Global financial system implosion begins

[fractionMan]

Step into my time machine, boys and girls: http://www.nytimes.com/1999/11/05/b...nk-laws.html?sec=&spon=&pagewanted=1&emc=eta1

The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.


''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

!

 

[kyser_soze]

You could call those tokens 'money', and have different denominations, indicating how many tokens each 'token voucher' had.

Ummm...

 

[Giles]

The author has several comment pieces on the topic
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/

I am not necessarily saying Ambrose is wrong on this.

But its worth noting that he hates the Euro and the EU and most of what he has written for ages on the subject is always prophesying the collapse of the Euro.

Giles..

 

[Crispy]

The figures can't be denied though. And Ukraine is fucked.

 

[gosub]

Food and other costs are set to go down due to the oil price going down. The price of oil going up took considerable time before it was reflected in higher prices. The same is going to be true but to a lesser extent initially because farming will be enjoying the higher prices.

I watched that article on Newsnight saying the the Ukraine is on the edge of bankruptcy already. Many of their banks have shut and people can't get their money out. The government is refusing the conditions of the IMF so its in stalemate but will probably come around, though I don't blame them. IMF conditions are often onerous.

We are a net importer of just about everything including food, the cost of which has been rising, latest inflation figures. The fall in oil prices is being off set by the collapse of the £ against just about every currency in the world. Makes UK agricultural production one of the safest punts for investors. Though minor details like everybody having to eat limits the scope for how far Mr Brown can spend money he hasn't got, ignore Merv King and interest rates have to go up to encourage holding of £'s so that population can buy food. Three meals from anarchy and all that.


ETA UK food trade data not worth dragging the debate back too but worth keeping in mind.

 

[xes]

whereby "tokens" can be exchanged for goods and services?
Hmmmm

well yes, just like money, but it'll be rationed. Of course, it could well all be bollocks, we'll have to wait and see. China might well take token,s they've just said that they think a 1 world currency would be a good idea.

 

[kyser_soze]

well yes, just like money, but it'll be rationed.

What do you think money is, other than an artificially rationed token?

So what are you basing your statement that all the world's banks will be shut down by the end of the year on?

 

[xes]

So what are you basing your statement that all the world's banks will be shut down by the end of the year on?

Random whipers on the conspiracy ciruit. As I said. And as i also said, it's probably bollocks. But it'd be nice if it does come true, cos it means that not all the CTers are chatting shit. (I just wanted to "get it in" first)

And I am fully aware that money is just a token system, but it's not very rationed at the moment, yes, you've got to work your ass off if oyu want lots of it. But it's not like "you've got 7 meal tokens for the week" kind of stuff is it.

 

[gosub]

What do you think money is, other than an artificially rationed token?

So what are you basing your statement that all the world's banks will be shut down by the end of the year on?

While I'm curious as to the answer coz fiat currency is as you say an artifically rationed token, he may well end up right :

AIG isn't sorted (who under writ most of the markets), the idea of further banking regulation is mainstream, (doesn't fit with the spoonfed narrative but implementation of Basel II can be said to have caused banking meltdown {think Basel II was hard but necessary, further tinkering not so sure}, and we have run out of financial and political capital for further bailouts....

 

[Crispy]

we haved run out of financial and political capital for further bailouts....

Which implies that now, finally, banks and governments are going to start going to the wall after putting it off as long as they could?

 

[gosub]

Which implies that now, finally, banks and governments are going to start going to the wall after putting it off as long as they could?

I'd say yep. Going back up the the thread a bit but is like 29 when the US steel lot pissed away all there liquidity trying to prop up against a market correction

 

[jayeola]

Sunray and Slaaar. You guys seem to be saying /opposing/ things. In short, what is the best position to be in? Pensions and savings are fucked. Price of food and fuel up, that much I know. If money is being printed Zimbabwe style then ain't that going to bring about deflation?

Can one havce deflation and inflation at the same time? If so has this happened anywhere before and where?

 

[Barking_Mad]

Not great reading if you choose to believe his position. Infact its fucking awful.

http://jameshowardkunstler.typepad.com/

...we've set in motion two forces that are pretty certain to bring us to grief. The first proceeds from the fateful FMOC decision last week at the Federal Reserve Bank to begin buying massive amounts of our own treasury bonds and bills. This is predicated on the idea that the mechanisms of wealth production -- even of illusory wealth, such as the fortunes created by trading securitized unpayable debt -- can keep chugging along, spinning off limitless additional suburban villas, chain stores, car trips, and deep-fried snacks. It would be sententious to explain how this destroys currencies, but wherever "monetizing debt" has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence.

Those two forces are underway right now, in fact, since the overt monetizing of last week was preceded by the shoveling of bail-outs, which tacitly guaranteed a collapse of credibility in US debt instruments. I'm not in favor of violence and anarchy, but after the AIG bonus affair, it's hard to imagine that we are not one more corporate misdeed away from a rocket-propelled-grenade, or something like that, being fired into a glass office tower somewhere -- and then the "first-broken-window" rule of social disintegration comes into play.

Those two forces are underway right now, in fact, since the overt monetizing of last week was preceded by the shoveling of bail-outs, which tacitly guaranteed a collapse of credibility in US debt instruments. I'm not in favor of violence and anarchy, but after the AIG bonus affair, it's hard to imagine that we are not one more corporate misdeed away from a rocket-propelled-grenade, or something like that, being fired into a glass office tower somewhere -- and then the "first-broken-window" rule of social disintegration comes into play. Meanwhile, I stick to my time-table of six-to-eighteen months before the reckless creation of new money-for-nothing filters through the system, overcomes even compressive mass bankruptcy, and starts expressing itself in the sinking value of dollars and the revved up velocity of their circulation in pursuit of tangible commodities.

We're already seeing the first twinges of that in the up-creep of oil prices, busting through the $50-a-barrel barrier last week. Since scarcity tends to express itself in gross volatility, it's easy to imagine oil prices rising swiftly beyond the $147-per-barrel record level of last year. As that occurs, the most basic premises of everyday life in the USA will be called into question. If you think car sales have been bad lately, with oil in the $35-a-barrel range most of the winter, just wait. The newly-minted unemployed will be marooned in their subdivisions. They will not be buying GMC Yukons on 48-month installment contracts, let alone X-boxes on their Visa cards. They might be very very hungry, though. All bets are off as to how these social classes may organize themselves to alleviate their hunger (and express their anger about it).

 

[Sunray]

Sunray and Slaaar. You guys seem to be saying /opposing/ things. In short, what is the best position to be in? Pensions and savings are fucked. Price of food and fuel up, that much I know. If money is being printed Zimbabwe style then ain't that going to bring about deflation?

Can one havce deflation and inflation at the same time? If so has this happened anywhere before and where?

You can have deflation and inflation at the same time personally, depends on what you spend your money on.

Food is set to come down a bit in price in the coming year, some of the issues with what causes the hike last year have eased. There are structural issues that will not go away in the short term, probably will in the long term because politicians don't like food riots.

This coupled with cheaper bills with probably send the headline figure south.

The devaluation of the pound will cause imported goods to rise but most of those goods are discretionary. You don't need to buy a 42" HD TV so while they get more expensive it does not really effect most people.

 

[slaar]

Sunray and Slaaar. You guys seem to be saying /opposing/ things. In short, what is the best position to be in? Pensions and savings are fucked. Price of food and fuel up, that much I know. If money is being printed Zimbabwe style then ain't that going to bring about deflation?

Can one havce deflation and inflation at the same time? If so has this happened anywhere before and where?

The price of food has been going up (lagged from high oil prices before, and now because of depreciation) but I agree with Sunray that it'll start falling soon.

Printing money Zimbabwe style leads to inflation, not deflation (think about twice as much money chasing the same amount of goods; prices would double, on simple logic). The uncertainty here is that you have massive deflationary pressures but now quantitative easing. Think about pushing on a piece of string, but then one that turns into a rod once sentiment turns. That's the monetary transmission mechanism. Right now we don't know whether it's a string or a rod; so anybody who claims to know what inflation will be in 18 months is taking a punt.

The Western banking system nearly collapsed last year when Lehman Brothers was allowed to fail. Obama is taking an almighty punt that the US banking system is illiquid but solvent. This is based on a lot of the paper assets having real value once the market stabilises. But nobody really knows. Political and economic capital for further bail-outs is so low now though that if a further round of crisis and deleveraging goes on, the banks really could collapse (if I were a betting man I'd put odds of this as 4 to 1). All banks would then have to be nationalised (remember that a fair portion of banks already are), and yes I could see the banking system being shut down for a while.

This has been the Roubini crowd's position for a while now, so it's not limited to conspiracy theorists. It's a very real possibility:

http://www.rgemonitor.com/

But Kyser etc are right that we already have such tokens; money.

 

[jayeola]

Thanks for that explanation. Next: Doe these chaps really print money or "just make it up" electronically? I don't see the point in printing it myself. It's not as if Big Bank Inc is going to walk down the street with 20 gazzillion dollars in his pocket.

 

[slaar]

Thanks for that explanation. Next: Doe these chaps really print money or "just make it up" electronically? I don't see the point in printing it myself. It's not as if Big Bank Inc is going to walk down the street with 20 gazzillion dollars in his pocket.

Yes, they don't physically 'print' it. But the effect is the same. What is happening now is that the BoE is buying up huge stocks of government gilts (debt), creating money exactly the same as printing it physically, and then using it to buy that debt.

Which is fine as long as the monetary transmission mechanism is a piece of string slowly trying to turn into a rod. But getting that money out again with the right timing is really difficult, hence inflation fears.

 

[slaar]

Government Gilt Auction Fails

Now THIS is a problem if it happens again:

http://www.guardian.co.uk/business/2009/mar/25/uk-economic-rescue-in-crisis

 

[yield]

Now THIS is a problem if it happens again:

http://www.guardian.co.uk/business/2009/mar/25/uk-economic-rescue-in-crisis

The same thing happened in Germany recently. If have to increase the yield again it'll defeat the point of quantative easing.

 

[jayeola]

So will britain be smoking an IMF crackpipe any time soon? << that speach is one of the best Parlimentary speaches I've seen. watch gordy get it. ka-pow. Shame that GB did not get the time to answer back though.

 

[yield]

So will britain be smoking an IMF crackpipe any time soon?

The IMF is running low on funding too.

 

[slaar]

Not great reading if you choose to believe his position. Infact its fucking awful.

http://jameshowardkunstler.typepad.com/

And in case anyone thinks it's just fringe punters saying this, here's the lead economics correspondent for the FT:

http://www.ft.com/cms/s/0/1bdc2a28-1890-11de-bec8-0000779fd2ac.html

I am becoming ever more worried. I never expected much from the Europeans or the Japanese. But I did expect the US, under a popular new president, to be more decisive than it has been. Instead, the Congress is indulging in a populist frenzy; and the administration is hoping for the best.

I think of this as the “vulture fund relief scheme”. But will it work? That depends on what one means by “work”. This is not a true market mechanism, because the government is subsidising the risk-bearing.

The conclusion, alas, is depressing. Nobody can be confident that the US yet has a workable solution to its banking disaster. On the contrary, with the public enraged, Congress on the war-path, the president timid and a policy that depends on the government’s ability to pour public money into undercapitalised institutions, the US is at an impasse.

It is up to Barack Obama to find a way through. When he meets his group of 20 counterparts in London next week, he will be unable to state he has already done so. If this is not frightening, I do not know what is.

 

[Sunray]

Thanks for that explanation. Next: Doe these chaps really print money or "just make it up" electronically? I don't see the point in printing it myself. It's not as if Big Bank Inc is going to walk down the street with 20 gazzillion dollars in his pocket.

Most people don't actually realise that this is what banks have been doing for a long time. The only difference between what the BoE and the licensed banks do is that the BoE is just typing 50,000,000,000 into the computer. The banks have to have a ratio of borrowing to deposits.

 

[TomPaine]

Has anyone hear read the Black Swan? Interestingly enough (in short the whole books is about probability and how banks and governments try to predict the future and are crap at it).

At the end of the book Taleb writes that due to the way the banking industry has been structured over the past decade, and their inability to react to "Black swans" (unforseen events) that the propspect of a banking collapse was frightening.
The banking industry is so oblivous apparently to out of the blue events which can trigger a collapse because they rely on mathematics and dubious statistical economics to "predict" unforseen events.

This was penned in 2007 by a guy who does not do predicitions ala Crammer and the other CNBC hacks and is a fascinating read.

 

[jayeola]

I've got fooled by Randonmess, same author.

 

[slaar]

Has anyone hear read the Black Swan? Interestingly enough (in short the whole books is about probability and how banks and governments try to predict the future and are crap at it).

At the end of the book Taleb writes that due to the way the banking industry has been structured over the past decade, and their inability to react to "Black swans" (unforseen events) that the propspect of a banking collapse was frightening.
The banking industry is so oblivous apparently to out of the blue events which can trigger a collapse because they rely on mathematics and dubious statistical economics to "predict" unforseen events.

This was penned in 2007 by a guy who does not do predicitions ala Crammer and the other CNBC hacks and is a fascinating read.

Models built on the foundations of the great moderation turn out not to be so sturdy when the foundations turn to quicksand.

 

[goebfwai]

Apparently Geithner has expressed interest in China's special drawing rights idea for the IMF. The IMF were previously looking to sell a lot of gold to raise funds. I wonder if China's idea is that they keep the gold and issue something like Treasury Bills backed by gold instead?

 

[Bernie Gunther]

And in case anyone thinks it's just fringe punters saying this, here's the lead economics correspondent for the FT:

http://www.ft.com/cms/s/0/1bdc2a28-1890-11de-bec8-0000779fd2ac.html

Prize quote from that article ...

I fear this is going to convince ordinary Americans that their government is a racket run for the benefit of Wall Street.

 

[sleaterkinney]

The Western banking system nearly collapsed last year when Lehman Brothers was allowed to fail. Obama is taking an almighty punt that the US banking system is illiquid but solvent. This is based on a lot of the paper assets having real value once the market stabilises. But nobody really knows. Political and economic capital for further bail-outs is so low now though that if a further round of crisis and deleveraging goes on, the banks really could collapse (if I were a betting man I'd put odds of this as 4 to 1). All banks would then have to be nationalised (remember that a fair portion of banks already are), and yes I could see the banking system being shut down for a while.

This has been the Roubini crowd's position for a while now, so it's not limited to conspiracy theorists. It's a very real possibility:

http://www.rgemonitor.com/

Theres another article on full nationialisation here
http://blogs.ft.com/maverecon/2009/01/time-to-take-the-banks-into-full-public-ownership/

It's theobvious thing to do, I think the only thing stopping it is that there are various coveneants attached to cds's and the like that are payable if full nationalisation happens, it's time the government grew a pair and sorted it out, they're even going to let barclays keep it's tax cheat division ffs.

 

[Barking_Mad]

Steve Bell - Guardian.

Proper LOL