Global financial system implosion begins

[greedy banker]

Does anyone mind if we're nicking money from poorly advised Arabs? I don't.

 

[Barking_Mad]

http://cynicuseconomicus.blogspot.com/
It's required reading in my blog reader.

Ive been reading this, the guy seems to know his stuff, worth reading from his original pposts, or at least some of the earlier ones, as he gives a good background.

Definately worthy of a bookmark.

 

[goebfwai]

Some clips from some of today's press:

Action needed now to avoid depression, warns ITEM economist: quantitative easing needed immediately
http://www.telegraph.co.uk/finance/...to-avoid-depression-warns-ITEM-economist.html
Unless we are decisive Britain faces bankruptcy
http://www.guardian.co.uk/commentisfree/2009/jan/18/recession-banking
Economy on the brink as cabinet plans 'bad bank'
http://scotlandonsunday.scotsman.com/business/Economy-on-the-brink-as.4887469.jp
Brown seeks foreign help to rescue banks
http://scotlandonsunday.scotsman.com/latestnews/Brown-seeks-foreign-help-to.4887771.jp
Why the party's over in Ireland
http://www.guardian.co.uk/business/2009/jan/18/ireland-economy-crash
Investment broker Arthur Nadel goes missing, $350m 'disappears' from funds
http://business.timesonline.co.uk/t...ectors/banking_and_finance/article5540130.ece
Grow your own: The seeds of change
http://www.independent.co.uk/environment/green-living/grow-your-own-the-seeds-of-change-1418921.html
Eastern Europe braced for a violent 'spring of discontent'
http://www.guardian.co.uk/world/2009/jan/18/eu-riots-vilinius
President 'has four years to save Earth': US must take the lead to avert eco-disaster
http://www.guardian.co.uk/environment/2009/jan/18/jim-hansen-obama
Who will pay for the economic crisis?
http://www.permanentrevolution.net/entry/2520

 

[Barking_Mad]

Ive been reading this, the guy seems to know his stuff, worth reading from his original pposts, or at least some of the earlier ones, as he gives a good background.

Definately worthy of a bookmark.

His latest piece is a good one.

It is somewhat surprising how much assumption there is in a couple of paragraphs from the ITEM club, but there is an even greater and more contentious assumption. As I have already gone into such a lengthy discourse, I will re quote the second paragraph, which concerns the second point that I would like to make:

We are now in danger of seeing the economy choke: and once you get into a situation where people are hoarding as much cash as you can throw at them and interest rates are stuck at zero, you're in real, real trouble.

At this point, I will ask you to not read on for a moment. Before reading on, see if you can spot the emotive descriptors in the paragraph. Re-read the paragraph with this in mind, and I hope you will spot a most curious expression.

In case you did not get it, the key word here is 'hoarding'. Consumers are not 'saving' money, but instead are 'hoarding' money. Hoarding is what dragons, pirates and greedy kings do with gold. Hoarding is a 'bad thing'.

However, if we rephrase the paragraph as follows, then we see a very different picture:

We are now in danger of seeing the economy choke: and once you get into a situation where people are saving as much cash as you can throw at them and interest rates are stuck at zero, you're in real, real trouble.

What we are now seeing is an argument that says that saving is a bad thing and is the destruction of the economy. If people save 'you're in real, real trouble'. The solution to this real trouble that they are proposing is quantitative easing, or printing money.

In printing money, they will relight the fires of inflation, and that inflation will apparently get consumers spending again. However, such an assumption is built upon several other assumptions.

http://cynicuseconomicus.blogspot.com/

 

[Dr Jon]

His latest piece is a good one.



http://cynicuseconomicus.blogspot.com/

I gather you meant this blog post, which has been superseded by this one.
Both make worrying reading.

I remember my dad saying this would happen over 8 years ago (when Tory Bliar was still UK's most popular PM!)
I thought he was just a potty old pensioner at the time.


For years I have been deeply suspicious of the "booming" financial & service economy - "nobbut a bunch of smarmy southern twats who don't mek owt"
Now Thatcher's (& Blair's) chickens are flocking home to roost...

 

[Barking_Mad]

It's worth pointing out that the guy writing the blog is not an economics expert, in so much as it's not his field of work. So, pinch of salt if you wish, but he has been very accurate and always willing to admit that he might be wrong and never bullish. Yet time and again his astute observations have been correct.

The Climax of the Fall is Now in View

I am writing this post with a profound sense of unreality nagging at me. When I first wrote about the UK economy (you may want to read here for a summary of where I started), I was profoundly worried, and could see that we were heading towards a massive economic shock. A little while later the realisation that the UK was effectively bankrupt struck me, followed by the realisation that the US was in the same position.

When I first started writing, I could see no way of avoiding crisis, but could at least see a way to minimise the crisis, and plant the seeds for a future recovery. As the crisis has progressed, I have been horrified at the bank bailouts, more recently horrified at the jump into quasi-Keynesian policy, and even more horrified that quantitative easing has been proposed to finance this lunacy. Such actions, as I have argued over many posts, will serve only to magnify the scale of the economic destruction to levels that I had never imagined were possible. The cure to the disease has been to take a hefty dose of poison.

In the newspapers we can read endless reports about the 'financial crisis', which is of itself a misnomer. This is not a financial crisis, but an economic crisis, of which the banking system failures are just one symptom. Throughout this blog I have kept in mind very simple principles and applied them to the state of the world economy. I realised that the key to all of the problems is that the world had entered a period of hyper-competition. The world had changed, and countries like the UK and US complacently stood still, resting on their laurels, with no real attempt to adapt to the changes in the world.

Instead of adaptation, instead of confronting change, we have seen ever greater attempts to bury the reality that underlies this crisis. The reality is that many of the countries in the West, and I refer in particular to the US and UK, are unfit for the competition. Putting it in both simple and accurate terms - we do not produce enough value of goods and services to support our current lifestyles.

This is not a new situation, but has been developing for a long, long time. All that has happened is that the reality of the situation has been obscured from us through a series of bubbles. The dotcom bubble, the telecoms bubble, the stock market bubble, the housing bubble and the credit bubble. One after another they have come, but the greatest bubble of all will be the final bubble to burst - and it will explode our complacency.

This final bubble is the currency bubble. In the case of the £GB it has been rapidly deflating, but is now set to burst. In the case of the $US, once it starts to deflate, it will pop violently.

Of all the factors that have hid our underlying economic fragility, the currency bubble is probably the most significant. In crude terms, those who have been selling all the commodities, goods and services to us have been lending us the money to buy their output. As a result, they have amassed huge amounts of our currencies, and are now starting to realise that the paper they exchanged for goods has no meaningful underlying value.

Why did it all last as long? Part of the reason is that there was an ongoing demand for the paper, so that it could be used to lend back to us. Part of it was just a false belief in the value of the paper, an illusion.

The illusion was like a magician who, with the clever use of mirrors, manages to hide an elephant on the stage. The elephant that has been hidden is that we just can not compete, do not produce enough of value. In the meantime, the rest of the world looked on in wonder at what appeared to be the miracle of our wealthy economies. We seemed to just keep growing, becoming ever more wealthy, ever more indulged in the luxury of comfortable lives. It all seemed to be inevitable, and it was believed by many that this was our natural state.

This grand illusion meant that the rest of the world looked on in wonder at our wealth and power, and continued to take our worthless paper. In fact, the demand for the paper seemed to grow endlessly, and as the demand increased, so did the issuance of paper from our governments. The result is that more and more of this useless paper has been amassing in the treasuries of our creditors, such that there are now mountains of it.

And here comes the problem. What happens when someone tries to use the paper to buy something from us?

It is here that the light finally shines on the illusion, and reveals the mirrors that hid the elephant from sight. It is at this point in time that the realisation occurs to our creditor that we just do not produce enough for the paper to be exchanged for. To mix metaphors, they can come to the shop, but there is very little on the shelves that they want to buy. Sure, they can rummage around and find a few useful items here and there, but they will be left with a mass of paper still stuffed in their pockets, wondering how it might be used.

The truth is; the paper can not find a use, and it is therefore without value.

continued in link...

And in addition, there is this from today's Indy

 

[Dr Jon]

... And in addition, there is this from today's Indy

He's just bitter 'cos Singapore is fucked.


See my post here

ETA:

It's worth pointing out that the guy writing the blog is not an economics expert

Which is probably why he's right. Is he an engineer perhaps?

It was economics "experts" that got us in to this mess..

 

[goebfwai]

Cynicus is always worth a read. Was reading Newsnight's Paul Mason latest blog post too this morning. He gives a good overview:

While the world is disracted by the Obamathon...
Tue 20 Jan 09, 03:32 PM
http://www.bbc.co.uk/blogs/newsnight/paulmason/2009/01/while_the_world_is_disracted_b.html

 

[Barking_Mad]

Cynicus is always worth a read. Was reading Newsnight's Paul Mason latest blog post too this morning. He gives a good overview:

While the world is disracted by the Obamathon...
Tue 20 Jan 09, 03:32 PM
http://www.bbc.co.uk/blogs/newsnight/paulmason/2009/01/while_the_world_is_disracted_b.html

Interesting how the Cynicus blog makes mention of Ireland being the first to go and lo and behold in the Paul Mason article...........

Problem Three: Ireland's finances now looking very perilous. What happened was that late last week in Tokyo, Irish PM seemed to say the country was on the brink of an IMF bailout:

"Prime Minister Brian Cowen, while at an investment conference in Tokyo on Wednesday, was reported to have endorsed the view of an Irish union leader that the parlous state of Ireland's public finances could lead to the IMF ordering mass dismissals of public sector workers. Dan Murphy, the general secretary of the Public Service Executive Union, had previously told his branch members that the Fund could intervene if public spending was not curtailed, according to the Irish Times."

 

[Crispy]

Ok, so I've got a few grand in the bank. I've been saving it for a three month travelling at the end of the year, to celebrate the graduation of Dr Agent Sparrow. Will my money still be worth shit at the end of the year? Should I buy gold coins and hide them under the mattress?

 

[Barking_Mad]

Don't take my advice, but from what i keep reading, yes.

 

[Crispy]

This is what I keep thinking too
And then I think 'nah it'll be alright'
And then I think 'that sort of thinking doesn't pay'
And then I think 'Sparrow will be pissed if I turn her holiday into gold coins'

 

[g force]

Worth what? Depends what currency really.

 

[Barking_Mad]

UHT Longlife milk.

 

[goebfwai]

I don't think Ireland wants the IMF's money. There was a story recently of an ex government economist that has them threatening to withdraw from the Euro if the EU don't help. Can't the EU Central Bank step in? That's surely much better than the consequences of Ireland having to submit to the rationalisation demands of the IMF, although in the case of Iceland I think they have delayed their demands for certain structural adjustments to Iceland until 2010. Iceland got an IMF bail out, so did they take or turn down the Russian money? I thought Russia had offered them a few billion. The Faroe Islands helped them out a bit too.

 

[elbows]

Iceland got an IMF bail out, so did they take or turn down the Russian money? I thought Russia had offered them a few billion. The Faroe Islands helped them out a bit too.

I think the Russian thing fell through.

 

[kyser_soze]

Can't the EU Central Bank step in?

The ECB isn't like the Fed in the US, so it doesn't have (AFAIR anyway) the same kind of scope for intervention in individual economies. In fact, I suppose even the Fed can't intervene in the economies of individual states...that's reserved for Congress to grant itself pork...

 

[Barking_Mad]

...

"We are grateful to The Washington Post, The New York Times, Time magazine, and other great publications whose directors have attended our meetings and respected their promise of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But the world is now more sophisticated and prepared to march towards a world government. The super-national sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries."

---David Rockefeller, at a 1991 Bilderberger meeting

 

[Dr Jon]

It's all starting to look very wobbly:

U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis

link

 

[gosub]

The ever informative Peter Day has just done a good program speculating on what is at the end of the tunnel, Radio 4 half hour prog

 

[Barking_Mad]

British Pound Panic Selling, Counting Down to Bankrupt Britain

Time is running out for the government, forget 2011, 2010, even mid 2009, a currency collapse would bring the debt crisis to a head within a matter of days. Just as occurred with Iceland as it did not take 3 or 4 years for Iceland to collapse into hyper-inflation, it took 3 or 4 days!, as I warned off in the article Iceland Going Bankrupt? , and subsequently warned that all of the conditions that led to the bankruptcy of Iceland are present in the UK.

Sterling's fall below £/$ 1.37 is extremely worrying as it implies the ultimate trend after allowing for a corrective rally is towards parity to the U.S. Dollar. What does this mean for ordinary people? It means your house prices will not have been DEFLATED by the projected 38% nominal price trend (UK Housing Market Crash and Depression Forecast 2007 to 2012), but rather DEFLATION of 69% on an exchange rate basis, add to that the INFLATION of an increase in import costs across the board, and you have the potential for an Iceland style collapsing economy with hyper inflation that destroys the REAL VALUE of peoples investments and savings.

The British Pound is extremely oversold on a technical basis which suggest a bounce from current levels to above £/$1.45. However in an atmosphere of panic, price moves occur that are outside of the scope of technical analysis as the price action being observed is more akin to a earthquake measuring Richter scale then the chart of one of the worlds major currencies.

 

[rover07]

Good

 

[Talkie Toaster]

If I read that right then house prices drop by 69% because of sterling's devaluation? Surely that's just scaremongering as most people buy and sell houses in the same currency so the exchange rate has absolutely no effect whatsoever.

 

[elbows]

If I read that right then house prices drop by 69% because of sterling's devaluation? Surely that's just scaremongering as most people buy and sell houses in the same currency so the exchange rate has absolutely no effect whatsoever.

Exchange rate has quite some effect on what a currency is really worth. If your house stays at the same price in sterling, but it now costs £500 to buy a loaf of bread, then your house is worth noticably less in real terms.

 

[Talkie Toaster]

Exchange rate has quite some effect on what a currency is really worth. If your house stays at the same price in sterling, but it now costs £500 to buy a loaf of bread, then your house is worth noticably less in real terms.

But it's not going to cost £500 for bread. I'm after some practical reason why it matters. So far it eludes me.

 

[Barking_Mad]

But it's not going to cost £500 for bread. I'm after some practical reason why it matters. So far it eludes me.

But surely it wouldn't have to cost you as much as £500 for bread for it to matter?

 

[Talkie Toaster]

But surely it wouldn't have to cost you as much as £500 for bread for it to matter?

I've read this reply a few times and it still doesn't make sense. Can you expand on it a bit?

The story quoted still seems like naked scaremongering, banging on about "real values" when last time I looked we all use the same currency in this country.

 

[elbows]

We import a lot of stuff, so the value of other currencies relative to sterling matters.

Price in Sterling of electrical goods from Japan are probably going to go up by at least 10% in the near future, due to Yens strength against the pound.

Feel free to dismiss this stuff, but its going to have quite an impact on our lives in the months and years ahead.

 

[Talkie Toaster]

So, imports get more expensive ... understand that. Still doesn't explain to me why the article talks about house prices. We don't import them, do we!

 

[elbows]

Well what does value and worth mean?

The practical value of a house may remain the same, it still serves a function in keeping us dry and warm.

But it also has a value related to other things. Maybe a house can currently be swapped for a billion potatoes. If in future its only worth a million potatoes, because potatoes cost more, its relative value has dramatically decreased.