The Fed’s Secret Loans, Europe’s Crisis, and the Boring Patterns of Statist Propaganda

November 29, 2011 · Posted in General Economics · Comment

In response to recently published information about the Fed’s emergency loans, Bloomberg’s Felix Salmon was promptly ready to perpetrate this piece of grade A scumbaggery:

Ladies and Gentlemen, this is what a lender of last resort looks like. What you’re looking at here are three lines. The black line is Morgan Stanley’s market capitalization, which tends to hover in the $40 billion range but which fell as low as $9.8 billion in November 2008. The orange line is the amount that Morgan Stanley owed to the Federal Reserve on any given day — an amount which peaked at $107 billion on September 29, 2008. And the red line is the ratio between the two: Morgan Stanley’s debt to the Federal Reserve, expressed as a percentage of its market value.That ratio, it turns out, peaked at some point in October, at somewhere north of 750%.

Many congratulations are due to Bloomberg, for extracting this information from the Fed after a long and arduous fight. It couldn’t have come at a timelier moment: if the ECB wants to avert a liquidity crisis, charts like this give a sobering indication of just how far it might have to go, and how quickly it might have to act.

The Euromess has everything to do with the fact that the ECB exists in the first place, and the fact that it enabled irresponsible bureaucrats to hide behind relatively responsible ones and borrow beyond their respective taxpayers’ means.

Almost 3 years ago I already said that if European government bureaucrats don’t quit the centralization of power which enables the above, things would only get worse and worse.

Then about 2 years ago I wrote:

The truth is very simple: The best that can be done for the people of Greece is to not provide one cent of assistance to its corrupt, bloated, and union-controlled government apparatus. A country’s bailout is like a corporate bailout, only many times worse! From this logically follows that the absolute worst Europe could do to the people of Greece would be to give their rulers any more means to continue their irresponsible policies.

The European Currency Union and the European Union itself are both such gigantic failures that it is already pre-ordained that the entire experiment will go down in flames sooner or later. Now is certainly not that time yet. What we are seeing are just a few more cracks emerging in the structure of the system. The European bureaucrats will come up with some sort of pseudo solution to paper over and patch the Greek problem for now.

Even if the Greek government were saved to the detriment of the people it tyrannizes, this won’t be the last time we’ll be having this discussion, and it sure as hell won’t get any better!

We’re having that discussion again now, and the time has run out for patchwork and pseudo solutions. The system is going down as predicted.

To say that the Euromess is caused by a lack of even more ECB intervention is to say that the heroin addict’s withdrawal pains are to be imputed upon a lack of an increase in his dosage.

I think that’s pretty lazy and irresponsible stuff to put out there and it genuinely hurts reading it.

Wouldn’t it make sense at some point to stop and think a little more carefully and precisely about the things we say in public discourse?

Bank of England governor King pointed out a few weeks ago: “This phrase ‘lender of last resort’ has been bandied around by people who, it seems to me, have no idea what lender of last resort actually means, to be perfectly honest. It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking institutions and to institutions that are clearly regarded as solvent. And it is done against good collateral, and at a penalty rate. That’s what lender of last resort means.”

And about the Fed having solved any problems in the US … are you going to say the same thing when the public debt burden, subsidized by QE1,2,3,4,5…, will have reached an amount where the government’s automatic spending cuts start to kick in and begin to impoverish more and more of the millions of people who have been made dependent upon government handouts?

Or better yet, are people going to be asking for the Fed and government to step in, grab more power, and regulate all these banks’ irresponsible speculation binges, because for some inexplicable, magical reason they don’t seem to have much of an incentive to conduct business prudently, to pay themselves reasonable salaries, or to lend responsibly, and not, say … invest in Greek bonds for example?

The pattern is simple and boring: Keynesian and other statist clowns out there will continue doing what they’re paid for. They will support one stupid ass government spending and expansion program after another, applaud one newly created government institution after another, be completely incapable of predicting the long term effects of those unsustainable policies, ignore or even ridicule those who are capable, and then when the inevitable crisis hits they will boldly “predict” that a tragic crisis is going to hit, should all those unsustainable programs not be sustained.

This is truly embarrassing to watch.

But at the same time it’s encouraging to see other people around the world wake up to the truth, and ditch the repetitive dronings and platitudes of entitled and state tenured ivory tower academics whose cumulative output will supply plenty of instructive and awe-inspiring entertainment for future generations.

Tags: ecb, europe, european central bank, federal reserve bank, keynesian, lender of last resort

ICAP Testing Trades In Greek Drachma Against Dollar

November 28, 2011 · Posted in Global Economics, Monetary Economics · Comment

The WSJ reports ICAP Testing Trades In Greek Drachma Against Dollar:

NEW YORK (Dow Jones)–ICAP Plc is preparing its electronic trading platforms for Greece’s potential exit from the euro and a return to the drachma, senior executives at the inter-dealer broker said Sunday.

ICAP is the latest firm to disclose such preparations, joining the growing ranks of banks, governments and other key players in the global financial system whose officials are worried enough about the stability of the common currency to be making contingency plans for a possible break-up.

The firm has been testing systems that would allow dealer banks to trade the drachma against both the dollar and the euro, the ICAP executives said, cautioning that the measures taken in recent weeks were precautionary. They said the currency pairs would not be accessible for trading unless required by market events, and may never be used.

“What precipitated this were customer concerns about what would happen if a country pulled out of the common currency,” said Edward Brown, executive vice president in business development and research at ICAP.

The U.K. Chancellor of the Exchequer George Osborne said Sunday that the government has stepped up its own planning measures in recent months to be prepared for a possible collapse of the euro zone. The U.K. isn’t a member of the euro zone, but it is home to Europe’s financial hub and is the world’s biggest currency-dealing center.

It’s good to be prepared for the likely …

Tags: drachma, euro, euro breakup, eurozone

China Housing Bust – Prices in Ordos Fall by 62.5 Percent

November 25, 2011 · Posted in Global Economics · Comment

From China Financial Daily:

Living in the edge of the Ordos storm , Ordos was beset with a different version of real estate lending Wenzhou panic . For example, local ” Jinxin Han Lin Yuan ” project , its second-hand house prices are around 10,000 yuan, while the market price now only is 3750 yuan.

Tags: china, china housing bust, china property bubble, chinese bubble, chinese economy

Economics 101 – Part 1: The Scope of Economics

November 25, 2011 · Posted in General Economics · Comment

I recently started a recorded learning series where I read out and comment on some of the concepts that I work with here. This is the first part, titled “The Scope of Economics”:

Praxeology:

Economics:

Context (Economics, Human Action, Praxeology, Ethics, and History):

Tags: ethics, General Economics, History, Praxeology, the scope of economics

Gordon Chang: Chinese Government Collapse is Imminent

November 19, 2011 · Posted in Global Economics · Comment

Tags: china, chinese economy, chinese government collapse

Credit & Money Supply in the USA and China

November 19, 2011 · Posted in Global Economics · Comment

As explained before, inflation and deflation within a certain territory are defined as increase and decrease of the total volume of money plus credit in that territory.

Total Credit Volume

Probably the best approximation on the development of total credit outstanding in the US is the Federal Reserve’s so called Flow of Funds report’s data series “Total Credit Market Debt Owed“.

The long term series shows us the historical relevance of 2008’s credit event:

As I predicted before, I believe that the US has reached peak credit in 2009 and is now on a long term path of credit contraction. I would consider the 2010 bump an anomaly, one that was brought about and fueled by massive and unprecedented government stimulus and bailout programs, and a general yet tentative mood of things potentially looking up again.

As I also predicted, it will be those stimulus and bailout programs that will be aggravating the agony and sluggishness, and prolonging the duration of this necessary correction:

Neither is there any need to be surprised about the fact that all countermeasures taken by the government will turn out to be utter failures that will accomplish nothing but aggravate the crisis. For if the cause of the problem has been too much government intervention, then more government intervention will only add to it.

Zooming in, we can see that as of Q2 2011 (the latest quarter available in the data series) it looks like all these countermeasures have run out of steam and total credit has begun contracting again, from around $52,650 billion to around $52,550 billion, a contraction of roughly $100 billion:

Money Supply

I have recently come to realize, mostly based upon this article that the Treasury’s Supplementary Financing Program really seems to be nothing but another sort of checking account that the federal government holds at the Fed, in particular it is actual spendable money, not just a reserve balance that would still need to be loaned out in order to become spendable money. And as you can see, the Treasury does spend the money, since it obviously regularly draws upon that account, to the point where now the balance on there is zero again. Thus I will from now on include it when adding up the different components to come up with theTrue Money Supply.

Based on that we can see that the true money supply is currently at $2,592 billion, and that so far its been able to maintain its growth through 2010 and 2011 for the most part:

The growth rate is currently at around 6.19% and has been recovering from a low 1.28% around April:

During the period from Q1 to Q2 2011, which is the one we observed credit growth for above it has risen from $2,417 to $2,458, so by about $41 billion, which is less than the volume of credit contraction. And since then through now the money supply has roughly risen by another $140 billion (we’ll have to wait for the Q3 Flow of Funds report to see by how much this may or may not have been counteracted via credit contraction).

Overall it seems as though it is still a pretty close call between inflation and deflation, with inflation having certainly been the dominating force during 2010 and maybe also 2011, but slowly coming to a halt as credit expansion seems to have come to an end at this point.

We’ll have to wait and see what the next few months bring.

Money Supply in China

M1 in in China has most recently begun to fall:

The growth rate has now slowed to around 10%, coming closer to that in the US:

Money supply in China is slowing most likely as a result of contracting credit as a correction from prior government stimulus malinvestments.

As I said before, the Chinese housing bust is underway, the Chinese economy is headed for a severe recession, and that’s what the slowdown in the money supply growth rate may very well be indicating at this point.

Tags: china, credit, money supply, US

Commodities Bubble: US Warehouses Overloaded With Metals

November 17, 2011 · Posted in General Economics · Comment

Signs abound that the global commodities bubble, fueled by money and credit creation on the part of the world’s governments, is coming to a dramatic end.

NOLA.com writes Local warehouse space is bursting with stored metals:

Long-vacant New Orleans warehouses are bursting with metals such as copper, lead, aluminum and zinc as manufacturing slows down with the economy. The stockpiles that are accumulating are good news for owners of local warehouses, but the trend has touched off a rare scramble for specialized warehouses in certain parts of the metro area.

(…)

Kevin Kelly, owner of Port Cargo Service, a metals warehousing business, said it may take years to run down supplies. He says the city is running out of suitable warehouse space.

“We’re probably close to 98 percent occupancy, which is the best ever,” Kelly said. “I’m considering buying property and building warehouses if I can find good land to build it on.”

With industrial demand slowing down so rapidly, and with the Chinese real estate and government credit fueled malinvestment bubbles coming unglued, industrial and agricultural commodities are in for a well deserved carnage.

To be sure, gold is not an industrial commodity. :)

Tags: alumium, commodities, commodity bubble, commodity crash, copper, lead, metals, zinc

Politics – A Definition

November 14, 2011 · Posted in General Economics · Comment

Politics is the process of planning, organizing, and implementing the means necessary to initiate threats and acts of aggression on an ongoing basis.

Tags: definition, Politics

Debate: Hoover, Wars, Municipalities & The Great Depression

November 9, 2011 · Posted in General Economics · Comment

Here is a little back and forth on the matter of Hoover, Wars, and The Great Depression.

First my original clip:

Here a Youtuber’s response:

And my response to the response:

Tags: herbert hoover, hoover, ohio, the great depression, youngstown

Texas Judge Beats Daughter; The Facts About “Spanking”; Child Abuse The Root of All Evil

November 3, 2011 · Posted in Education · 4 Comments

Ask yourself: What would have happened had the daughter consistently refused to bend over and fought back? All threats are ultimately threats of murder …

It is scientifically well established: As far as the results of such measures are concerned, there is a difference in degree, but not in kind, between what you see above and what is commonly referred to as “spanking”, as explained in this clip:

Also see:

The Origins of War in Child Abuse

Child Abuse is the Norm – Not The Exception

The State and Childhood Memories

States and Religions – Scar Tissues From Our Childhood

The fact that in today’s world things like these can be broadcast to millions of people around the world and can cost a judge his job is encouraging and opens the door to a brighter future.

The world won’t know peace and reason until its children do.

Tags: child abuse, spanking