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

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:

stanley.tiff

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.

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The (Nut-)Case for More Aggression

In The Great Depression 2.0 I wrote:

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money.

I would like to submit this beautiful specimen as further evidence for my theory above:

I further said in that article:

But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

The Yahoo finance contributor commenting on the clown above writes:

And even though we have very little to show for all that spending, this PhD in economics from the University of Michigan thinks we have no choice but to spend even more.

… attitudes are changing. People are beginning recognize insane behavior for what it is: Doing the same thing over and over while expecting different outcomes.

Government is aggression. Whoever asks for more government spending in reality asks for one thing and one thing only: more aggression.

Aggression solves no problems. It only aggravates and prolongs them.

I further said in that article I wrote about 2 years ago:

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

Be my guest to compare that prediction with the events as they unfold in the coming years.

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Mountains of Debt – The Keynesian Legacy

To follow up on Keynesianism’s Depredations and Futility in Action.

Not too long ago it was reported that Japan’s debt rating is cut as deficits pile up:

In another reminder of the worsening debt loads of developed nations, Standard & Poor’s on Thursday cut Japan’s credit rating one notch, citing the country’s continuing large budget deficits and the burden of an aging population.

Japan’s rating was trimmed to AA-minus from the AA rating it had held since 2007. The country lost its top AAA rating from S&P in 2001 after more than a decade of economic malaise.

Japan’s total public debt is about 200% of gross domestic product, the highest of any developed country and more than double the U.S. ratio.

S&P said the downgrade reflected its concern that Japan’s debt ratio would continue to rise as annual budget deficits piled up. It forecasts a deficit of 9.1% of GDP in the current fiscal year, and expects that to decline “only modestly” to 8% in fiscal 2013.

This is what’s in store for the western world thanks to the “cures” proscribed by Keynesian clowns around the globe. Their inevitable legacy will be mountains of debt, deficits, broken promises, and ongoing instabilities and depressions.

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Krugman Responds With More Nonsense

OK, folks. I will make this quick and easy, just because I prefer to spend my time dealing with interesting, intelligent, curious, and unbiased people.

As I wrote yesterday, Krugman said that government spending hasn’t surged. I presented numbers that show government spending in relation to all other spending, in other words, how much government involvement in all our activities has increased and it shows that it has posted the biggest rise since WW2.

Then he writes a response saying that relative numbers don’t matter and that we have to look at absolute numbers. Why that is the case of course he doesn’t bother to explain. It is because he says so. Fine, that’s nothing new from the guy. So kudos for being consistently pathetic.

So let’s make this argument as easy as possible for him. Let’s assume relative numbers don’t matter and all that is relevant is absolute numbers, completely disregarding everything else that happens in the economy. He goes on to say:

What’s going on? Yes, that’s right: it’s what happens when you divide by GDP in a time of terrible economic performance. Spending hasn’t surged; in fact, it grew more slowly in the two years after Lehman collapsed than in the two previous years, despite a sharp rise in spending on safety-net programs. Instead, GDP growth has plunged.

OK, so let’s look at absolute government spending YoY growth figures over the past 24 years:

1986 6.08%
1987 4.01%
1988 6.43%
1989 7.40%
1990 9.59%
1991 6.54%
1992 4.99%
1993 2.61%
1994 3.90%
1995 4.39%
1996 3.15%
1997 3.53%
1998 3.34%
1999 4.43%
2000 5.96%
2001 5.38%
2002 7.56%
2003 6.99%
2004 5.17%
2005 6.93%
2006 6.69%
2007 4.15%
2008 8.83%
2009 10.11%

In particular I would like you to take a look at the 2009 number, the year after the Lehman collapse. An increase larger than any during the past 24 years. Also, have a look at the two years prior to the Lehman collapse: 6.69% and 4.15%.

I repeat what Krugman said:

Spending hasn’t surged; in fact, it grew more slowly in the two years after Lehman collapsed than in the two previous years.

Naturally, he’s now gonna write a response apologizing for his mistake, as he always does when reality proves him wrong.

Haha :) Just kidding …

Addendum:

I hope that people don’t think I am trying to say that economic policy under President Obama is exceptionally bad. Some people seem to think that it destroys my case when they say that government spending in the past has also grown and that we are just on the normal trend.

I say: So what? All that shows is that economic policy has been consistently bad under all past presidents. I have never lauded the US’s economic policies under ueber-tards like G.W. Bush or Bill Clinton, now have I?? Whether spending grows by 10% this year, 8% that year, etc., these are all petty little minutiae, dwelled on by petty little people. I don’t even believe the President has very much pull in this whole process.

A small number of people each individually have a huge marginal interest in the growth of specific programs, while the majority of people who fund this growth, each of them at a marginally small percentage, have very little vested interest in the elimination of particular individual programs. This creates a mismatch in incentives that brings about the inevitable.

It’s the natural and predictable progression of things so long as people believe in the necessity of a government. There is nothing new, unknown, or surprising about this. There is nothing different under a black, an illiterate, or a horny president. We are being fed the same shit sandwich year after year, only that the turd gets bigger and bigger.

To see people chow down on that thing while discussing minutiae, while debating this program or that law, while factoring out TARP and adding up numbers as they see fit, while lauding this master and condemning that master …

Come on, people. It really makes you look small, silly, petty, and bigoted. Get the big picture. To hell with smallness and pettiness! Life is short and you shouldn’t waste it being a cogwheel in a machine that is bound to blow up. You owe it to your children and their progeny. Because I guarantee you, they will have a lot of questions looking back at an era that is ending ….

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Krugman’s Nonsense on US Government Growth

Government spending has grown hugely over the past 2 years (well, it also has over the past 10 years and over the past 50 years and over the past 100 years, but I’m not even gonna go there for the sake of this particular topic.)

Meanwhile unemployment keeps rising, growth remains sluggish, and the Great Depression 2.0 is in full swing.

Keynesians, at a loss to explain how the two phenomena can possibly co-exist, have to do what is completely inevitable: They need to make up an alternate reality. A fantasy world, in which their prescriptions of more government spending as the magical panacea to recessions where never tried.

In his never ceasing quest against reality, Paul Krugman joyfully continues to make fact free assertions, while at the same time accusing others of … yes … making fact-free assertions. :)

The answer to the second question — why there’s a widespread perception that government spending has surged, when it hasn’t — is that there has been a disinformation campaign from the right, based on the usual combination of fact-free assertions and cooked numbers. And this campaign has been effective in part because the Obama administration hasn’t offered an effective reply.

Actually, the administration has had a messaging problem on economic policy ever since its first months in office, when it went for a stimulus plan that many of us warned from the beginning was inadequate given the size of the economy’s troubles. You can argue that Mr. Obama got all he could — that a larger plan wouldn’t have made it through Congress (which is questionable), and that an inadequate stimulus was much better than none at all (which it was). But that’s not an argument the administration ever made. Instead, it has insisted throughout that its original plan was just right, a position that has become increasingly awkward as the recovery stalls.

And a side consequence of this awkward positioning is that officials can’t easily offer the obvious rebuttal to claims that big spending failed to fix the economy — namely, that thanks to the inadequate scale of the Recovery Act, big spending never happened in the first place.

But if they won’t say it, I will: if job-creating government spending has failed to bring down unemployment in the Obama era, it’s not because it doesn’t work; it’s because it wasn’t tried.

OK, Krugie. How about we have a look at some … you know … facts? Because, you’re absolutely right, making fact-free assertions is a bad bad bad! Here is the latest chart on total US government spending as % of GDP, that is all federal, all state, and all local expenses, even including federal grants. This chart does not include any estimates except numbers before 1948. All recent numbers are 100% finalized:

government-expenses-growth-1930-2009-b2

Just for the sake of 100% certainty, I am not including the projections for 2010 and the following years, but only confirmed and finalized data!

I mean, this stuff is out there, at the click of a Search button, readily available to anyone who is unbiased, curious and interested in truth and objective analysis. So why is it that a Paul Krugman would ignore it? Hmmmmmm … really really I wonder … :)

Luckily there is a very simple and uncomplicated solution … tune out from such clowns.

Update:

I will below list the most popular counter “arguments” to what I wrote above:

1. Absolute vs. Relative Figures

This is almost a given for bigots. When they see relative numbers they will tell you that spending only went up as % of GDP because GDP fell, because, you see, we are in a recession and so all the stuff I wrote above doesn’t count!!

OK, then let’s have a look at the absolute numbers, in $ billions:

2000 2,830.5
2001 2,982.8
2002 3,208.4
2003 3,432.6
2004 3,610.1
2005 3,860.1
2006 4,118.5
2007 4,289.4
2008 4,668.0
2009 5,139.9

Absolute numbers, anyone?

2. TARP doesn’t count!

Once people see that their assertion is completely wrong they will have to adjust the numbers to their liking. When reality doesn’t conform with bigoted ideas, then reality has to be modified. The inevitable outcome is that they will start excluding certain categories of government spending, with the objective of finally arriving at an adjusted number that fits in their small mental box.

TARP is a popular one because, you see, it will be paid back!

To that I can only say: That’s great! So then once it does get paid back, and Congress, in its almost infinite wisdom and fiscal prudence, decides to pay it back to the people without borrowing any more money, then I will gladly review the budget numbers at that time and be impressed by how much the budget declines in that year.

But as it stands currently, the money has been spent and pumped into circulation. So how about we observe actual, current numbers that we know of, and don’t make up an alternate reality or pretend to know the future?

I have my own predictions: I say none of this money will be paid back to the people, it will all be spent on other programs. But am I using that as part of my current argument? No. Because it is a guess, albeit one that I believe is a bit more accurate and a bit more based on economic history of, say, the past 5000 years of public finances. But I may be wrong and I would gladly stand corrected.

At any rate, such guesswork is completely misplaced when it comes to observing actual numbers.

But the good thing about a logical and consistent position is that it doesn’t matter what you throw at it. It stands on a firm and unassailable structure.

So let’s say TARP is completely irrelevant and the money is magically to be excluded from the calculation. The total actually handed out under TARP at this point is $356 billion. So let’s deduct that number, in equal proportions from the budget of 2008 and 2009, just for the sake of these people’s argument, just to try to make it as easy as possible for them:

That gives us $4,490 billion for 2008 and $4,961 billion for 2009, or 31% and 34.8% of GDP respectively.

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