Do you ever get the feeling our leaders don’t know what the hell they’re doing?
The Finns want collateral. Mr Barroso at the Commission wants to sell Euro Bonds. The Germans don’t. The Greek people want to default. The French banks are desperate that they don’t. Tim Geithner wants Europe to follow America’s lead and create a super expanded bail out fund like America’s TARP. The Austrian parliament declined to fast track the idea through their parliament. No one is sure if this is Austrian pedantry or a refusal. In the UK the long awaited Vickers report on Bank ‘reform’ is welcomed and given a timetable of …2019…because obviously when you’re in a crisis you don’t want to hurry.
In Italy austerity plan 1 was passed and then eaten by ‘special interests’ till there was nothing left. The ‘perfectly well capitalized’ Italian banks who had disdained raising cash earlier suddenly began an accelerated kind of rot so that they seemed to crumble in on themselves life a leper with a failed face lift.
As fast as our leaders plan to put money in to the banks, depositors, especially large financial institutions and other European banks are taking their money out (100 billion euros have left Italian banks this year so far) and putting it in American banks. At the same time American Money Market Funds have also stopped lending to European banks.
But, the American banks are now lending billion of that money back to the European banks via long duration repo agreements (an agreement in which you ‘sell’ an asset but with the agreement to repurchase the assets at a fixed time and at a fixed price). Thus it is less like selling and more like pawning. And so, to solve their short term funding the European banks are pledging assets that are still worth something at American banks who funnily enough find themselves flush with cash.
But then help is at hand in th eform of a conference call no less betwen Merkel, Sarkozy and Papandreou in which it is revealed to a waiting world that, “Greece will meet its obligations and stay in the Euro block.” There that was easy wan’t it. Makes you wonder why they didn’t just say so before!
As I was reading this the Soap tune was whiling around my head, remember that?
http://www.youtube.com/watch?v=YVffO-mNLdE
Lol, very succinctly put Golem! I think they’ve started scrambling the PR script now & just putting out whatever turns up on the screen…
The ‘sh’ ! It is silent in panic?
Damn, I missed my opportunity to be on Korean news…
http://www.arirang.co.kr/News/News_View.asp?nseq=120300&code=Ne8&category=1
A zombie banker march on a Saturday would be nice.
Halloween would be a good date too. It’s a Monday.
If there is one thing I don’t understand, it’s the obcession with austerity. Our whole system is predicated on growth. When money is created it is only the principle sum created not the interest. Therefore when governments borrow they must create growth to create the interest.
A mass austerity drive and pan European (western) government cuts in this context simply make no sense. Only growth can wipe out defecits and repay debt. How much more starkly clear evidence do TPTB need to see this sh1t isn’t working?
We either need to invent a new, cheap infinate source of cheap energy or a new system. Otherwise as that civil servant put put it “You’re fuc…..”
It’s all a charade though isn’t it?
The banks were de-regulated, credit limits virtually abolished, reserve requirements effectively made negligible, mortgage loan origination began to make the Wild West look restrained. Debt accumulation fed through a Minsky-style asset price feedback loop, as the property boom fuelled more debt creation, pumping more ‘income’ into the sector, resulting in a mountain of unsustainable debt, with no hope that it could ever be paid back.
Inevitably the whole Ponzi scheme collapsed, instead of debt write-offs and bankruptcies, the private debts and toxic assets were taken onto the public books – but are no more serviceable than they were as private debts. So the markets now target sovereign debt – in the knowledge that they can asset strip the public sector as long as the game can be extended.
But everyone inside the loop must know that a debt write-off is unavoidable. To quote Michael Hudson – ‘Debts that cannot be repaid, won’t be repaid.’
The only question is how long they can string the rest of us along while slashing wages, pensions, education, healthcare, and social security?
People don’t seem to realise the true nature of the enemy: “Listen, and understand. That terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever . . .”
Bill40
and if we do get the new source of energy we’ll use it to fuck up the Planet even faster, and not take the possibility to do anything about redistribution of incomes and wealth !
I prefer the ‘new system’ approach …the banking bit suggested by Randall Wray for ex…. which of course needs imagination, vision, courage , all that stuff our ‘leaders’ don’t have.
Sunshine in Lower Normandy, gotta finish my roof before winter …
frog2
Bill, forgot to add, we in the old ‘developed’ world are on a historically lower growth trajectory now, globalisation, resources, etc.All my life the pollies have used growth as a solution, but that’s gone .
frog2
http://www.mecpoc.org/wp-content/uploads/downloads/2011/09/Wray-paper.pdf
around page 6 on securitisation
and new system
X
Hello Charles Wheeler,
Welcome and thank you for your comment.
I agree. What you outline is esactly what happened and is hapenning. And I belive, like you, that the stringing out is being done on purpose for the benefit of the few with the conivance of our political leaders.
Which is why I say this crisis, serious though the financial part of it is, is better understood as a catastrophic crisis of our democracy.
Golem, thanks for your fantastic blog! Are we now seeing European banks being asset stripped by American banks using dollars created by the Federal reserve? And is there an end goal of destroying the euro as an alternative reserve currency? Or is the American aim a unified Europe but with expanded powers for the ECB under a former Goldman Sachs bod?
Stephen
This is the first blog of yours tht I read, and I found this as crisp n hard-hitting as your documentaries. My compliments 🙂
Excellent blog David, I’m very glad to see someone pursuing the truth about the economy. Once you start digging into the operation of the fractional reserve banking system, it quickly beggars belief, doesn’t it? As Henry Ford once said “if people understood the monetary system there would be a revolution in the morning”. Perhaps in a way we’re beginning to see that happen.
I know that you are deeply interested in science, your recent documentary on waves was fascinating and please accept my sympathies for the loss of your mother. I don’t know if you’ve ever read Richard Dawkins book The Selfish Gene, or The Denial of Death by Ernest Becker? Although neither are about the economy I think they do give an insight into the psychology or “game theory” that maybe underlies the behavior of these bankers.
I mention this only because I think without understanding the causes of the behavior we are likely to see it repeated, even if we are able to push back against this latest episode. For me this is really a plain matter of theft. It was not an accident it was carefully planned and in every sense achieved its goals.
@ Charles (& others)
I think Hudson calls it right when he talks about a ‘financial coup’ or ‘class war’.
I have no doubts that many at the top of the (sh1t)heap have been aware for some time that serious resource constraints are coming soon. Whether the Ponzi was created deliberately or not, when it comes to (non) ‘solutions’ the banksters & wealthy elites look to be firmly taking the opportunity of getting in the first ‘salvos’ to protect their privileged positions, at our expense, before ‘it’ really hits the fan.
It is for these reasons that I suggest we can never have a functioning democracy – truly representing the majority – whilst we accept political leaders that either are, or aspire & expect to be, during or after leaving office, significantly wealthy. The distinction being that they make their primary income by the ‘renting’ of money, major assets, or both. By definition, the majority of people cannot – they must derive their income from the sale of their labour. It follows that the ‘rich’ can never truly represent their interests.
The same goes for the ‘fourth estate’ – news & factual media.
Both of these situations can be resolved to a very high degree with adoption of appropriate rules and conditions for office, and after leaving office. We already have special vocation conditions for such occupations as police & military. We need to consider the needs of non corrupt democracy at least as diligently. All, doable, but no room here to go into the nuts & bolts of this.
I see the talk in UK now is more ‘QE’. So, apparently they can print more money to give to the banksters’ casino, but have no ‘fiscal’ room to create employment and invest in sustainability. Yeah, right. And the imbeciles & lackeys in the MSM let them off the hook every time.
IMO, we should be doing all we can to promote the work of MMT proponents like Randall Wray, Bill Mitchell, Neil Wilson & others. It is by far the best macro economic framework. It places the wellbeing of ordinary citizens at the core & has proved to be consistent with the empirical operation of the real world (in stark contrast to neoliberal theology).
Economics has been called the ‘dismal science’ or some such. But, in the mainstream, and including otherwise well meaning ‘progressives’, like Krugman, it bears more similarity with creationism than rational ‘science’.
It’s been very easy for the privileged classes to befuddle the masses and their useful idiots of course. Macro economics, essentially the economics of currency +issuers+ (sovereign governments), not +users+ (households, firms), is often counter intuitive – because, well, most of us +are+ householders, not sovereign governments. Absolutely key is to understand that sovereign governments (of fiat, free-floating money) need +never+, +ever+, borrow in order to spend – +providing+ that there exists +unused+ capacity, resources, labour, to be purchased in their +own+ currency. Please repeat & memorise that sentence!
It’s worth noting that before the 1930s, the study of macro economics, as opposed to the +micro+ economics of households, firms etc., barely existed at all. But I think we can be sure that top banksters have +always+ known full well the key distinctions.
How long can they continue with this farce ?
I suppose longer then many people can remain solvent.
Its been a long time coming anyhow.
Great blog by the way.
International rescue, 3 month Euro bailout.
http://www.cnbc.com/id/44533476
Hi
Shocked by the dollar bailout plan thing. So much more than I was expecting and the implications of the liquidity being provided in dollars has got my head spinning. I’ve been trying to educate people on another blog about what’s going on. But one of them has just posted that only primary dealers have access to QE and banks are not primary dealers. I know this is not right because I’m sure that Barclays is a primary dealer. I’m not wrong am I
First off, excellent blog, Golem. Keep up the good work!
Second, I know that there are a great many readers of this blog who are a good deal more financially savvy than I am and for them I have a couple of questions – well, more of an invitation to speculate actually.
Given all that we have read on this blog, and in other places, of the fiscal malfeasance of our political and financial elites, and given the general feeling that, sooner or later, the brown stuff is going to hit the fan in spectacular fashion. Would anyone care to stick their neck out and suggest a timescale for the approaching ‘corrective’? Are we talking weeks, months, years?
Thirdly, are there any signposts along the way that would help us to pinpoint the right moment to head for the bunker?
Lastly, when the ‘corrective’ has come and done its work and when the dust has settled, if it ever does, what will be left behind, what will replace whatever has been destroyed and how will we carry on the day after?
I am sure that I am not the only reader who wonders.
You will know when the corrective is coming, it will be just before the pain becomes unbearable. I think living standards for the working poor are declining at 5 to 10% a year. After today’s madness that pace will increase. When do you think the breaking point will be. At 50% or 75%
I should say that I’m guessing about the living standards thing, I’m surprised that I haven’t seen and data on differential inflation rates, that is to say the fact that food energy and transport are going up much much faster that anything else and that the poor spend most of their income on these things. Interestingly while food inflation is at 10% that is all food, what I noticed in England was that the cheapo stuff seems to be going up at a faster rate
Hello Richard
I reckon it’s pretty logical that the cheapo food is going up faster, if you’re talking of the really basic raw materials for simple eating , because the worldwide commodity price makes up a higher proportion of the shop price.
Chilling interactive graphic here —
http://www.guardian.co.uk/global-development/datablog/2011/jun/07/rising-cost-of-food
As for cheapo processed junkfood, well the market is a captive one ! People are hooked on it .
Nor have i. I feel like some backwoods kid who missed the start of a game of monopoly but who’s now watching and trying to figure it out, not knowing any of the places on the board or that every throw of the dice if fixed.
Yeehaa I can comment
Oh my god! Bit shocked at the whole central banks providing dollars business. off tomorrow to buy some basic food stuffs before a tin of corn beef is a tenner.
Charles Wheeler – kudos to you for getting that line in from the Terminator – one of my favourite films.
Bill 4o – the new system is sounding pretty good to me right now.
PrincessCC —
since you’ve been following Golem for years, and seeing your posts at CiF how can you be surprised ? (Linked a couple of yours to UT this week).
I may get another 5kg bag of lentils in …
frog2
Done some checking, which is hard work. So hats off to Golem who checks stuff all the time. I was struck by the BoE statement that they would provide ANY amount of rollers against approved capital, and I thought immediately of Greek debt but you will be glad to know that Greek debt is not eligible collateral. Now the bad news, Italian,Irish,Spanish and Portuguese debt is. That’s right and bank can swap those junk bonds for dollars at a fixed interest rate, I haven’t been able to find out what the interest rate is but I’m guessing that it won’t be high. In my view this is TARP only bigger, it only three months loan but I reckon it will be extended more than once. I wish David was here but I’m going to go out on a limb and say this is taking the bad loans from the banks and putting them on the public books it’s just being done sneaky.
I’m really disturbed by this being done in dollars, of course it avoids public scrutiny but it puts the BoE more under the control of the fed and basic ties us into the dollar block, am I wrong?
One more thought why did the BoE use the term “any amount” the other central banks didn’t. Is Mr king sending a subtle message,
Continuing from last, is Mr king sending us a message, I only ask because without that “any amount” I wouldn’t have gone checking, so its almost like someone wants it to be checked
Dave – I’m more and more surprised these days even when I shouldn’t be because I can’t quite believe it is happening. It was the whole dollars bit that amazed and peturbed me – for similar reasons to those Richard in Norway has just stated.
Someone just asked on the Torygraph why cental banks can print to buy bad debt off private banks but not to buy govt debt from struggling nations and then cancel it…..
Richard – this was my feeling re the putting more bad loans onto public books – but I wasn’t sure if it was the case and I’m too tired and ill today to do a lot of checking. The whole thing absolutely and utterly stinks to high heaven.
Richard 9.06PM
” Now the bad news, Italian,Irish,Spanish and Portuguese debt is.”
But I wonder, I assume, I hope, they’re not being accepted at face value ?
& Princess
I wasn’t especially shocked by the ‘dollars’ , because with the interbank deposit (and I assume FX swops) markets frozen by perceived counterparty risk , the eurobanks still have to balance their accounts with their US clearers.
But maybe I missed something there !
I think at Lehman’s time the ECB was left holding some worthless collateral — sure Golem mentioned it, but not much publicity on that one …
swaps
From across the water the reaction from ” The Daily Bail “, some good links.
http://dailybail.com/home/bernanke-to-the-rescue-in-euro-bailout-redux-european-christ.html
I am waiting in anticipation for Golem’s reaction to this, it must be difficult to write an article, when there is steam blowing out of your ears.
Talk about a crisis of democracy – not a single elected politician is quoted in that Marketwatch article or this Guardian one: http://www.guardian.co.uk/business/2011/sep/15/world-banks-flood-markets-with-dollars
The New World Orderish nature of this central bank move is terrifying.
I cannot believe were bailing them out again. Quietly, without anyone bar the financial elite even knowing the full terms.
Brilliant blog Golem, Princesschipchop recomended it to me a few months back, and i’ve been reading ever since.
Richard In Norway
You call Irish Bonds Junk.
I’ll have you know that they are backed by pots of gold from many a leprechaun stash and various vast areas of land in Tir Na nOg so they must be at least as valuable as the rest.
In all seriousness though, is this not all just ‘fluff’ to keep us guessing while the plans are being played out for the real endgame of the World bank/IMF & Co Puppet Masters? Because with all of the changes of direction on policy etc in Ussa and EU it’s starting to look that way to me… Thoughts please.??.
” ‘The 17-nation currency rallied as the ECB said it will coordinate with the Federal Reserve and other central banks to offer three separate three-month loans to ensure euro-area banks have enough of the U.S. currency through the end of the year. The dollar dropped after weaker-than-forecast economic reports damped confidence in the recovery.’
Wait a second… this isn’t actually new!
Remember, The Fed previously (like more than a year ago) announced these swap lines and more-recently announced their extension. So not only is this not new, it’s not news!
But the market is up big on the non-news news. Why? Because it appears banks are
still going to be able to lie about asset values – for a little while longer.”
http://market-ticker.org/akcs-www?post=194210
Same theme different blog
The most tragic thing about the world’s economic leadership is its inability to discern the abject failure of the system
It is not ‘a wonderful thing’ that the world’s central banks have today announced they are pumping money into a banking system because the banks themselves don’t trust each other enough to do so. It is no better for anyone than the news two days ago that Jean-Claude Trichet of the EU Central Bank had thrown half a trillion dollars at the debt maintenance of three ClubMed countries because those same banks didn’t trust the Sovereign borrowers to pay up on time and over time. These are signs of desperation – of a mad global construct throwing the ship’s shelter from the elements into the engines, in a last, wild attempt to make shore.
Since 2004, everything in the world economy has been artificial…and about as efficient as a wooden leg. Earnings based on derivative sales produced notional money, not real wealth. Cheap commercial money kept stock markets unfeasibly high, and gave ordinary people a sense of wealth that was entirely false. 86% of the British economy was a confection, based on the foolish idea that we could go on and on selling more and more credit to more and more people who had less and less money to pay it back.
http://hat4uk.wordpress.com/
One would think that ‘the can’ would be getting tired of being kicked so often, and so ineffectively down the debt highway. Stevie’s link.
Big Dave 5.59PM asked for a time-scale for the approaching ‘corrective’. Golem answered that one, last year irrc. Then he said ‘you can see it coming but just cannot predict timing’.
Either we get a new system, or accept peonage. Going to be an interesting time.
So keep spreading the word. Just now a young friend asked me about our French banks because they’re at last in the headlines here.
I actually asked Golem about dollar liquidity in Europe and his reply was “there is a story there, but I can’t say more”. I think that was an understatement and here it is. My question related to our own mighty Barclays whose share was tanking.
Any bank that cannot trade in dollars is, to put it mildly, totally fu++ked. That is why every European banker interviewed denied being locked out of the dollar market. Without dollars you can’t settle many international transactions.
My research shows that without this action Barclays,RBS,SocGen,Dexia,Unicredit and Commerz bank were all going down. There was also talk of a Swiss bank in major trouble as well. So who do we blame for all these travails? Greece!!
There were meetings between the USA,EU and the BRICS, just to co-ordinate policy on Greece, so they would have us believe. Greece is a minnow of a country where society can function quite well on a cash only basis, so why the panic?
Greece has around $450 billions in total debt from what I can find out. Greek debt was sold as AAA rated, just like lending to Germany but at Greek interest rates. This lovely super secure collatoral was ripe for leveraging but at what rate? 7? 10? 20? 50? More?
That’s what we don’t know by how many times do you multiply that Greek debt? Can the insurers of the debt pay out? (Ha ha). What happens if a country like Italy goes under and we have Greece and Ireland on steroids?
I suspect a major shitstorm is about to blow our way.
As others are saying here, perhaps to put it a different way, the $/CBs response is the same old cr@p as 3 years ago. Treating a fundamental solvency problem purely as a ‘liquidity’ issue. Didn’t fix anything then, won’t now.
I’m presuming the reason for issuing $ liquidity is, whilst the immediate issue is euro contagion, international clearing in $ is a huge problem & if the ECB alone issued euros, the FX transactions would screw FX rates and/or scare the bejeezus out of everyone if they realised just how f*&ked the system is.
As johnm33 above & others – even in the Daily Telegraph – etc. are alluding, the issue is solvency caused by the accelerated scale of the financialisation casino & its ever increasing ‘rent’ demands on the only real source of wealth generation – the real economy.
So blind, arrogant & stupid are the ideologues running things that they cannot (or don’t want to) see that the direction of their ‘printing’ efforts (to the casino) is only making matters worse & adding to the reckoning that will come.
If instead they directed their ‘printing’ toward hiring the unemployed, real growth would return & the solvency problem could be contained. (Yes, oil resources will be an issue but the sooner we get on a ‘war production’ footing to carbon decouple the better for all.)
But, of course, this would blow the rigged game that these parasites on humanity have enjoyed for a century or more.
@paulie
This post from a few months back seems to corroborate your story of a covert game plan by those in the know:
https://www.golemxiv.co.uk/2011/04/guest-post-by-hawkeye-wall-street-fiddles-whilst-the-us-burns/
The dollar as world reserve currency is coming to an end at some point, just as the pound was usurped between 1914-1945. Not many people truly appreciate both how likely this is to occur, and how monumentous an impact it will have.
Meanwhile those in the know are preparing to cushion the blow – byjumping in the only remaining lifeboats first.
@Hawkeye
Thanks for the reply and link, I had somehow missed that before.
Re the dollar, I think when that goes is when we see the NWO put in place or else war and then NWO, either way I think it’s near time for a tin hat !
Golem….new site looking good. Quality from all angles now.
Advice from Zerohedge:
“If you want to know what’s going to happen tomorrow, watch what China does today.”
http://www.zerohedge.com/news/guest-post-china-ready-pull-plug
“Treasury Secretary Timothy Geithner and the heads of World Bank and IMF have perpetuated the lie of contagion between the U.S. and the EU primarily to service the progress of globalization, but also to hide the inflationary effects of dollar devaluation…..a weaker Euro makes the dollar look more attractive (at least on paper), but in reality, both currencies are on the path to bloody hari-kari.”
If China wants to usurp the dollar, then indeed as the ZH article suggests, China is more likely to support the Euro in an effort to undermine the dollar.
Perhaps that explains why little Timmy has gone to Poland – not in fact to help Europe but to protect the US? To try and keep the US / Europe axis cohesive in the face of a very profound dissection on the horizon……
It’s interesting but unsuprising that there are a lot of comments on today’s post. A number of them reveal how many (myself included) couldn’t pass an Economics 101 exam but probably (like me) are equally fascinated and appalled by what is going on in our corporate banking world and desperately want to understand it more deeply. I spend a lot of time reading Zerohedge trying to piece it all together. My Dad was a nuclear engineer and in relation to that I feel like a 14 year old looking into a nuclear reactor at Harwell trying to fathom it all out.
I posted a comment on The Slog’s blog today (pasted at the end of this comment if anyone’s interested in reading that far down!)
Someone who has a good grip on the financial reality of what’s happening on a daily basis would do those of us who would fail Economics 101 a huge favour by starting a website with the aim of unpacking what things mean – a Carl Sagan of the universe version of the financial crisis we’re in. Such a blog would do a lot of ‘ordinary’ financially-savvy-free people a hell of a favour. Golem does a partial job, as does The Slog amongst others. They’ve all helped me to understand how this real life Monopoly game is being acted out and I’m grateful for their unpacking efforts.
johnm33 – I appreciate you’re analogy with the Monopoly game. My place at the table is this.
I’m looking at the game pieces, the players and the board, trying to figure out what each new move means, but I have to scan news and blog sites a lot in order to get an idea of what many interventions mean (the provision of the current temporary bailout in dollars is a good example) because the rules, definitions and implications for changes in the markets are hard to grasp in a fast-changing situation and the rule book is a tad complicated, not least because a lot of it involves sifting through smoke and mirrors in the mainstream press and piecing together more informed stuff from other websites such as this one.
Someone would make a killing by inventing a contemporary version of Monopoly that reflects the real state of play. Though I don’t have enough knowledge to design one I do know enough to know what I’d name it – ‘Banking & Corporate Financial Terrorism – The Board Game’. No need for a succinct title – it needs to be spelt out so everyone knows what they’re buying into – or rather what they’ve bought into as we’re all in this together. What a novel game – ‘Monopoly – The Real Deal’ or even perhaps ‘Monopoly – The Raw Deal’ – now there’s some alternatives. It would also be a board game with a copyright preventing anyone from making an online version – at least that’ll get some heads (mine included) out of the rectangular internet we live in these days.
If anyone can point me to excellent all-inclusive blog(s)/website(s) that can complement Golem’s in being able to daily unpack things, please post it on here so we can all benefit.
Here’s my rant for the day, as promised, for those of you who got this far:
‘As events rapidly shape-shift day by day I would like to respond to Simon Jenkin’s post in The Guardian today.
Only two words he wrote dictate the future, and they are ‘casino operations’. The people/sheeple of the world (I’m one of them) are being led over the cliff to serfdom by the most outrageous heist in all history being carried out by Banking & Corporate Financial Terrorism. Ironically, the anniversary of 9/11 last week was in fact not the anniversary of the biggest threat to the world at all. This week’s EU crisis is a symptom of what is.
All his idealistic talk of a return to nationalism will ultimately come to nothing, for the financial terrorists, unregulated and free to wreck the world will continue unabated. The corporate & banking terrorists now operate within a highly technological and complicated world-wide casino.
Chronic gamblers will continue their ways until the money runs out or new laws are passed that ban gambling and require they turn their activities into those that foster sound investment on behalf of the world’s populations. I can think of no way to spell it out more simply.
We are in the end-game, for however long or short it takes to run it’s course . Call me a pessimist. I say I’m looking at the grim face of the reality facing us. Unfortunately, the world’s political leaders are unable to grasp the nettle – for greed by those who wield power have possessed those who manage sovereign states.’
I posted this on the slog and had an interesting response from someone old enough to be my Dad.
Have a good day everyone – and thanks Golem.
An interesting look at “How Europe Sees Itself” – 16 pictures stitched together to say what words cannot.
http://js-kit.com/blob/9NEiIyWIH9_617vyrIcqvN.jpg
Global Imperatives of a Chinese Exporter:
“A truly significant bond purchase program by the Chinese would require them to re-allocate precious reserves into large EU member economies, such as Italy and Spain. These are economies that even other EU member states and their populations are both unable and unwilling to bail out.
Such a drastic action by the Chinese at this stage of the game would be the equivalent of an extremely “sophisticated” investor voluntary agreeing to be the last greatest fool in a speculative financial ponzi scheme that makes the U.S. sub-prime housing bubble look tame in comparison. Li Daokui, member of the Chinese central bank’s monetary policy committee, has a few choice words to say on this point, as quoted by Ambrose Evans-Pritchard for the Telegraph:
China States Price For Italian Rescue
Professor Li said China must stop investing its hard-earned wealth in western debt and switch its incremental holdings into “physical assets”, including the equities of major western companies.
“China is the most patient investor in the world. Imagine if our $3.2 trillion in foreign reserves had been controlled by George Soros: financial markets would be in much greater chaos,” he said.
But such irrational investments are made all of the time in our twisted system of “free-market” incentives, right? Wrong. That argument may carry some weight on the way up before the ponzi has begun its process of implosion, but the Eurozone sovereign debt ponzi is well past that mark.”
http://theautomaticearth.blogspot.com/2011/09/september-15-2011-global-imperatives-of.html
Also from the above article:
“Central banks promise to lend (hand out) more of your money to the banks, and the markets of course rise for a day since they smell a chance to get their hands on their share of it. Who pays?
If you still haven’t figured out the difference between a liquidity crisis and a solvency crisis, we suggest you do so soon. Because the banks of this world are not illiquid, other than the worst of the Europeans having no access to US dollars. The banks are insolvent. The whole banking system is.
You can try and breathe that sigh of relief only if and when the first government decides to restructure both its own debt and that of its banks, if and when widespread defaults and bankruptcies are declared. Until that moment, you will be sinking ever deeper into the financial morass, whether you realize it or not, whether you want to hear it or not.
Defaults and bankruptcies too would be ugly, no question. But there is no proof that they would be worse than what awaits us now. And they have the huge advantage of bringing honesty and truth to the game. Both of which are indispensable for restoring trust and confidence, both in our economies and in our political systems.
Yeah, you’re right, who am I kidding?
The flavor of the day, other than dollars for Athens, is still yuans for Rome. Rice AND Pizza.”
http://www.nakedcapitalism.com/2011/09/more-on-the-european-bank-bailout.html
Good evening all, just a quick one to say what a pleasure it was to meet David yesterday and have him speak to our group – he is as fascinating in person as his blog is in cyberspace. And he’s also a very nice person – so thank you again David for coming over to speak to us. We videoed the talk and will be posting the footage to Youtube soon.
The discussion above expresses understandable incredulity at continuing events. David spoke last night about possible avenues out of the debacle. Here are Richard Murphy’s thoughts on what is needed:
http://www.taxresearch.org.uk/Blog/2011/09/16/network-banking-the-radical-reform-the-uks-banking-system-needs/
Phil / Eric the King
Followed your link and found a reference to the only state-owned bank in the USA the Bank of North Dakota
http://motherjones.com/mojo/2009/03/how-nation%25E2%2580%2599s-only-state-owned-bank-became-envy-wall-street
A bank as a utility concentrating on its own locality, having a monopoly of managing state funds, not engaging in fanciful derivative trading(!) , and paying a dividend to the state !
Hmmm looks good to me
Dave / frog2
” I have no spur
To prick the pride of my intent, but only
Vaulting ambition, which o’erleaps itself,
And falls on th’other “………
http://www.youtube.com/watch?v=U74ZueBopZU&feature=player_detailpage
And for those who may have a lingering regard for one of those leaders who dont have a clue…heres another indication as to what to expect from Obama… the bankers chum
http://www.nakedcapitalism.com/2011/09/latest-obama-lame-excuse-my-staff-was-insubordina
Wirplit good link ! Paul Volcker would have been the man .
Yes thanks Dave I wonder who still believes in Obama? The reason Volcker didn’t get power nor any of the other sensible economist advisers Obama could have drawn upon is because they were not in a position to pour millions into his election campaign as the banker’s men had.
Why the old old adage ” He who pays the piper calls the tune” is not understood by everyone in America is a mystery. Guess its because the American Dream and “Hope springs eternal” trumps base realism.
Until base realism comes up and bites.
I feel the first question every PR spin person on the media to defend or push this or that agenda should be asked is ” Who pays your bills?”
Wirplit,
Is this the same Paul Volcker who was chairman of the Fed and also close associate of the Rothschild/Rockefeller family banks? was he really cast out, i think that he had more important work to do for TPTB. He was far too important to go back to the poison chalice of chairing the Federal Reserve. Is he not still chairman of the G30 bankers Cartel?
If I am way off the mark here I would appreciate being put in my place as I’m relatively new to this shenanigans whereas most of you regular posters seem to have a pretty good handle of this lot. It just I see more to this than just some ‘bankers gone wild’.
An article from the MMT Billy Blog outlining how Scotlands rejection of all out austerity measures is stimulating their economy, with policies such as green economic development. Provides a contrast to the rest of the UKs strangulation by the neoliberal true believers.
http://bilbo.economicoutlook.net/blog/?p=16123#more-16123
Hi all
I just posting something I wrote on another blog in reply to someone who said we should bail out the banks so he didn’t lose his savings though to be fair to him I did advocate the removal of deposit insurance. Anyway I thought that the folk here might want to pick it to pieces and tell me where I’m wrong
Further response to your earlier post about bailing out the banks to protect your savings. I’m not sure whether to start with the moral case or the practical case, mind you they are intertwined.
First off I must point out that the reason the banks don’t want separation of retail and “investment” is because the govt would only be obliged to save the retail arms and because of that the investment banks would have to pay a higher price to borrow money in the markets.
So I will start off with the moral argument or at least try. The problem with providing “liquidity” to save the banks is that this is printed money and printing money causes inflation, many here will not be aware of just how much money has already been provided to the banks, we assume that it’s just the £200 billion in QE from the BoE but most of the extra liquidity has been provided by the American central bank and our banks have received a large portion of it(I suspect that the BoE is buying American bonds as a quid pro quo) but QE is not the whole story because there have been numerous soft loan programs etc. All of this has fed into inflation, not so bad you might say but this inflation is asymmetrical, what do I mean by asymmetrical? Simply that the inflation rate is not the same for everyone, the rate for lowpaid workers is between 10 and 15%, you can easily work this out yourself by taking the amount spend by the low paid on for example food,transport and energy and the amount of inflation in these items. But not everything is going up in price, so we find that the inflation rate for someone who earns 50,000 might be as low as 1% you could in fact make a graph with income on the Y axis and inflation on the X axis and you would see a line progressing downwards until maybe the inflation rate is less than zero. I haven’t seen such a graph but I would very much like to see one(if anyone has seen such a graph then please post a link) so as you can see the low paid who have no savings are paying the price for preserving your savings. But these people have already paid a heavy price on the alter of the free market because the free market reforms has caused their living standards to fall by 25% over the last 30 years. And indeed you might be one of those that have benefited from that decline in the form of cheaper takeaway food for example, I’m sure if you think about it you can find many other examples. So your saving should not be sacrificed on the alter of the free market but the living standards of the working poor should? No one forced you to save, no one forced you to lend money to strangers not knowing if they were trustworthy or not. Because make no mistake depositing money in a bank is treated by the bank as a loan and they pay you interest on that loan. Does the interest paid provide a good return for the risk you are taking? Only you can be the judge of that. There are many other moral arguments but this is taking too long and I want to move on to the practical argument
The practical case is quite simple, as Mr king stated at the beginning of this crisis “it is not a problem of liquidity but rather of solvency” here he is stating what many other know that the banks are insolvent, if not all of them then at least some of them. Even the banks know this which is why they are desperate to continue with the soft accounting rules which allow them to hold assets on their books at price paid instead of market price and this is why the default of Greece’s insignificant $450 billion of debt is such a huge problem, its being held on the books at full value and being used as capital backing other loans and investments. But can an insolvent bank ever be made solvent by bailouts and if it could would it have an incentive to be solvent. But we can see quite clearly that the banks can’t be made solvent, we have been trying for three years to make them solvent and still they need bailouts QE and soft loans. At the same time inflation and stagnant wages together mean lower demand leading to a reduction in peoples ability to pay what’s owed and a further decline in asset prices which if they are marked to market makes the banks more insolvent. Do you see where this is going. We can’t save your savings by bailing out the banks. The only way is either you take them out before the bank goes down or the govt that is the taxpayer pays you for your silliness in trusting them with your money in the first place. At least if we remove the support from the banks we can find out which ones are solvent if any.
@Stevie
Not sure spending money on windmills in the hills is a wise use of money – they should go back to splitting atoms.
The SNP reminds me of the FF party in Ireland – very very clientelist.
As for the Edinburgh Tram system……………………… I am a major fan of urban trams but the execution of that project has been a disaster – although to be fair thats a collective responsibility of Edinburgh local politicians.
http://www.youtube.com/watch?v=ebaDe3eiQIA
Spending money should not be about creating jobs – it should be about reducing work – thats what man has been doing since he has been hunting & gathering.
Trying to figure out the best way he can reduce his workload.
@ The Dork of Cork
I don’t know much about the SNP, but what they are doing seems to make more sense than what Thatcher’s spawn are doing in the rest of the UK.
Wasn’t the Dublin LUAS project a disaster too ?
I agree that spending money should be about reducing work, but at the moment people are being forced into a position of desperately needing employment. It’s ironic but I remember at the end of that decade of hope the 60’s, politicians spouting off about the coming of the age of leisure, I imagine that unfortunately, people soon would be glad enough, to be employed shovelling the shit away that has spewed from politicians mouths, ever since.
You won’t get any arguments from me regarding the new monetarists of that time – decapitalizing systems to mine short term profits.
As for Luas – it was surprisingly well executed for whatever reason – The Edinburgh tram system is / was not.
Edinburgh bus system is F$£King brilliant however – something went wrong with the Tram tender process I imagine.
It looks like it will cost double the oringinal price for half the line – maybe terminating in Haymarket rather then the centre of town which makes no sense and also losing its circular route to Leith.
Take it from me the process has been a disaster – although you can’t blame the SNP for that one – it was local politics execution of the tender I suppose.
Holy Cow Batman, I think Greece might be defaulting right now.
#Richard in Norway
The banking guarantee is not worth the paper (fiat) it is written on, by the time you get paid out you will have suffered your own liquidity crisis followed by a fire sale of your assets (marked to market) as you scramble to buy necessities to live on, you will be insolvent in no time (just like the banks, big debts and worthless assets)
By the time you realise a crisis may be at hand it is too late, most accounts have daily limits to withdrawals, the fiat will be worthless long before you have withdrawn your last £,$ or €
Go long on tins of corned beef and jars of peanut butter (crunchy)
I did think about about telling that the deposit guarantees were unlikely to be honored but I didn’t want to destroy all his illusions in one go
Hi Richard,
I have no doubt that the guarantees will be honored, it is just that by the time you get your money it will be worthless (even your creditors will have gone broke in the meantime).
I worry about your co-respondent not because of his money but that he has no idea what the downside risks of the current financial situation are, if even a small proportion if these risks are realised then he is facing an alien future.
Shock is a killer.
This is the future now
http://www.guardian.co.uk/science/2007/apr/09/frontpagenews.news
and this is the updated version
http://www.mod.uk/NR/rdonlyres/38651ACB-D9A9-4494-98AA-1C86433BB673/0/gst4_update9_Feb10.pdf
I’m trying hard to educate him and the other on that site, for most folk the penny hasn’t dropped. For myself I got curious when base rates where at 0.5 for two years, I thought this ain’t normal, what’s going on. And then I stumbled upon Golem xiv through a link on the guardian comments page I think it was Dave from france that posted the link, and I am very grateful. From there I started to find other links both left and right wing and it struck me how much both wings agreed on the roots of the problem. From communists to tea baggers(before they got taken over by gop) the internet is a great tool for democracy. I’m surprised it hasn’t been banned.
Golem …
I haven’t even finished reading it but it’s like deja vu….. Where did I see this before???? Months ago.. http://www.zerohedge.com/news/european-sovereign-debt-cant-we-all-just-net-along
Some food for thought about commodity backed money system vs. fiat based system. Made me laugh a few times (^_^)
Loved the link
Blimey people, what a lot of thoughful comments.
Thanks to Phil for inviting me to speak in Manchester.
Coupe of quick things.
First as others have already noticed the specifics of the Central banks’ actions seem to be key. “unlimited amouts’ caught my eye too. But I wonder if the 3 months duration is the tell-tale. This isn’t even pretending to be a solution.
If Little Timmy Geithner had got his way, if Berlin had not decisively broken away from US policy that is, then we would have seen a Euro-TARP announced. But three month loans is nothing more than a hand pump in the Titanic.
Now all those Dollar purchases by the BoE will come in to their own I suspect.
As for China ‘helping’ – don’t bet on it. They will offer to buy assets not debt and want to do it with dollars.
If the markets on Monday really do buy again as if Greece were OK again – even if it is just for a few weeks/months I don’t think two weeks tops, will go by before Italy is back on the spit roast. And once they are, then France and Germany (Commerz and some of the Landesbanks) will join them.
Bonjour Golem,
didn’t you do something on the debt-netting idea linked by Pauly Ire at 8.52 ?
I haven’t had time to read the original so no idea if it is valid .The netting-out after Lehmans showed the difference between the headline figures and actual settlements too.
http://www.eudebtwriteoff.com/
frog2
Salut Mon Pot,
Yes I did. Nice to see the idea getting some play in the US on ZeroHedge.
On another topic various people have mentioned – Obama. I usually stay away from party politics but I would like to add this. It seems to me Obama was elected by very well intentioned racists. People who would never identify themselves as racists and in fact aren’t in any normal sense. But it seems clear to me that well inentioned liberal people judged Obama by the colour of his skin.
All politicians talk about change. But when Obama did, they looked at the colour of his skin as said he must be on the side of poor black Americans and forgot entirely the more salient point about him – he’s well off and has spent his political life mixing with the well off.
As soon as we saw who Obama appointed to the top economic positions it was clear he was defined by the same basic financial ideology as all the rest of the American elite.
It’s as stupid to judge someone positively by the colour of their skin as it to judge them negatively.
@ Golem
Maybe some voted on Obama’s ‘colour’ but I doubt the majority did? I think the powerful elites in the US spotted a great speaker – someone who could make the right noises & perfectly feed the illusion that there was some democratic choice after a lot of people were fed up with Bush & the Republicans. It also reminds the republicans who really pulls the strings too – can’t have one party there too long, they might start getting their own ideas.. It’s worth noting that Obama was plucked from nowhere. I think the big money backers realised that Obama could deliver great rhetoric but was otherwise completely empty headed & entirely malleable.
Like you, I realised the true plot when Obama ‘chose’ (as if) advisers from the business as usual list. Nothing was going to change with all those Wall St insiders ‘advising’. Nothing much changed in other policy areas either.
Political leadership seems ever more a ‘beauty’ contest for PR/Sales pitches with some illusionist showbiz thrown in. MSM setting the talking points. Say anything to get elected then do what the backers want.
If some of the reports re Greece and the demands of the troika are true then Greece really won’t be any worse off if she defaults. The cry of those arguing against default is always ‘they won’t be able to pay benefits and they’ll have to sack all public sector workers’.
Well it seems that this is almost what is being demanded anyway to release the next tranche of the loan – along with selling off even more of what isn’t nailed down. Some reports are saying that the demands are of a stop to ALL social benefits immediately. As well as sacking all public sector staff hired in the last two years.
Now if I were a Greek politician I’d be thinking – we’re facing the same sh*t either way – at least if we default we retain control and we don’t have to sell off even more of the few assets we have left to dodgy EU banks. Plus if I were at all vindictive (which I am so so not) I’d maybe be thinking I could take a few of them down with me if I did it my way.
Leap 2020 has an interesting article up. they’re starting to look a bit bonkers to me with their insistence that all in euroland is absolutely fine, but they make a very good point about Geithner trotting over toe Europe to tell them what to do when the state of the US public finances is actually much much worse.
If I was Greek I would be vindictive, the only reason to do this is to push them into default. I’m almost getting tired of waiting. If it was me I would have pressed the button long ago, but that’s the cruelty of hope
I know its awful just this feeling of waiting. God knows what it must be like for the Greek people – being in the front line of this financial war.
Absolutely they know its coming. It’s like being on a sinking ship knowing that there is no possibility of rescue while the captain tells the band to play happy songs. What makes it worse is they are being set up as the fall guys, you watch the history books will say that the great crash of 2011/12 was the fault of the Greeks. We are already hearing it, makes me wonder if the Greek default was delayed until the economic data started going bad just so the Greeks could take the rap
That wouldn’t surprise me at all. It stinks. That’s essentially what Leap 2020 are saying. they say that the US and UK are in a dire mess with regards to their banks and so ”in such a context, everything was ripe for a media relaunch of the Greek crisis and its corollary, the end of the Euro!”
Of course I don’t agree with them on their rosy predictions for the eurozone or its own financial organisations but I do think they’re right with regards to the Greek situation. They are being made scapegoats and indeed some of the language being used about them by senior officials in other countries and organisations like the IMF is shocking. The suggestions that a military coup should be enacted to ensure these ‘reforms’ can go ahead one of the more chilling.
And as Golem says it won’t end with the ‘end’ of the Greek drama anyway. Italy will be next or somewhere else and all because – ultimately the banks are broke and cannot take ANY hits on their exposure to sovereign debt. We’re literally sacrificing whole nations to save a rotten banking system. You couldn’t make it up.
I am not greek, but married to a greek, presently living in a little village halfway up Psiloriti(for those who know Crete).
Yes, it is very very bad. We had two scientists to visit this afternoon(married, both working in public sector). This month they have to pay an extra 1600 euros (special tax for the unemployed, because they are both in work). They have already had cuts of 20% in salary. Average Greek salary for research scientist with PhD and several years postdoc WAS 1100 euros per month. Now it’s nearer 900. They pay 600 euros monthly rent. They have a young child aged 3 and childcare costs another 600 per month. They have a car paid (essential because their place of work is 8 kilometers from Heraklion and the bus service is not too reliable). Car loan (their only debt) costs another 400 per month.
They will not be able to pay the tax as there simply isn’t the money there.
Next week they will be told officially that their institute (very reputable with worldwide reputation) will have to lose 10% of its staff. Of course, at this point no one knows where the axe will fall.
Don’t forget, these are the lucky ones. They both have jobs, in the reviled public sector, they both publish in peer-reviewd journals, they have only one bank loan.
What are they to do?
What is Greece to do?
If Greece goes, do not let us be vindictive, which would harm everyone(and this is not actually the Greek style-just remember Patrick Leigh Fermour and those Cretan who died to save him and the British). What about simply legalising the production of cannabis? Crete does a really good product, I am told by those who know. That might inject a little fun and realism into this catastrophic situation.
Couldn’t make it any worse, anyway.
Its sad, what you wrote made me think about my family and I know that very soon that will happening to them, in fact it’s already started. Sometimes watching this stuff unfolding is like entertainment, maybe it a way of dealing with it without getting overwhelmed, but then you read this and remember that its real and not a stupid Hollywood movie
The only bright spot is hear the former put upon nations saying, “it’s your mess you fix it” like China refusing to break it’s peg. And these comments I saw over at the telegraph had me in stitches.
This is the former finance minister of Singapore telling off the naughty western children
Mr Yeo said talk of global architecture is an attempt by Western countries to wriggle out of hard choices and “pass on their pain” to somebody else. The “Old Cathedral” of global affairs – built on American power – is crumbling and should not be rebuilt.
“China and India are going to grow whatever happens to the global system. The world will muddle along as it has for much of history,” he said.
Mr Yeo called for a bout of “creative destruction” in the West, warning of “very painful” times as American and European workers learn to compete toe-to-toe with educated Asians willing to put in longer hours for much lower pay. This may test political systems to breaking point.
It reminds me of The link that lautturi posted.
Richard 9.27 don’t know if it’s signed but the new Free Trade Deal with India does include something about movement of personnel…
So Cameron is busily hastening the creative destruction instead of conducting a rearguard action to lessen the impact of globalisation.
Margaret 9.20 most people earning 2200 would not have the ready cash to pay that one-off special tax of 1600 for the unemployed. Are you sure of the figure?.
Dave
It’s not funny I know but this is the sort of lecture we used to give them, I’m thinking of the Asian crisis of 97 which some have said was the work of Goldman and Morgan Stanley. There was no mercy for the Asian countries then
Dave
Unfortunately I am sure of the figure. That is why the couple (long-time colleagues ) were in despair and came to see us. People do NOT have the money to pay this extra tax and are at their wit’s end. I could go on and give a mountain of anecdotal evidence about the devastation being caused at the moment in Greece but no one, least of all the Germans (apart from our long-term scientific colleagues) is listening so I regard my feeble attempts to tell it a it is, as wasted effort.
@Margaret, very sad to hear about your friends, I hope everything works out for them. I’m sure leaving Greece is not what they want to do, but perhaps if they’re well educated they might be able to obtain better wages abroad? It’s painful to see the impact of this misery-go-round.
There is a good blog on the bbc website by paul mason if anyone is interested. I’ve put the link below;
http://www.bbc.co.uk/news/world-europe-14934430
Margaret not wasted effort passing the word !
This blog started on feb 18th 2010 I see, and now at 45000 individual visitors . And each of those has a circle of friends family etc as well as linking back on the web.
New thread up here, a good one to circulate to those friends etc, and for you to post some more…
Richard in Norway it almost certainly was me providing the link at Guardian CiF to come here ! Occasionally my linking posts there would ‘disappear’, and they weren’t breaking the rules …
frog2
I have a facebook friend from Greece. I am witness to his increasing desperation & anger, as his hopes that things might improve are shattered. I have had nothing good to tell him, which is sad. His latest FB post sums it up, this doesn’t include the news he posted the other day of the Greek fella who set himself on fire outside a bank.
http://www.keeptalkinggreece.com/2011/09/19/scring-greeks-each-and-every-day/
@ Princess
It strikes me that the Greeks were not so much in denial, but hoping that they were undergoing some sort of temporary nightmare, that would pass & everything would return back to normal. It seems to me, that by the time they realise the truth it will be too late for them anyway. The MSM & governments disinformation, the real facts not being readily available & if you found them, who do you believe ?, & of course, how do you make a stand ?
I am also amazed how the UK & Irish public shows no interest in the real situation & if it is pointed out to them, they really seem to prefer to not know. How bad does it have to get before people start to cop on? Do we, the Spanish, & the Italians have to go all the way down the road like the Greeks or will enough people realise the danger in time & do something about it ? & how ? As in Greece the unions are a corrupt joke as are the politicians & we all have the same puppet MSM.
I fear for Greece & the rest of us, I am hoping for something big to go bang, big enough to knock people out of their apathy. I would much prefer none of this was happening, but I am sick of this slow bleeding to death. Maybe then there might be some resistance to this slow strangulation, widespread civil disobediance as Golem suggested, anything other than sitting watching our freedoms & childrens futures slipping slowly away into an abyss.