Financial Crisis

[flying]

Here is a pretty chart....

It is kind of similar to Flying's chart on employment a couple of pages back. (If the chart looks a bit confusing, it is because all lines are based on 0 on the x axis and 100 on the y axis with 0 being the start of the recession).

Note that the growth in consumption is consistently less with each recession.

That is a scary chart.

I know many retailers here have started the Xmas blitz early in the hope of some gain.

Seems this holiday season is going to make or break a few

Maybe stimulus 3 will be released before then & aimed at the taxpayers....

Now that would be a Santa folks could appreciate

[jazzbo]

I said long ago the US was in fact Bankrupt.

That's funny. Kuhn F. says that the USA is IN FACT bankrupt and neither Bloomberg nor Reuters nor The New York Times or The WSJ picked it up. Maybe Corsi beat you to it. Oh, well. Chapter 11 (Chapter 7?) here we come.

[flying]

typical for AlexLah. nothing really to say but wasting a whole screen page

Well at least Alex has words in his post somewhat pertaining to the subject.

I have noticed for many days now...

That many times right after I post anything I get this billboard like thing appears...

Has no words in it though & probably for good reason

TGFTIL

[midas]

But ultimately who does this idea of perpetual and all important consumption benefit ?

Please dont question the fabric of capitalism. Please go shopping.

Hang on Abrak A few posts back you were assuring us that Obama

will get USA out of this mess by preaching austerity.........and that is what

I am advocating. You cant have it both ways

[midas]

...quote

I feel I am living in a fantasy world. Nothing I hear, see or read from the "Masters" can be taken as true.

Is it all lies? Is everything all lies?

Where will I wake up tomorrow?

Congratulations on you conversion to postmodernism.

It's an Orwellian universe

http://www.businessinsider.com/michael-pan...-estate-2009-11

[Abrak]

Hang on Abrak A few posts back you were assuring us that Obama

will get USA out of this mess by preaching austerity.........and that is what

I am advocating. You cant have it both ways

Ok sorry Midas, didnt realize you were writing a few bite lines for the Obama 'austerity is good strategy' (I actually didnt suggest this would get the USA out of the mess but as no strategy will get them out of the mess, the best strategy is to sell the mess as a good thing.)

Actually I do think your post is a little 'edgy' for Obama he should go more along the lines of 'The sacrifices that 'folks' make today will be for the benefit of their children.... and their childrens children.'

Unfortunately, although I would suppose that Obama regularly checks TV for advice, he doesnt seem too taken by the idea. Now he is worried about the level of unemployment which I suspect he spotted is still creeping up (euphemism for rising at alarming rates.) Unemployment can be simply solved by redefining them as 'non-productive Government employees' or you could actually employ them to distribute 'employment benefit' (redefined from unemployment benefit) amongst themselves. As they would then be employed to shuffle papers for their own benefit they could be called 'investment bankers' (obviously you dont give them bonuses equivalent to 5x basic salary.)

[midas]

Hang on Abrak A few posts back you were assuring us that Obama

will get USA out of this mess by preaching austerity.........and that is what

I am advocating. You cant have it both ways

Ok sorry Midas, didnt realize you were writing a few bite lines for the Obama 'austerity is good strategy' (I actually didnt suggest this would get the USA out of the mess but as no strategy will get them out of the mess, the best strategy is to sell the mess as a good thing.)

Actually I do think your post is a little 'edgy' for Obama he should go more along the lines of 'The sacrifices that 'folks' make today will be for the benefit of their children.... and their childrens children.'

exactly -Obama should have been saying " do you really need to scrap your existing useable car and buy a new one needing even more credit " ?

[AlexLah]

An interesting comment made by Big Ben about the value of the derivatives.

He does not know the value (And so do others), as a contract in itself does not have any value (only cost).

Was it not the derivative/insurance contracts that had to be payed out that almost took down AIG?

[flying]

An interesting comment made by Big Ben about the value of the derivatives.

He does not know the value (And so do others), as a contract in itself does not have any value (only cost).

Was it not the derivative/insurance contracts that had to be payed out that almost took down AIG?

It was more like a joke for him.

He was asked in a question at the New York Economic club where he spoke.....

Last year you said if you could have the answer to one question what would it be?

He answered last year he wished he knew what the derivatives were worth.

So they asked now a year later if you could have the answer to one question what would it be....He laughed & said well I would still like to know what those derivatives are worth.....

Of course he is probably joking & knows quite well what they are roughly worth in claims & many reports have put it at 600 trillion or 55 times the worlds combined GDP .

I just saw this article & had to laugh a bit too......

Robbed Blind By a Lipstick Wearing Pig

[Abrak]

exactly -Obama should have been saying " do you really need to scrap your existing useable car and buy a new one needing even more credit " ?

One thing you did say, Midas, is that Bernanke couldnt create inflationary expectations in house prices. Well apparently he can. The Case Shiller index is moving up.

http://www.huffingtonpost.com/2009/10/27/h...i_n_335238.html

Now there are dead cat bounces often but at least there are some transaction volume as well.

http://www.realtor.org/press_room/news_rel...0/rebound_shows

Now I know there are lots of problems, I doubt banks are liquidating their assets fast enough etc but you can see how the general strategy is to avoid a Japan type scenario.

Now the real problem is this. Everything at the moment is based on the most loose fiscal and monetary policy in history. This is unsustainable and has be withdrawn at some stage which will probably lead to another leg down. In particular, the fiscal side of the equation (which you might refer to as Keynesian) is totally useless. If the underlying problem is debt/GDP it doesnt address the problem and may well make it worse. To me the 'cash for clunkers' is lunacy - the American consumer knows he has been overspending and wishes to deleverage and the Government borrowing on their behalf to force people to spend is just counter productive.

That is why Bernanke wants fiscal discipline. Once that is achieved he can solve the debt/GDP problem by deflating real debt through inflation (inflating asset prices) and negative interest rates. I think the basic strategy is quite sound unfortunately you need another recession to make it work in my view - Bernanke is ramping from the wrong level (and I agree with Faber (yeah I know he isnt a real economist and is a lunatic but the concept of maintaining growth and creating inflation now, could be disastrous.)

I know it isnt much of a plan but at least it is a plan. Krugman simply advocates increasing the fiscal deficit to increase growth. Now that is also a plan but to me it is a much crappier one. Now obviously he is one of the brightest economists on the planet, so maybe it is the best plan. If it is, then the outlook is just very depressing.

BTW I realize both plans totally fail to address various underlying structural problems - both plans are immoral as well.

[Abrak]

Of course he is probably joking & knows quite well what they are roughly worth in claims & many reports have put it at 600 trillion or 55 times the worlds combined GDP .

What he does know is that the US banks report their off balance sheet derivative exposure quarterly to the FDIC. Now US bank exposure at end June 2009 was US$205trn (so US$600trn for the world might even be on the low side).

Combined equity for these banks the US ones is US$1trn and M2 is US$8.5trn.

His big problem is this. That US$205trn of derivatives must increase the money supply or velocity or both. The collapse in the financial sector and the illiquid market for derivatives must at the very least effect velocity. And that is why without unprecedented monetary action, the whole financial system would probably have imploded.

[flying]

His big problem is this. That US$205trn of derivatives must increase the money supply or velocity or both. The collapse in the financial sector and the illiquid market for derivatives must at the very least effect velocity. And that is why without unprecedented monetary action, the whole financial system would probably have imploded.

Yes & these are the things that I wonder about.

Mainly is it that the system would probably implode or did it in reality implode?

What has been done to supposedly avoid it?

Yes as you say unprecedented monetary action but also as you say at what cost?

What is the inevitable fall out of that?

Not to mention that in reality it did nothing towards the cause only postponed its effect ultimately. The side prize is the devaluation of our currency & the faith that backed it.

Just things I wonder about.........

[Abrak]

Yes & these are the things that I wonder about.

Mainly is it that the system would probably implode or did it in reality implode?

What has been done to supposedly avoid it?

Yes as you say unprecedented monetary action but also as you say at what cost?

What is the inevitable fall out of that?

Not to mention that in reality it did nothing towards the cause only postponed its effect ultimately. The side prize is the devaluation of our currency & the faith that backed it.

Just things I wonder about.........

Please accept that around about a page ago, I think you said that the US was bankrupt.

If you accept that you must accept that the devaluation of your currency is really an inevitable consequency of the refinancing of a bankrupt Nation. It both boosts your growth rate and reduces your underlying liability. It is simply the easiest restructuring to do. (While the creditors take a loss, they maximise their return.)

There is less cost (you effectively pass the cost to your creditors by a quasi default) and you boost income. (If you argue that you are not boosting income because your income is devalued, please accept that your previous income relative to others was simply overstated.)

All this has already happened. China has already lost money on its treasuries. (Buying more is simply going to increase its loss.) The US has to devalue to be competitive and have a sustainable growth path. Try and look at it like the consumer driven debt model - the more you sustain the silly thing ultimately the greater the costs.

It is written in stone. It has already happened.

[flying]

Yes & these are the things that I wonder about.

Mainly is it that the system would probably implode or did it in reality implode?

What has been done to supposedly avoid it?

Yes as you say unprecedented monetary action but also as you say at what cost?

What is the inevitable fall out of that?

Not to mention that in reality it did nothing towards the cause only postponed its effect ultimately. The side prize is the devaluation of our currency & the faith that backed it.

Just things I wonder about.........

Please accept that around about a page ago, I think you said that the US was bankrupt.

If you accept that you must accept that the devaluation of your currency is really an inevitable consequency of the refinancing of a bankrupt Nation. It both boosts your growth rate and reduces your underlying liability. It is simply the easiest restructuring to do. (While the creditors take a loss, they maximise their return.)

There is less cost (you effectively pass the cost to your creditors by a quasi default) and you boost income. (If you argue that you are not boosting income because your income is devalued, please accept that your previous income relative to others was simply overstated.)

All this has already happened. China has already lost money on its treasuries. (Buying more is simply going to increase its loss.) The US has to devalue to be competitive and have a sustainable growth path. Try and look at it like the consumer driven debt model - the more you sustain the silly thing ultimately the greater the costs.

It is written in stone. It has already happened.

Yes I did say that & have said many many pages ago too.

I believe it 100% & do accept the devaluation as an effect of it.

It is not just China that has lost it is the world.

This is why when folks say ...Oh that is silly we are not bankrupt all is fine.

We are still here...........Well yes of course but in its truest sense we have all taken a hit & will continue to take a lot more. As you said.............

the more you sustain the silly thing ultimately the greater the costs.

[jazzbo]

In days gone by, old guys -- and some young guys -- could argue about the Financial Crisis, the Bankruptcy of America, the Collapse of the US Dollar, the imminent Implosion of the System, and The End of the World As We Know It... etc., in a non-moderated fashion on the park bench... now you guys don't even have to walk to the park.

[Abrak]

In days gone by, old guys -- and some young guys -- could argue about the Financial Crisis, the Bankruptcy of America, the Collapse of the US Dollar, the imminent Implosion of the System, and The End of the World As We Know It... etc., in a non-moderated fashion on the park bench... now you guys don't even have to walk to the park.

Actually Jazzbo, it is a lot more productive than that in that it envisages a solution.

Flying believes the US is bankrupt. If it is then creditors will bear a loss. Once both sides accept that, it is simply a matter of coming up with the best refinancing solution.

No imminent implosion or end of the World scenario is necessary.

Obviously it is based on the first assumption which I admit is dubious. However, exactly the same conclusion would be reached by making a much more valid assumption - that the current imbalances in the world are mutually destructive. In which case, there continuation will either eventually lead to a USA bankruptcy scenario or a very much sub-optimum growth path for the world economy.

It really is bloody easy to criticisize or make vaguely humorous jokes about the Godfather but at some point something more constructive would be more interesting.

P.S. Dont take it to heart. I am probably the most criticized poster in this thread. So I do welcome someone possibly taking that accolade away from me although you have quite a bit more work to do.

[midas]

One thing you did say, Midas, is that Bernanke couldnt create inflationary expectations in house prices. Well apparently he can. The Case Shiller index is moving up.

http://www.huffingtonpost.com/2009/10/27/h...i_n_335238.html

Now there are dead cat bounces often but at least there are some transaction volume as well.

http://www.realtor.org/press_room/news_rel...0/rebound_shows

Now I know there are lots of problems, I doubt banks are liquidating their assets fast enough etc but you can see how the general strategy is to avoid a Japan type scenario.

I think Meredith Whitney's views about the residential market are more believable because

Bernanke claimed he didnt even see this crisis coming in the first place

http://www.creditwritedowns.com/2009/11/me...-in-a-year.html

[flying]

Flying believes the US is bankrupt. If it is then creditors will bear a loss. Once both sides accept that, it is simply a matter of coming up with the best refinancing solution.

No imminent implosion or end of the World scenario is necessary.

Exactly & it is what I meant by we are still here.....but of course we are.

Countries like individuals can & do go bankrupt & they are still there.

Countries like individuals facing bankruptcy first exhaust all their credit like the US is in the process of doing. They are maxing out their cards daily.

It is not going without notice as is obviously the case. As it gets worse & it will because that is the only option at this point. The creditors will do as you suggest & start to look for the best refinancing solution. Of course they will lose as all do in the exact same way as when a individual goes over their limit. But that is the nature of it.

Of course that is overly simplified & there is much more to it because they the creditors also have their own currencies to look out for & the default of the worlds reserve currency will leave a stain even on their own. But again there is no way to stop the inevitable only slow it by maxing the smoking credit card even further.

The sooner it melts the sooner a real solution/repair/rebuild can start. It goes without saying that the slow unwind is preferred by all involved. As the alternative would be even more disruptive. But I get the feeling most think it will be painless.

It will not.....It will only be spread out.

[Abrak]

I think Meredith Whitney's views about the residential market are more believable because

Bernanke claimed he didnt even see this crisis coming in the first place

http://www.creditwritedowns.com/2009/11/me...-in-a-year.html

Midas, if you look at the Case-Shiller index it is rebounding from the wrong level, so I agree with you, that it would be very surprising if it was the bottom. (I believe Bernanke can ramp prices but he needs them at a better level first or else he needs to generate too much inflation which then becomes counter productive.)

What really upsets me about both Greenspan and Bernanke is there contention that 'the Fed cannot burst asset bubbles but it can soften their blow when they burst'. Bernanke has written copious amounts on this (all deeply flawed in my opinion.) But the general underlying logic of the policy is so illogical and unethical to me. His reasoning is based on three premises all false in my opinion. 1) The Fed is unable to ascertain when an asset bubble exists 2) detailed analysis showing that unexpected movements by the Fed will more likely damage the economy than the bubble (my main criticism of this is that if you see the policy makers view of (1) then market expectations of interest rates will be inherently too low.) 3) If the Fed genuinely believes that it is incompetent in (1) and (2) then (3) the policy of dampening its effects when it bursts are surely disastrous in the 'moral hazard' it produces in creating bubbles.

[midas]

more along the lines of 'The sacrifices that 'folks' make today will be for the benefit of their children.... and their childrens children.'

We are kidding ourselves if any government anywhere gives a stuff about our children.... and their childrens children.

Amazing Pictures, Pollution in China

http://www.chinahush.com/2009/10/21/amazin...ution-in-china/

[Abrak]

It is not just China that has lost it is the world.

Well I have to disagree with you on that one.

But I am far more optimistic than you for two reasons. One is that there are many bright guys out there who understood the game, understood the end game, many years ago. Therefore I think it is wrong to assume 'a meltdown' before change. Just because the consumption growth model ended at its logical conclusion, namely a financial crisis, it doesnt mean all structural change must have to.

I am going to quote from a speech made over 5 years ago.

Comrade.htm

Please note that not even Austrians believe you can deflate out of a debt crisis.

[flying]

It is not just China that has lost it is the world.

Well I have to disagree with you on that one.

But I am far more optimistic than you for two reasons. One is that there are many bright guys out there who understood the game, understood the end game, many years ago.

I do not disagree with the fact that a few in light of the whole will remain as always safe.

But these few are not indicative of the world.

It goes without saying that the usual fat cats not only knew about but profited from this mess.

Yet the working people have lost greatly as will their children & probably their grandchildren. These are not the poor that you have referred to in the past as the noncontributing.

Did you happen to see the hearings on Capital Hill broadcast live here today in the US?

One congressman asked Geithner to quit. TO which Geithner replied no & do you realize what a mess we inherited etc from the previous admin? To which he was asked...What position did you hold during that period? To which Geithner replied...President of the New York FED.

Another said to Geithner...I do not feel you should quit I feel you should never have been hired.

He is basically being roasted today. The time for talk about what happened before is over. His economic team is now in the drivers seat. He has said he is not for more regs...He is not for reinstating the Glass Steagall... He refused to answer why certain folks were given 100 cents on the dollar from TARP etc..etc..etc

Sad to say in all this I hear nothing about what is being done only why they have been given such a lousy job to begin with. I cannot help but wonder why did he accept a job that he now has only excuses about doing.

[Abrak]

BTW things are getting pretty out of hand on the baht exchange rate.

Obviously there is a lot of speculation as well as current a/c surplus so forex reserves have risen US$20bn (actually more). Now that would normally feed through to the money supply and inflation. In a policy which is virtually reverse QE the BoT has been sterilizing these flows by issuing bonds. In fact October bond auctions were a rather heroic US$20bn, roughly equal to GDP.

Sterilised debt has now reached 20% of GDP double China. It means that 20% of deposits are basically sitting at the BoT - equivalent about 17% of Money Supply. Try unwinding that. Essentially it is deferred inflation or deferred currency appreciation. And anyone can see this so pressure on the baht will increase. US$20bn of sterlisation this year. A 9% current account surplus and there are still people out there who actually argue that the baht is overvalued. Heroic efforts by the BoT a magnificent way to lose money.

It will make me laugh if Korn has to introduce capital controls.

[flying]

[Naam]

financial crisis (i think the cat exaggerates a bit. perhaps it belongs to Midas?)

[flying]

Explains some of the too big too fail ratings.....

[Naam]

Explains some of the too big too fail ratings.....

no it does not explain anything Flying! these figures in context with negative only comments are only used by those who have either no <deleted> idea what derivatives are or by those who know but use the figures to cry wolf because they have an own agenda.

i don't know to which category you belong but i can't imagine that after a year's discussion you are still ignorant.

[flying]

these figures in context with negative only comments

Well I do not know which category in your opinion I belong either......

but in my mind that would be neither of those you mentioned;)

Knowing your dislike for info from many sources I read I am sure you will dislike this explanation but..........

It shows that of the current notional value of these derivatives....203 Trillion

97% or 196 Trillion reside on 5 banks sheets. Same five that seems to pop up again & again.

It also shows that GS is in fact not a bank & should have received no consideration as such. It is a hedge fund plain & simple.

Lots more boring info here...dont worry it is not a blog

OCC's Quarterly Report on Bank Derivatives Activities

[flying]

Baby Steps

FED Beaten: Bill To Audit FED Reserve Passes Key Hurdle

In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.

Continued at link above

[midas]

Explains some of the too big too fail ratings.....

no it does not explain anything Flying! these figures in context with negative only comments are only used by those who have either no <deleted> idea what derivatives are or by those who know but use the figures to cry wolf because they have an own agenda.

i don't know to which category you belong but i can't imagine that after a year's discussion you are still ignorant.

oh dear Naam did flying hit the nerve again

I know its scary isnt it ?