EconomicsJunkie » Global Economics

Canadian Household Debt at Record Levels

Nima — Tue, 22 Jun 2010 23:13:54 +0000

To follow up on my recent post about the socialist basket case that is the Canadian economy, here is an older, yet nonetheless relevant story when it comes to accurately understanding the inevitability of a US-style bank meltdown in Canada:

Canadians’ debt-to-income ratio now ranks first among 20-advanced countries in the OECD and a new study suggests the recession did little to dampen the country’s enthusiasm for taking on household debt.

The level of household income soared to an average of more than $40,000, according to a report from the Certified General Accountants Association of Canada.

“We were a little bit surprised that throughout the recession we continued to take on debt,” Rock Lefebvre, a vice president for CGA Canada, told CTV News Channel.

Household debt reached an all-time high of $1.41 trillion, according to the report. If spread out evenly among Canadians, every man, woman and child would owe $41,740 – more than two-and-a-half times greater than 20 years ago.

Lefebvre said Canadians used to save up to 20 per cent of their disposable income as recently as the 1980s but that number is now less than one per cent.

“Consumerism has taken hold (in Canada) and people who have access to credit, are taking advantage of it,” he said.

Lefebvre said some debt is necessary to stimulate the economy and fill the government’s coffers.

However, he noted bankruptcies were up significantly during 2009 and governments’ debts are on the rise.

“The question becomes at what point has society taken on too much debt?” Lefebvre asked.

Elena Jara of Credit Canada says many Canadians didn’t change their spending habits in spite of the recession.

“People have problems including certain expenditures in their budget or even creating a budget,” she told CTV News Channel.

People were telling me as a response to my last post that I was making things up and that my story lacks backup. I didn’t intend to write an elaborate analysis about the Canadian economy. If you are so interested in the details, then do your own research!

I am merely pointing out that what didn’t work in the US (namely a completely government controlled, politicized, and legislated banking system, subsidized loans on homes, and a central bank with a legal monopoly on creating money to buy up assets such as mortgage securities) ain’t gonna work north of the US or anywhere else for that matter either.

Anybody who tries to tell you that “It’s different here.” or “This time it’s different” because “the Canadian government regulates these things soooo much better blah blah blah” is repeating meaningless platitudes that he read in some newspaper paragraph or heard someone say somewhere on TV.

Government induced credit expansions and ensuing business cycles always lead to an inevitable crash and an unavoidable crisis.

This has been true since time immemorial, and it won’t change until people genuinely start caring about the world, their own lives, and their progeny’s future.

As G20 Prepare to Convene in Toronto, Canadian Government Boasts Over “Having Avoided Banking Crisis” – The Perfect Kickoff to the Canadian Meltdown

Nima — Mon, 21 Jun 2010 00:24:01 +0000

The AP, in its never ceasing quest for convincing people how good and necessary a bigger government is, writes Canada’s economy is suddenly the envy of the world:

Canada thinks it can teach the world a thing or two about dodging financial meltdowns.

The 20 world leaders at an economic summit in Toronto next weekend will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered.

World leaders have noticed: President Barack Obama says the U.S. should take note of Canada’s banking system, and Britain’s Treasury chief is looking to emulate the Ottawa way on cutting deficits.

The land of a thousand stereotypes — from Mounties and ice hockey to language wars and lousy weather — is feeling entitled to do a bit of crowing as it hosts the G-20 summit of wealthy and developing nations.

“We should be proud of the performance of our financial system during the crisis,” said Finance Minister Jim Flaherty in an interview with The Associated Press.

He recalled visiting China in 2007 and hearing suggestions “that the Canadian banks were perhaps boring and too risk-adverse. And when I was there two weeks ago some of my same counterparts were saying to me, ‘You have a very solid, stable banking system in Canada,’ and emphasizing that. There wasn’t anything about being sufficiently risk-oriented.”

The banks are stable because, in part, they’re more regulated. As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren’t as leveraged as their U.S. or European peers.

There was no mortgage meltdown or subprime crisis in Canada. Banks don’t package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans.

In Canada’s concentrated banking system, five major banks dominate the market and regulators know each of the top bank executives personally.

“Our banks were just better managed and we had better regulation,” says former Prime Minister Paul Martin, the man credited with killing off a massive government deficit in the 1990s when he was finance minister, leading to 12 straight years of budget surpluses.

“I was absolutely amazed at senior bankers in the United States and Europe who didn’t know the extent of the problem or they didn’t know that people in some far-flung division were doing these kinds of things. It’s just beyond belief,” he told the AP.

The Conservative Party government of Stephen Harper that took over from Martin’s Liberals in 2006 broadly stuck to his predecessor’s approach, though he cut taxes and, when recession struck, pumped stimulus money into the economy, with the result that Canada again has a large deficit.

But it is recovering from the recession faster than others, and although its deficit is currently at a record high, the International Monetary Fund expects Canada to be the only one of the seven major industrialized democracies to return to surplus by 2015.

This month Canada became the first among them to raise interest rates since the global financial crisis began.

George Osborne, Britain’s Treasury chief, has vowed to follow Canada’s example on deficit reduction.

“They brought together the best brains both inside and outside government to carry out a fundamental reassessment of the role of the state,” Osborne said in a speech.

It’s a remarkable turnaround from 1993, when the Liberals took office facing a $30 billion deficit. Moody’s downgraded Canada’s credit rating twice. About 36 percent of the government’s revenue went toward servicing debt.

“Our situation was dire. Canada was in a lot of trouble at that point,” Martin said. “If we were going to preserve our health care and our education system we had to do it.”

As finance minister, he slashed spending. A weak currency and a booming U.S. economy also helped Martin balance the books. In the 1998 budget the government estimated that about 55 percent of the deficit reduction came from economic growth and 35 percent from spending cuts.

“The rest of the world certainly thinks we’re the model to follow,” said Martin, who was prime minister from 2003 to 2006. “I’ve been asked by a lot of countries as to how to go about it.”

Don Drummond, Martin’s budget chief at the time, says the U.S. and Europe won’t have it that easy, because the economic climate was better in the late 1990s than it is now, with large trade gains and falling interest rates.

“There’s a lot to learn from Canada but their starting conditions are worse,” he said. “Even though we were on the precipice of a crisis we weren’t in as bad a shape as many of them are.”

Well, I’m sorry, but …

The soon to be popped Canadian housing bubble is in many ways a lot more severe than that in the US:

The Canadian banking system is in many ways even more nationalized and thus even worse than the US system.

Banks can sell their mortgage debts directly to the central bank!

This coming G20 convention may just be the perfect kickoff to the Canadian banking meltdown.

Enjoy the ride, folks!

P.S. Thanks to my friend G. from Chicago for sending me this AP article which, as we all know, clearly qualifies as perfectly entertaining horseshit :)

Australia’s Coming Housing & Credit Bust

Nima — Sat, 22 May 2010 22:43:45 +0000

The other day I pointed out that Australia, among other countries, has a big housing bust on her doorsteps.

This week I found some more info on it on Mish’s blog here and here.

Well worth a read, especially if you live in Down Under! :)

Chinese Inflation Spirals Out of Control

Nima — Thu, 20 May 2010 02:46:39 +0000

CNN Money accurately makes the obvious observation that Chinese inflation might be out of control:

One of the most popular debates in global macro circles currently relates to China and whether its economy is in a bubble. On the side of the bubble callers is one of the more successful short sellers of our generation, James Chanos. Admittedly, Chanos is usually on the right side of these big calls and, for the time being, I’m not going to debate him. Great Chinese bubble debate aside for now, how does Chanos’s theory hold up in light of the data we’ve been reviewing?

Data from various sources within China that we’ve seen over the past few weeks has pointed us directly toward one simple conclusion: China is experiencing serious inflation. Some of the keys for us include:

* Chinese CPI (Consumer Price Index) and PPI (Producer Price Index) are up 2.8% and 6.8%, respectively, year-over-year. Combined, this is the largest spike in combined inflation in 18 months;
* Chinese property prices, based on a survey of 70 cities, were up 12.8% year-over-year in April, which is the largest spike since 2005;
* Chinese money supply growth was up 21.5% year-over-year in April;
* Chinese loan growth was up 51% sequentially from March to April at 774B Yuan; and
* Chinese industrial production was up 17.9% on a year-over-year basis in April.

While economists in the United States continue to argue over whether the U.S. is experiencing meaningful inflation, there’s little room for debate when it comes to China.

The direction in China: up

Prices for consumers and producers are up, real estate prices are up double digits, and money supply is accelerating in a big way. The key factor is money supply. If it continues to grow, inflation will continue to accelerate.

The beauty of the Chinese system, being a command economy, is that the leadership of the country can make real time economic decisions to adjust to the data they’re getting. And we are already seeing Chinese leadership implement policies in the hopes of tempering these inflationary tailwinds.

On the real estate front, the government has ordered 78 state-controlled companies to exit the real estate sector, banks are newly requiring a 50% down payment on second homes, and the Chinese government mandates 20% cash down at land auctions. Collectively, these actions should help slow the white-hot Chinese real estate market.

The other key policy that Chinese government is implementing relates to bank loans. After a period in 1998 where the Chinese banking system was in effect insolvent, Chinese officials are rightfully cautious about rampant loan growth, for more than inflationary reasons. To combat bad loans and hopefully stymie inflation, reserve requirement have been raised three times for Chinese banks. Currently they’re at 17% for large banks and 15% for smaller banks — just under the all time high for reserves. In effect the government is forcing banks to park some money, making loans for the booming property market harder to come by.

At risk of actually creating a bubble, Chinese officials cannot allow these inflationary factors to pick up speed. Therefore Chinese officials will likely continue to take policy actions to slow growth and cool inflation. These policies will have some predictable effects. But the most direct and knowable effect relate to commodities.

Chinese citizens have negative incentive to save: sound familiar?

China is the world’s largest producer of steel, and also consumes almost one-third of all global steel. As construction slows in China, the demand for steel and specific commodities related to construction, copper in particular, will slow on the margin. Any slowdown in Chinese demand will create a negative headwind for the prices of many of the commodities related to construction, but will also affect other commodities, like oil.

As of now, the Chinese economy is signaling the need for more aggressive tightening based on the points above. But there is also the reality of negative real interest rates. Currently, the consumer price index is outpacing the one-year interest rate on savings of 2.25%, meaning the Chinese have no incentive to save any money. The two policies needed to offset inflation are an increase in interest rates and an upward revaluation of the Yuan. Both actions would help slow Chinese growth and commodity demand further in the coming months.

What worries Chinese economic planners considering these fixes is that rather than just slow down and control growth, they have the potential of “popping” the bubble, making Jim Chanos a happy man but also causing serious damage to China’s export heavy economy. China would like to have it both ways right now: rapid growth and wealth creation, but also the safety of a properly valued, non-inflationary economy. That’s a tough task: nearly every time we’ve seen this movie before, the ending is the same.

Over the past 4 years the Chinese money supply has risen by more than 100%. Meanwhile, in the US the true money supply has merely increased by 22% in that same period.

In the US credit has been contracting heavily for the past 2 years. In China it has been continuing to overheat during that time.

Flashback July 2009:

Some points fundamentally support the thesis that the dollar should gain in value against the major currencies:

- Global deleveraging is driving investors from other currencies back to the Dollar
- Deflation hitting the US first, and other countries only later
- Imports into the US are falling rapidly
- Significant domestic spending sprees by the Chinese government

All this may indicate that if the Chinese government were to let the Yuan float freely at some point, it may actually drop significantly against the US Dollar …

You see now what I was talking about? That upwards valuation of the Yuan that US exporters, the US government, and hyperinflationis keep on dreaming of is most likely not going to happen!

The Road to Socialism – Venezuelan Government Seizes Iron-Makers

Nima — Sun, 16 May 2010 16:38:42 +0000

What happened in the US to numerous banks, insurers, and car companies, is and has been going on in Venezuela in other fields:

President Hugo Chavez announced Saturday the expropriation of a group of iron, aluminum and transportation companies in Venezuela’s mining region.

Among the expropriated companies is Materiales Siderurgicos, or Matesi, which is the Venezuelan subsidiary of Luxembourg-based steel maker Tenaris SA.

Venezuela’s socialist president said in a televised that his government was going to take over Matesi because “we couldn’t reach an amicable and reasonable settlement with the owners.”

Chavez said production at the company has been paralyzed since midway through last year, when Venezuela’s president announced plans to nationalize it.

Chavez said he was also going to expropriate Venezuelan-owned Orinoco Iron and aluminum-maker Norpro de Venezuela C.A., which is an affiliate of the U.S. company Norpro in association with France’s Saint Gobain, among other companies.

As well, Venezuela will take over transport companies that ship raw materials in areas southeast of Caracas. He did not name the companies.

Since coming to power more than a decade ago, Chavez has nationalized major companies in the electricity, oil, steel and coffee sectors, as well as other private businesses.

This intelligent reader commented on reddit as follows:

Step 1: Nationalize businesses to take their profits, use money to buy public favor

Step 2: Run said business into the ground

Step 3: Call ensuing economic downturn a “crisis” and a “failure of capitalism” which requires even more nationalization/reform

Step 4: Go to 1

Well said, my friend! :)

Venezuela is in for some massive shortages in all those sectors that have been nationalized, along with price inflation and a currency crisis.

Housing Bubbles Around the World; Severe Corrections Still to Come in Canada, Australia, China, Sweden & Belgium

Nima — Sun, 16 May 2010 14:07:47 +0000

The Economist has a great interactive chart with home prices around the world.

A comparison of home prices to average income over the past 35 years in different countries:

Another chart gives us information about a few other countries, but data only goes back to 2001 for this comparison:

One thing I noticed in the chart was that Germany and Switzerland are the only countries where absolute home prices AND home prices in relation to average incomes have been declining constantly, at least for as long as data is available:

For Switzerland the available data actually goes back as far as 1991, with prices having constantly declined in relation to average incomes since then. For Germany data goes back to 2004 only. It seems like a bubble never really developed in these countries. Thus Germany and Switzerland may be interesting markets for global property investors at this point.

In Spain, Britain, Ireland, and South Arfica home prices still have a very long way to come down.

Other countries haven’t even yet begun to see the beginning of any meaningful correction in home prices, most notably Canada, Australia, China, Belgium, and Sweden.

People in those countries won’t be immune to the problems associated with building more houses than needed and/or can be afforded. Thus, expect significant corrections to begin soon in cities like Sydney, Melbourne, Vancouver, Toronto, Montreal, Stockholm, Shanghai, Beijing, Brussels, and the like.

The recent plunge in Beijing property prices may be a wake-up call for global property markets.

Germany Leaving the Euro?

Nima — Wed, 12 May 2010 12:11:37 +0000

Well, first off: No, that ain’t happening. As much as I wished. At least not until the Euro completely falls apart. No other people consider the Euro their pet project more than German politicians.

Zerohedge posted something about rumors and a clip with a statement from Gregor Gysi, the head of the socialist party in Germany:

What he’s essentially saying is the usual communist nonsense about curbing evil speculation against the currency and in the end he says that “something will be decided on Friday and I have no idea what it’ll be …”.

But hey, there’s nothing better to distract people from the obvious issues than some fun rumors …

Beijing Property Prices Plunge 31.4% in One Month!

Nima — Wed, 12 May 2010 11:56:43 +0000

Buckle up, the Chinese bubble is popping:

The average transaction price of commercial residential properties in Beijing for the week ended May 9 fell 1,790 yuan per square meter or 9.6 percent week-on-week to 16,898 yuan per square meter, reports The Beijing News, citing statistics released by Beijing Real Estate Information Network.

Compared with the week ended April 11, the average transaction price of commercial residential properties in Beijing plunged 31.43 percent to 7,744 yuan per square meter.

In the last weeks of April, the transation volume of commercial residential properties in Beijing decreased by 10.34 percent, 11.39 percent and 30.82 percent respectively. Average transaction price was flat at between 22,000 yuan to 23,000 yuan per square meter.

The share price of Poly Real Estate (600048) was down 2.65 percent to close at 10.66 yuan today.

The share price of Beijing Capital Development (600376) was down 4.16 percent to close at 13.26 yuan today.

There are several property bubbles around the world that are ready for a massive correction, just as US home prices slip back into decline. This is just the beginning …

Roubini on Europe: We Are Kicking the Can Down the Road

Nima — Mon, 10 May 2010 19:03:11 +0000

From Yahoo’s Tech Ticker:

With a $1 trillion bailout package for Greece and the other sick men of Europe, the EU and IMF spurred a huge global rally in stocks Monday, with the Dow rising 405 points, its biggest gain since March 2009.

The massive bailout prevented “another systemic seizure of the global financial system” and, “in the short run, markets are happy we’re not going to have another global meltdown like Lehman,” says NYU professor Nouriel Roubini, co-author of Crisis Economics.

But in the long run, Europe has just “kicked the can down the road,” Roubini says, agreeing with our earlier guest Richard Suttmeier.

Even $1 trillion isn’t enough so solve the “fundamental questions” facing Europe, the economist says, citing the following:

* — Even in Europe, There’s No Free Lunch: All of the bailout money is conditional on countries approving what Roubini calls “massive fiscal consolidation,” i.e. big austerity packages like Greece’s parliament just passed. Such measures mean fewer public sector jobs (and lower salaries for those who remain) and higher taxes in countries where a lot of people work for the government and already pay relatively high tax rates. “Politically can they do that…or will there be riots and strikes that are going to limit” fiscal austerity measures, Roubini wonders.
* — Tough Love Hurts: Raising taxes and cutting government spending should help alleviate the short-term debt crisis in Europe’s so-called PIIGS but will also likely lead to recession, if not outright deflation. “That will make it harder to force austerity” on the public, he says. There’s already violence and rioting in the streets of Athens. “The question is: Will we see the same thing in, for example, Lisbon, Madrid [and] throughout the euro zone?”
* — No Easy Way Out: One reason the European Union is in this mess is because few of its countries are able to compete in a global economy, especially since they lack the ability to deflate their currency, the economist says. Considering it took Germany 15 years to restructure its private sector so unit labor costs came down low enough to compete globally, nations like Greece, Portugal and Spain face a long, hard slog even if they embark upon such painful programs immediately.

So what does all that — and the political pressure against more bailouts in Germany — mean for the future of the euro and the EU itself?

In late April, Roubini said “in a few days, there might not be a euro zone for us to discuss,” at the Milken Conference.

In the accompanying clip, the founder of Roubini Global Economics says he was “just joking” about that dire prediction, which potentially contributed to the recent rout in Europe. But expect “volatility in economies and markets” is going to be with us for the foreseeable future, Roubini says, offering cold comfort (and an odd sense of humor).

EU Launches Frantic Bazooka – Euro Gives Up Early Gains

Nima — Mon, 10 May 2010 10:51:04 +0000

Europe Pulls Out Bazooka Part II in 3D

Since Euro countries are grappling with deficits, they are vowing to spend more money to fight the consequences of deficits, EU Crafts $962 Billion Show of Force to Halt Crisis:

European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Stocks surged around the world, the euro strengthened and commodities rallied.

Jolted by last week’s slide in the currency and soaring bond yields in Portugal and Spain, European Union finance chiefs met in a 14-hour session in Brussels overnight. The 16 euro nations agreed in a statement to offer as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt.

The rescue package for Europe’s sovereign debtors comes little more than a year after the waning of the last crisis, caused by the U.S. mortgage-market collapse, which wreaked $1.8 trillion of global credit losses and writedowns. Under U.S. and Asian pressure to stabilize markets, Europe’s governments bet their show of force would prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro might break apart.

“A very thick line has been drawn in the sand,” said Andrew Bosomworth, Munich-based head of portfolio management at Pacific Investment Management Co. and a former ECB official. “This is all in. What more could they have done?”

A 110 billion-euro bailout package for Greece approved last week by the EU and IMF failed to reassure investors, prompting yesterday’s renewed bid to bolster the euro.

How to Pay

“It might temporarily calm nerves but questions will come back later on how they will pay for this package when all of them need fiscal consolidation,” said Venkatraman Anantha- Nageswaran, who helps manage about $140 billion in assets as global chief investment officer at Bank Julius Baer & Co. in Singapore.

The MSCI World Index climbed 2.6 percent to 1,128 at 12:15 p.m. in Brussels. Standard & Poor’s 500 Index futures rallied 4.4 percent. The euro appreciated 2 percent to $1.30. Crude-oil futures gained 3.4 percent.

“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today after markets punished inaction last week.

ECB policy makers said they will counter “severe tensions” in “certain” markets by purchasing government and private debt, and the bank restarted a dollar-swap line with the Federal Reserve.

‘Overwhelming Force’

“This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. “This is Shock and Awe, Part II and in 3-D.”

…

Merkel’s Meeting

As Merkel’s cabinet held a late-night meeting in Berlin on the euro rescue, her party unexpectedly lost control of Germany’s most populous state in a regional election, potentially costing her a majority in the upper house of the federal parliament.

Goaded by Germany, the ministers made a fresh commitment to closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules.

The vow to push budget shortfalls below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets. The euro region’s overall deficit is forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011.

Can you imagine? Governments that have regularly broken commitments to cut deficits? Unthinkable!

One thing’s for sure, as I said over 1 year ago:

The 3% ceiling won’t matter anymore from hereon. Consider the European stability treaty dead. One member state after another will violate the requirements. The fact that a bailout of some Euro states by others is discussed, just shows how torn this European Union really is, how severe its imbalances are. With discrepancies like these, it is completely unfeasible to maintain a currency union. The Euro will keep taking its beating for it.

The Euro

What are foreign exchange markets saying? Here’s the Euro today:

It rallied up as high as $1.31 on the announcement and has given up almost all those gains within a few hours already. This is volatility galore on the FX market!

This may be a result of frantic intervention on the part of the US, as the Federal Reserve opens credit line to Europe:

The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan also are involved in the dollar swap effort.

The move comes after the European Union and International Monetary Fund pledged a nearly $1 trillion defense package for the embattled euro, hoping to calm jittery markets and halt attacks on the eurozone’s weakest members. The ECB also jumped into the bond market Sunday night, saying it is ready to buy eurozone bonds to shore up liquidity in “dysfunctional” markets.

The Fed’s action reopens a program put in place during the 2008 global financial crisis under which dollars are shipped overseas through the foreign central banks. In turn, these central banks can lend the dollars out to banks in their home countries that are in need of dollar funding to prevent the European crisis from spreading further.

The Fed said action is being taken “in response to the reemergence of strains in U.S. dollar short-term funding markets in Europe,” and to prevent the spread of that strain to other markets and financial centers.

A so-called “swap” line with the Bank of Canada provides up to $30 billion. Figures weren’t provided for the other central banks. The arrangements are authorized through January 2011.

The debt crisis first erupted in Greece. Fears that it could spread to Spain, Portugal and other eurozone countries. The crisis has pushed up demand for the U.S. dollar and has sharply weakened the value of the euro, the currency used by 16 European countries. Eurozone ministers and the IMF this weekend approved a $140 billion rescue package of loans to Greece for the next three years to keep it from imploding.

The Fed had wound down these crisis-era programs with other central banks in February, along with other emergency programs to get lending flowing more freely again and return stability to financial markets. At that time, financial strains in the United States were easing, and the Fed began to take steps to move policy closer to normal.

It also had begun to lay out a plan to reel in the unprecedented stimulus money pumped out during the crisis. The Fed’s balance sheet ballooned to $2.3 trillion, more than double where it stood before the crisis struck. The program reopened on Sunday will expand the Fed’s balance sheet, economists say. However, the program poses little credit risk to the Fed because the arrangements are with other central banks, they added.

It is doubtful whether these currency swaps have ever accomplished anything but a very very short term relief.

We hear European bureaucrats rail against evil speculators who are daring to question the stability of the system. This is all repetitive nonsense which we can shrug off with a smile. I have said before that a truly meaningful reform of capital markets would require that governments remove themselves from the equation, rather than becoming the only factor in that equation:

what needs to happen is to bring down what has brought about the financial crisis in the first place.

Who has created all the excess fiat money that flowed into the system to blow up price bubbles? The Federal Reserve Bank – so just close it down already!

Who has created all the excess credit that blew up the bubble? The fractional reserve banks – so just end the system of fractional reserve banking already!

Who has granted oligopoly status to the rating agencies who one after another failed to assess credit risk appropriately? The SEC – so end the credit rating cartel already!

In fact who has taken away oversight from the stock exchange companies to try and oversee all stock exchanges in the country, missing one giant fraud after another? Which organization was close to Making Bernie Madoff their chairman?? The SEC – so get rid of it already!

Even after some of the worst excesses of subprime lending, who proudly remains the sole subprime lender in the country? The government owned banks! – So close them down already!

Who has been propping up financial markets in secret over decades with taxpayer money, creating malinvestments and false incentives left and right? The mighty President’s Working Group on Financial Markets! – So get rid of it already!!

What is it that made the common man put so much money into the stock market? It comes to a large degree from the incentive through tax savings for retirement accounts. If the taxes weren’t there in the first place, surely people would think twice about transferring their hard earned and saved money over to Wall St.

On top of that a policy manipulating and suppressing interest rates makes it completely unattractive to put money into savings accounts, and encourages people to be foolish. – So again, stop meddling with the credit markets, get rid of the central bank and with it would go all fractional reserve lending.

Why do you think it is so hard for honest small businesses to obtain funding in a flexible and straightforward manner? Why does it feel to most people like they are secluded from the majority of the action while Wall St. thrives? It is because every single government policy aiming at financial regulation has been designed to herd money into the stock market and lock it up in there for the kids to play with.

Which institution, out of all, is the least capable to be responsible about its finances, stay out of debt, live within its means? … it is of course the government itself.

Folks, wake up to reality, leave fantasy island. Come to your senses and work toward closing down that institution which is the root cause of all your problems: Close down the government and all the things I pointed out above and many more evils would automatically go with it.

So long as people don’t make these simple connections, they need not be surprised about the same problems popping up again and again, with the same short sighted responses protracting the problems again and again, choking our productive capacity until the system comes to a painful halt.