Financial Crisis

[midas]

i am describing possibilities Midas which has nothing to do with giving credit to anybody. besides, the German people have no say what is decided by the politicians in power. it is unfortunate that Germany, as opposed to Switzerland, does not have a "referendum veto". "Weimarer Republic" and the then huge inflation is too far fetched and nothing but gloom&doom polemic.

read my lips! in the long run monetising debt by inflation is the only way out for quite a number of countries, the leader being the U.S. of A. and the first steps have been made by the ECB (Trichet buying Italian and Spanish bonds, = Q€1, giving the shorters a kick in the face). after WWII people in various countries have lived years with an inflation rate of 10-15% and survived and... they will survive in future.

Saaaay that sounds like a future prediction.

Seems to me that QE2 in the US only resulted in increasing unemployment and increases in food and energy costs so I'm not sure that central banks can inflate their way out without a ruinous currency crisis or at least a riot provoking stagflation and I think they, along with their bankster masters, know that. Even the most powerful in the end cannot prevail against the revolting masses.

“the German people have no say what is decided by the politicians in power “ actually that says it all in some ways regarding what is wrong with the system and which is why the anarchists and computer hackers will just keep intensifying their efforts . It will ultimately be challenged by " revolting masses " as cloudhopper says and wherever they are in Europe they have just as much ability to create chaos as we saw in the UK last week.

And when you say various countries have lived for years with high inflation rates, never before in recent history have we seen real wages plummeting to this degree while simultaneously employment and future prospects for Europe's youth are nothing short of dismal and food prices can only go one way.

People are not doom and gloom as you often describe them in this thread. I think they simply see harsh reality and understand that ultimately the financial system based on Monopoly money is bound to fail.

Edited August 13, 2011 by midas

[Naam]

People are not doom and gloom as you often describe them in this thread. I think they simply see harsh reality and understand that ultimately the financial system based on Monopoly money is bound to fail.

ultimately that might be the case, but ultimately the people will not only see but suffer the harsh realities and ultimately the bastards in power who invented and use the present system to their advantage will prevail.

that's the harsh reality you and i have to accept whether we like it or not.

[midas]

People are not doom and gloom as you often describe them in this thread. I think they simply see harsh reality and understand that ultimately the financial system based on Monopoly money is bound to fail.

ultimately that might be the case, but ultimately the people will not only see but suffer the harsh realities and ultimately the bastards in power who invented and use the present system to their advantage will prevail.

that's the harsh reality you and i have to accept whether we like it or not.

Here is an interesting interview with Max Keiser in which he says the war is on against “the bastards in power “

and it doesn't even have to involve only violence. He predicts mass defaults by the public as an effective retaliatory tool

such as mass defaults on mortgages, credit cards even government license fees.

[churchill]

It's all about confidence ..

We talked about HFT a year ago - now people see it - they are beginning to loose confidence in governments , markets , currencies .... and so where do we go ......? Question Mark - Naam

[Abrak]

Saaaay that sounds like a future prediction.

Seems to me that QE2 in the US only resulted in increasing unemployment and increases in food and energy costs so I'm not sure that central banks can inflate their way out without a ruinous currency crisis or at least a riot provoking stagflation and I think they, along with their bankster masters, know that. Even the most powerful in the end cannot prevail against the revolting masses.

Actually this pretty much sums up most of this thread.

I dont know that there is anyone on it that actually believes in a paper money system not being subject to ever increasing lack of confidence.

But at the end of the day there are existing assets that are distributed amongst players.

There are those who perhaps see hyperinflation as the end game and believe that the assets will get distributed more towards the rich and the powerful. And there are those who believe that the end game is 'revolution' where presumably assets are confiscated and redistributed amongst the needy.

'Even the most powerful cannot prevail against the revolting masses'. Basically a 'Marxist' at heart.

Good luck mate. That is all I can say.

[Naam]

It's all about confidence ..

We talked about HFT a year ago - now people see it - they are beginning to loose confidence in governments , markets , currencies .... and so where do we go ......? Question Mark - Naam

we keep on stumbling, to left and to the right, but slowly and steady forward... as mankind always did. the powerful swing the hammer... as they always did. the sheeple are used as anvil... as they were always used. basically nothing will change except the names and faces of the powerful.

p.s. gold will not replace fiat money

[12DrinkMore]

People are not doom and gloom as you often describe them in this thread. I think they simply see harsh reality and understand that ultimately the financial system based on Monopoly money is bound to fail.

Even now most of the people I meet are optimistic that the "BIP's" will sort things out and this is simply a bit of a tough stretch to get behind us. And very very few have an inkling about the financial system.

They cannot relate to this GDP, PMI, etc stuff, all that matters is personal cash in and cash out, and whether the house price is rising. Anything else is well outside their sphere of influence, so its best ignored, except the odd jibe at the EUR region. That's not our problem, right?

[midas]

It's all about confidence ..

We talked about HFT a year ago - now people see it - they are beginning to loose confidence in governments , markets , currencies .... and so where do we go ......? Question Mark - Naam

Yes I think so as well Churchill

I mean here is just an example of what happened recently in Japan so it makes you wonder

how rotten things could be in the US and euro zone governments.

" In interviews and public statements, some current and former government officials have admitted that Japanese authorities engaged in a pattern of withholding damaging information and denying facts of the nuclear disaster — in order, some of them said, to limit the size of costly and disruptive evacuations in land-scarce Japan and to avoid public questioning of the politically powerful nuclear industry. As the nuclear plant continues to release radiation, some of which has slipped into the nation’s food supply, public anger is growing at what many here see as an official campaign to play down the scope of the accident and the potential health risks. "

http://www.nytimes.com/2011/08/09/world/asia/09japan.html?_r=3&pagewanted=all

[midas]

People are not doom and gloom as you often describe them in this thread. I think they simply see harsh reality and understand that ultimately the financial system based on Monopoly money is bound to fail.

Even now most of the people I meet are optimistic that the "BIP's" will sort things out and this is simply a bit of a tough stretch to get behind us. And very very few have an inkling about the financial system.

They cannot relate to this GDP, PMI, etc stuff, all that matters is personal cash in and cash out, and whether the house price is rising. Anything else is well outside their sphere of influence, so its best ignored, except the odd jibe at the EUR region. That's not our problem, right?

yes well I keep asking will they still be using the terms " recession " and " economic recovery " throughout this decade?

[12DrinkMore]

yes well I keep asking will they still be using the terms " recession " and " economic recovery " throughout this decade?

Recession? I didn't think we were having any of that. Somehow the GDP manages to crawl along in the positive region. Amazing.

But here we go, there is FAR TOO MUCH CASH sloshing about in the system. Yep, lots of nice USD's (and EUR's and GBP's) all without a home except for bank accounts earning how much? Well, now they will CHARGE you for it!!!!!

http://www.bloomberg.com/news/2011-08-12/market-wary-investors-stretch-fdic-limits-to-insure-millions-in-accounts.html

Banks may start charging retail customers for large deposits because they're already holding so much cash, said Geller of Market Rates Insight. That's because deposits cost banks money for FDIC insurance assessments while loan demand remains weak, Bankrate's McBride said.

Unusually high cash deposits prompted Bank of New York Mellon Corp. (BK), the world's largest custody bank, to impose fees of 0.13 percent on some institutional clients.

Hey Ben!!!! BEN!!!! BEN!!!!

Stop! That's enough cash!

It ain't working Ben! We need plan 'B'.

[midas]

But here we go, there is FAR TOO MUCH CASH sloshing about in the system. Yep, lots of nice USD's (and EUR's and GBP's) all without a home except for bank accounts earning how much? Well, now they will CHARGE you for it!!!!!

http://www.bloomberg.com/news/2011-08-12/market-wary-investors-stretch-fdic-limits-to-insure-millions-in-accounts.html

Banks may start charging retail customers for large deposits because they're already holding so much cash, said Geller of Market Rates Insight. That's because deposits cost banks money for FDIC insurance assessments while loan demand remains weak, Bankrate's McBride said.

Unusually high cash deposits prompted Bank of New York Mellon Corp. (BK), the world's largest custody bank, to impose fees of 0.13 percent on some institutional clients.

[/size]Hey Ben!!!! BEN!!!! BEN!!!!

Stop! That's enough cash!

It ain't working Ben! We need plan 'B'.

I don't pretend to have written the following passage. It was written by a contributor to ZH by the name of Seer and I read it today and I think it has so much in common with what you have just written

"It's really funny people still don't understand jack shit about the problem. It isn't spending, it isn't taxing, and no printing won't solve it neither."

Don't agree. It IS all about spending. Spending is consumption, and, unless one just fell off the turnip truck, consumption has been The game (and why we're so compelled to protect against discussing it being the root problem).

Do people really believe that all of a sudden TPTB decided that they just all wanted to rise up and fuc_k with the plebes? Think that they think that they could control the outcome of such? I don't. Further, I believe that this is all occurring because our current consumption levels cannot be maintained, let alone increased. If there was plenty to go around then there's no need to stir this all up: ALL wars and disturbances have at their core battles over resources. This is FUNDAMENTAL shit, this is what happens to all things demonstrating perpetual growth in a petri dish!

TPTB have only two methods for going forward (well, three*, but voluntary suicide by themselves isn't really on the radar):

1) Grab more control and by time by locking people down;

2) Tell everyone the truth, that we just cannot continue to go forward consuming like we do because the planet won't meet our demands- this, of course, would be perceived by the masses as being some conspiracy, in which case the truth would fail (and be nicely filled up by the empty hole of dis-logic, in a fashion like abiotic oil serves).

* Power doesn't cede itself voluntarily. It's merely a possible path, but not probable.

[churchill]

yes well I keep asking will they still be using the terms " recession " and " economic recovery " throughout this decade?

Recession? I didn't think we were having any of that. Somehow the GDP manages to crawl along in the positive region. Amazing.

But here we go, there is FAR TOO MUCH CASH sloshing about in the system. Yep, lots of nice USD's (and EUR's and GBP's) all without a home except for bank accounts earning how much? Well, now they will CHARGE you for it!!!!!

http://www.bloomberg.com/news/2011-08-12/market-wary-investors-stretch-fdic-limits-to-insure-millions-in-accounts.html

Banks may start charging retail customers for large deposits because they're already holding so much cash, said Geller of Market Rates Insight. That's because deposits cost banks money for FDIC insurance assessments while loan demand remains weak, Bankrate's McBride said.

Unusually high cash deposits prompted Bank of New York Mellon Corp. (BK), the world's largest custody bank, to impose fees of 0.13 percent on some institutional clients.

Hey Ben!!!! BEN!!!! BEN!!!!

Stop! That's enough cash!

It ain't working Ben! We need plan 'B'.

I think Ben has done his best but There is not a lot more that he can do --- We need leadership from Politicians now ...and ( I cannot see anyone out there at this time ! )

The Economy and currencies can work through this and if leadership is not coming from the west then look east .....

Edited August 13, 2011 by churchill

[ronz28]

I don't mind some debt being passed to future generations. Is my generation to build and pay for all the highways, airports, harbors, ports, cities, dams, water reservoirs, flood control facilities, sewage treatment plants, dumps, water purification plants, schools, etc. and pass it along fully paid for to future generations? There is another side to the balance sheet besides this focus on the debt side. Financing large scale long term productive assets paid for at a reasonable price with long term debt is the efficient thing to do.

Yes, debt is getting out of hand with the tax cuts while carrying out wars, etc.while putting it on the credit card. That type of uncollateralized debt is just wrong. If you don't want to pay for it just don't do it.

People who have paid for social security or pensions on an actuarially sound basis should not have their funds cut by a government that spends beyond its means on other things. Nor should 15 related people who haven't paid a dime into social security or a pension get paid anything from the funds unless the worker paid extra for that specific beneficiaries future payments.

Its bad enough that old people are stiffed of interest returns on bank deposits to help pay for some bankers multi-million dollar salaries and/or to cover prior thefts and then have their pensions cut to pay for protecting the wealthy's 10 houses, country estates, etc. while the wealthy pay a lower tax rate than other taxpayers due to the tax loop holes they enjoy that are not available to others so that their effective tax rate is lower than their secretary's. Those that pay nothing in income taxes get somewhat of a free ride too, but at least they all pay sales taxes, property taxes (included in rent if they don't own), user fees, etc. User fees can get out of hand too like my $344 city water/sewer bill last month during this 100+ degree weather.

[12DrinkMore]

A lot of points, but I'll take this one

People who have paid for social security or pensions on an actuarially sound basis should not have their funds cut by a government that spends beyond its means on other things. Nor should 15 related people who haven't paid a dime into social security or a pension get paid anything from the funds unless the worker paid extra for that specific beneficiaries future payments.

Where in the world are social security payments made on a "financially sound basis?"?

They are all paid out of current taxation/increased debt.

Or give me an example of a pension scheme that is run on a financially sound basis? The state pension schemes are all paid out of current taxation/increased debt and the company schemes are all struggling and will continue to struggle until they ultimately fail to meet defined benefits obligations.

Moving on, from the Beeb,

Are markets bonkers?

http://www.bbc.co.uk/news/business-14488482

I'll just take this

Here's a chilling statistic: the share prices of Royal Bank of Scotland and Lloyds are more than 50% below what taxpayers paid for their huge stakes in these banks at the height of the banking crisis at the end of 2008

And I thought that they were going to be sold off at a huge profit and solve all the government's financing needs for the millennium. Jeeze. was I naive.

Edited August 13, 2011 by 12DrinkMore

[churchill]

They are going around in circles ....

' Italy’s economy minister has said that a solution to the euro zone’s current debt crisis would be the creation of euro bonds, according to a report published Saturday.'

is this where they will end up ?

But German Finance Minister Wolfgang Schaeuble reportedly rejected the call, said Reuters.

“I rule out euro bonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,”

http://www.marketwatch.com/story/italy-calls-for-creation-of-euro-bonds-report-2011-08-13?link=MW_home_latest_news

[Naam]

“I rule out euro bonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,”

Schäuble is dàmn right! the ClubMed would go on accumulating debt on the back of those who act responsibly.

Edited August 14, 2011 by Naam

[churchill]

[midas]

His very last words say it all “ The only way people are going to trust it “ hallelujah

[manarak]

“I rule out euro bonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,”

Schäuble is dàmn right! the ClubMed would go on accumulating debt on the back of those who act responsibly.

FREE MONEY for the PIIGS!!!

YAY!!!

[manarak]

But here we go, there is FAR TOO MUCH CASH sloshing about in the system. Yep, lots of nice USD's (and EUR's and GBP's) all without a home except for bank accounts earning how much? Well, now they will CHARGE you for it!!!!!

http://www.bloomberg.com/news/2011-08-12/market-wary-investors-stretch-fdic-limits-to-insure-millions-in-accounts.html

Banks may start charging retail customers for large deposits because they're already holding so much cash, said Geller of Market Rates Insight. That's because deposits cost banks money for FDIC insurance assessments while loan demand remains weak, Bankrate's McBride said.

Unusually high cash deposits prompted Bank of New York Mellon Corp. (BK), the world's largest custody bank, to impose fees of 0.13 percent on some institutional clients.

[/size]Hey Ben!!!! BEN!!!! BEN!!!!

Stop! That's enough cash!

It ain't working Ben! We need plan 'B'.

I don't pretend to have written the following passage. It was written by a contributor to ZH by the name of Seer and I read it today and I think it has so much in common with what you have just written

"It's really funny people still don't understand jack shit about the problem. It isn't spending, it isn't taxing, and no printing won't solve it neither."

Don't agree. It IS all about spending. Spending is consumption, and, unless one just fell off the turnip truck, consumption has been The game (and why we're so compelled to protect against discussing it being the root problem).

Do people really believe that all of a sudden TPTB decided that they just all wanted to rise up and fuc_k with the plebes? Think that they think that they could control the outcome of such? I don't. Further, I believe that this is all occurring because our current consumption levels cannot be maintained, let alone increased. If there was plenty to go around then there's no need to stir this all up: ALL wars and disturbances have at their core battles over resources. This is FUNDAMENTAL shit, this is what happens to all things demonstrating perpetual growth in a petri dish!

TPTB have only two methods for going forward (well, three*, but voluntary suicide by themselves isn't really on the radar):

1) Grab more control and by time by locking people down;

2) Tell everyone the truth, that we just cannot continue to go forward consuming like we do because the planet won't meet our demands- this, of course, would be perceived by the masses as being some conspiracy, in which case the truth would fail (and be nicely filled up by the empty hole of dis-logic, in a fashion like abiotic oil serves).

* Power doesn't cede itself voluntarily. It's merely a possible path, but not probable.

Consumption IS the problem, i.e. too much of it, fueled by printed money.

I have no time to delve here into the fundamentals, but the mechanism is the following: print money (i.e. lend it), make people consume and pay, the people making the profits use the money to buy real assets (real estate, gold, etc.), the money value depreciates (inflation), people work to repay, not all is repaid, but it doesn't matter, as the previous money is reinjected into the system, along with new printed money (new loans).

It is monopoly money.

[12DrinkMore]

I have no time to delve here into the fundamentals, but the mechanism is the following: print money (i.e. lend it), make people consume and pay, the people making the profits use the money to buy real assets (real estate, gold, etc.), the money value depreciates (inflation), people work to repay, not all is repaid, but it doesn't matter, as the previous money is reinjected into the system, along with new printed money (new loans).

It is monopoly money.

Sounds like a fairly fundamental analysis to me.

[12DrinkMore]

p.s. gold will not replace fiat money

Yes, maybe those who reckon it could can answer the following?

The banks currently issue vast debt at will, and so do the central banks.

Under a gold backed system, if a bank issues a GBP 200,000 mortgage, where will the gold backing come from?

All those nice GBP's paid to the seller can presumably be converted instantly into nice solid lumps of gold at the official exchange rate, which is presumably fixed. So bring on all the trillions of leveraged debt out there in the financial cyberworld, all of which could presumably be converted into material gold.

How will this function?

Who could set a price?

Would currency rates be destined to be set at fixed rates forever?

Or would there be periodic refixing of the rates, based on what? Real trade or speculative inflows?

I think I'll have to agree with Bernanke on this, in spite of Schiff etc screaming out.

Gold is a commodity and not a currency. And as a commodity it can be seen as a store of wealth, instantly recognisable and easily converted into paper. But it has no future as a backing for currencies.

[midas]

p.s. gold will not replace fiat money

Yes, maybe those who reckon it could can answer the following?

The banks currently issue vast debt at will, and so do the central banks.

Under a gold backed system, if a bank issues a GBP 200,000 mortgage, where will the gold backing come from?

All those nice GBP's paid to the seller can presumably be converted instantly into nice solid lumps of gold at the official exchange rate, which is presumably fixed. So bring on all the trillions of leveraged debt out there in the financial cyberworld, all of which could presumably be converted into material gold.

How will this function?

Who could set a price?

Would currency rates be destined to be set at fixed rates forever?

Or would there be periodic refixing of the rates, based on what? Real trade or speculative inflows?

I think I'll have to agree with Bernanke on this, in spite of Schiff etc screaming out.

Gold is a commodity and not a currency. And as a commodity it can be seen as a store of wealth, instantly recognisable and easily converted into paper. But it has no future as a backing for currencies.

That raises another point. If there is to be a genuine rebooting of the system to this extent then what about the very concept of mortgages and would they remain an attractive business proposition? Have real estate values continually increased over the decades because there was a genuine scarcity of land or did they only increase because they were fuelled by periodic bouts of inflation helped by a limitless growth of Fiat money?

and if real wages in the Western countries are now destined to fall closer to a kind of equilibrium with say the Far East, based purely on affordability and without the Fiat currency system could real estate values be subject to an open ended risk of declining at any time?

Edited August 14, 2011 by midas

[cloudhopper]

Under a gold backed system, if a bank issues a GBP 200,000 mortgage, where will the gold backing come from?

Yes exactly this illustrates perfectly the fact that credit creation is exactly the same as currency creation. Except that it is stealth money creation with no limit (other than the ability to service it which has reached the saturation point) so outstanding debt is now around 25X the currency supply. This is why currency printing will never be able to overwhelm the destruction of debt money as it is defaulted on, and the global financial crisis will be a deflationary one IMO.

[flying]

Yes, maybe those who reckon it could can answer the following?

The banks currently issue vast debt at will, and so do the central banks.

Under a gold backed system, if a bank issues a GBP 200,000 mortgage, where will the gold backing come from?

Good Q but first let me say I for one do not hope for a gold backed system.

I prefer this free gold system where gold is free to seek its own price level & not once again be fixed in price & outlawed from citizens ownership as it once was.

Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States". The order criminalized the possession of monetary gold by any individual, partnership, association or corp

That said & onto your question...

The same question could & should have been asked of the banks already.

Where did their GBP backing come from to lend?

Again I am not for a gold backed system but in your example the answer is simple because in

a backed system nothing was created out of thin air. There is a balance.

The 200k was not created by fractional reserve accounting so the backing does in fact already exist. The bank obtained it as backed money not created currency.

The volume did not change when they loaned it as it does now with fractional reserve banking.

The bank did not lend that which they did not have. Only that which already existed & was backed.

Now whether or not they would be as anxious to lend real money is a whole other story

Edited August 14, 2011 by flying

[Naam]

“I rule out euro bonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,”

Schäuble is dàmn right! the ClubMed would go on accumulating debt on the back of those who act responsibly.

FREE MONEY for the PIIGS!!! YAY!!!

latest news from Germany is that Merkel might override Schäuble. SPD opposition boss Gabriel in favour of €Uro-Land-Bonds. rational basis = "a few" billion p.a. higher interest for Germany much cheaper than a break-up or some non-recoverable bailout payments. unfortunately that conclusion is correct

[cloudhopper]

The bank did not lend that which they did not have. Only that which already existed & was backed.

Sorry if this comes as a shock flying but when a bank makes a loan the money does not come from and is not deducted from their paid in capital, retained earnings or anyone's deposit - it is created at that moment by the bank and becomes an "asset". Only the few percent fractional reserve required is printed (loaned) into existence by the Fed. However the newly loaned bank money works just as well as Federal Resrve Notes, backed or not, to purchase stuff. That is the bubble that is 25X larger than all the money the Fed ever printed into existence and why they will never be able to stop a deflationary burst by printing IMO.

[flying]

The bank did not lend that which they did not have. Only that which already existed & was backed.

Sorry if this comes as a shock flying but when a bank makes a loan the money does not come from and is not deducted from their paid in capital, retained earnings or anyone's deposit - it is created at that moment by the bank and becomes an "asset".

Yes I understand that so no shock

But my comment you quoted above was based on a bizzaro world that does not exist.

It was the example of dealing in a limited currency. In which case it would be backed & therefore not likely to be lent to most.

[cloudhopper]

OK you had me worried there. The financial world we have is bizarro enough already...

[cloudhopper]

Here's a good rant on US debt - http://www.zerohedge.com/contributed/romer-lies