluted in a much larger pool (public debt, rather than cash).
So this is a desperate gamble by Paulson and Bernanke to avoid the run on the dollar that would be triggered by direct cash creation.
Obviously, as the market shows (with the euro up by 6 cents since the plan was announced Thursday night, and gold and oil similarly massively up), worries about inflation have not quite been killed, but they have been kept to a manageable scale.
At this point, of course, the goal is to avoid a bigger crash before the election.
Posted: Tue Sep 23, 2008 9:49 am Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
It's just helping to postpone hyperinflation _________________ Just look at us. Everything is backwards; everything is upside down. Doctors destory health, lawyers destroy justice, universities destroy knowledge, governments destroy freedom, the major media destroy information and religions destroy spirituality.
Posted: Tue Sep 23, 2008 10:33 am Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
Classic megalomania. I'm not saying you're wrong, just that if the writer is correct, it's symptoms would overlap and reinforce with the symptoms of antisocial personality disorder and malignant narcissism we've observed.
Quote:
"The essential feature for the diagnosis is a pervasive pattern of disregard for, and violation of, the rights of others that begins in childhood or early adolescence and continues into adulthood."[1] Deceit and manipulation are considered essential features of the disorder. Therefore, it is essential in making the diagnosis to collect material from sources other than the individual being diagnosed.
Such belief would require that
1) a complete looting of America would succede.
2) Americans will put up with a central bank taking all their rights
3) no one would realize it
4) afterwords they could just take their goodies and make the "get away"
Reality:
1) It seems to have worked
2) Once Americans realize what has happened, they will be faced with a crisis of identity. If there's anything that China could teach a wana-be dictator, it's that it takes more than one generation to slowly boil a frog. They boiled it too fast, and now the frogs are pissed. The more they talk, the more pissed they get, and the heat is rising faster now than before. The security guard just flipped on the light (financial meltdown) and their hands are in the cookie jar. No where to hide the blame. Gotcha.
3) People will eventually realize it because some of us already do and we're talking. We've been talking for years saying "this is what's going to happen" and all the sheep baah'd "no it won't. they won't do that!" Well now it is, and yes they did, and those same sheep are realizing that not only did we call it to a T, but they aren't sheep. They were lied to. And as they see their life savings and retirements and stock options turn into nada, they're realizing that this isn't a partisan issue: it's a theives and liars issue.
4) How can I say this...
The left is already steaming mad, but typically they're readers and writers. Yesterday on NPR, Newt Gingrich was talking about how Americans had been sold out to the banks, and no leader for the next 20 years would be able to do anything meaningful with the economy because of it, bla bla "great depression." Newt is really the father of the alliance between the Christian right and the republican party. The religious right are typically talkers and organizers. When they realize they were lured into assisting "the wicked" in their theft, and bringing about the mass suffering of all people and all economies of the world. Right on the heals of peak-oil, dissasters, disease, etc...?
Far be it from me to call foul on a religious basis here, but Christians kinda have a book about this one, and it doesn't end well for "the deceiver" and his agents.
It all more or less fits, except TSHTF a few months too soon to blame it on the next guy. So one day or the next, Chrisitans are going to connect the dots and conclude that since their actions and complicity inarguably led to mass suffering, pain, hardship and death, Satan must have led them astray.
I may not agree with him most of the time, but Newt's a smart guy.
Deuteronomy 32:35
Quote:
Vengeance, and recompence are mine; in due time, their foot shall slip: for the day of their calamity is at hand, and the impending things are hastening upon them.
For those on the other end of the "moral recoil" from this, best bug out now and pray to ... well whatever it is they believe in because it obviously isn't God ... the anrgy mob doesn't follow you.
Best of luck, but don't come looking to me for help. We all started yelling at them 20 years ago that this was a bad idea.
seahorse2 wrote:
Notice the writer also writes an interesting proposition, which a friend raised with me just last night, and that is this, maybe, just maybe, the boys in power are sacking the last loot out of Rome before fleeing the jurisdiction. They have 4 months left in office to take as much booty as they can. If America fails, what do they care, they will be long gone, literally, and physically, out of the country. Keep in mind that the Bush family bought a huge ranch in Paraguay just a few years ago.
As the world listens to Messrs. Paulson and Bernanke argue for support of their three-page $700 billion manifesto, I wish to focus your attention on a central aspect of the credit crisis – the scale and scope of the credit derivatives octopus.
To illustrate, consider this: If scientists can “identify all the approximately 20,000-25,000 genes in human DNA”, and “determine the sequences of the 3 billion chemical base pairs that make up human DNA,” then why can’t the financial scientists identify the extent of the credit derivatives market?
This is a national, if not global, emergency. In such an emergency, is it acceptable to say, “We don’t know what we don’t know?” Or, “It’s too hard to figure out.” Nonsense. If this emergency were a war, would it be acceptable to say, “We can’t build that tank or missile because we don’t know where the steel is”? Of course not. So, why is it acceptable to say we don’t know the extent of the credit derivatives octopus?
This is everyone's big question too if they have been watching the proceedings on Capitol Hill and they try to grasp the problem. Can anyone explain succinctly just exactly WHY it is so difficult to price the various derivatives?
What fabulous irony that the crux of our free market economy meltdown is our inability to establish a PRICE on securities!
I mean, if they get this thing wrong, it could send the dollar crashing to hell.
Karl Denniger sure seems more knowledgeable than anyone else on the issue and how to deal with the uncertainty. I wish HE were asking the questions of Paulson and Bernanke right now. Below is his solution that he is asking everyone to demand be put in front of Senators.
The solution is to pass a comprehensive regulatory reform bill that:
-Reduces leverage to safe levels. This needs to happen over the next two quarters. Company reports shall be required to show that financial leverage is within statutory limitations, or enforcement action will follow.
-Put Credit Default Swaps on a regulated exchange. This ensures the insured party can be paid and prevents the nightmare scenario of a chain-reaction of defaults across the system. The equity options markets are a good example of how this needs to be structured. No company may be allowed to write these derivatives without the capital backing necessary for performance.
-End fictitious accounting practices. Every company must mark all of their assets to current market value on their quarterly and annual statements. Each asset must have its own accounting as to its value. This way, full transparency is brought to the marketplace and investors know exactly what they are buying. This will end the practice of hiding unhealthy companies within the larger herd of structurally sound companies, as is the current practice in the US banking system. Capital will immediately flow to the healthy companies and the assets of the unhealthy companies will be taken into the market and deployed to their most efficient use. The current practice only serves to cast a pall of doubt over the entire sector until it fails en masse.
Note that these proposals end the current “crisis” within two quarters. These proposals do not cost the taxpayer one dime. They fix the problem, and most importantly, they eliminate the enormous moral hazard that is present in any derivation of the current Paulson/Bernanke proposal. They establish the framework for building a healthy, stable, and useful financial system in the United States. “Bailouts” and dark-of-night enforcement changes are obviated.
The Congress retains all of its financial oversight and regulatory powers. The Administration is consigned to its enforcement role, as the Founders had set forth.
I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.
I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.
I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.
....PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.
YOURS FAITHFULLY MINISTER OF TREASURY PAULSON
_________________ "The problems of today will not be solved by the same thinking that produced the problems in the first place." - Albert Einstein
Posted: Tue Sep 23, 2008 11:04 am Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
Leanan, that looks like our very own Prariemule channeling
Mr. Nigerian to me. Ron Paul wrote a fantastic piece that
is on www.cnn.com right now. As you might have guessed
he is against a bailout.
Joined: Apr 06, 2006 Posts: 3626 Location: 3 miles NW of Champoeg, Republic of Cascadia
Posted: Tue Sep 23, 2008 11:06 am Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
Didn't realize pteranodons were so witty.
Pols are at least showing meager amounts of spine. If you look at who's lining their pockets you truly despair:
Quote:
Top Contributors
Senator Charles E. Schumer 2003 - 2008
Contributor Total
Citigroup Inc $80,800
UBS AG $79,750
Paul, Weiss et al $67,000
Kasowitz, Benson et al $64,250
MetLife Inc $59,000
Goldman Sachs $58,040
Morgan Stanley $57,000
Guardsmark Inc $54,000
Lehman Brothers $53,750
Merrill Lynch $50,250
JPMorgan Chase & Co $47,800
Joined: Mar 07, 2007 Posts: 393 Location: Holland, Belgica Foederata (Republic of the Seven United Netherlands)
Posted: Tue Sep 23, 2008 12:48 pm Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
efarmer wrote:
... Ron Paul wrote a fantastic piece that
is on www.cnn.com right now. As you might have guessed
he is against a bailout.
+1
A summary for those who don't want to read it all (it's worth your time though):
"Many Americans (...) thought the economy was booming (...). Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Laws passed by Congress such as the Community Reinvestment Act required banks to (...) lend to people who normally would be rejected as bad credit risks.
These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.
Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment (...). When builders realize they have overbuilt and have too many houses to sell, (...), they seek to recoup as much of their money as possible, even if it means lowering prices drastically.
This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners (...) and some losers (...).
The government doesn't like this, however, and undertakes measures to keep prices artificially inflated.
I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to (...) keep those assets trading at prices far in excess of what any buyer would be willing to pay.
(...) Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.
(...)
The solution to the problem is to end government meddling in the market. (...) But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.(...)"
Posted: Tue Sep 23, 2008 12:49 pm Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
I love it. We're going to avoid hyperinflation by...printing lots and lots of money. _________________ The whole of human history is a refutation by experiment of the concept of "moral world order". - Friedrich Nietzsche
Posted: Tue Sep 23, 2008 1:58 pm Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
seahorse2 wrote:
Notice the writer also writes an interesting proposition, which a friend raised with me just last night, and that is this, maybe, just maybe, the boys in power are sacking the last loot out of Rome before fleeing the jurisdiction.
I'd say more than maybe that this is exactly what is happening. The banking system is like New Orleans after Katrina and now Paulson and his buddies are running in to grab HD TVs, boxes of beer and anything of value that might be left.
Posted: Tue Sep 23, 2008 3:25 pm Post subject: Re: Paulson bailout plan is attempt to avoid hyperinflation
Right after the $700 billion bailout was announced, we saw a sudden rise in the AUD/USD exchange rate, along with a rise in the price of oil (in terms of $US). Both of which can be explained as a fall in the US dollar, aka instant inflation.
The prospect of suddenly conjuring up of such a huge amount of money effectively out of thin air has to have the effect of devaluing the dollars that already existed out there. After all, $700b is so huge it's actually a significant fraction of the total money supply - roughly 10% of the M2, according to the recent figures.
So even if the bailout works in "saving" the US economy, the cost is shared amongst anyone who was already a participant in the US economy by having any US dollar denominated assets. All they're really doing is sharing out the pain: the consequences of bad choices made by the investment bankers are going to be shared out equally.
When they make huge profits, they keep it all to themselves.
When they screw up and makes losses, the losses must be shared.
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