Financial topics

[John]

I understand, just a year ago I would probably have thought anyone who said that a financial depression was just around the corner was crazy. But, given that most people I have seen who are saying some of the things you do either immediately want to blame a political party (democrats versus republicans) or believe that the financial crises are part of a "New World Order Conspiracy" I still think most people saying this are crazy.

Well, I see your point and can't disagree. However, I don't call them crazy - I call them idiots.

Sincerely,

John

[catfishncod]

What I find more interesting is which of the institutions thrown up after the Depression are *holding* instead of failing. That the SEC has failed is now starkly obvious; made more so by this story http://bigpicture.typepad.com/comments/ ... -exem.html which details how the SEC deliberately gave the five investment banks that are going off like firecrackers -- Goldman, Morgan, Lehman, Bear, and Merrill -- exemptions from the rules on leverage.

But the FDIC, so far, is holding. I don't think the FDIC will fail if/until the United States Government as a whole does -- and if they're careful about how they run the presses, there's no reason the Government has to actually fail. (They can cause the currency to collapse instead -- that's what FDR did, the last time.)

Why? Because there were intermediate panics and stimuli which reminded people why the FDIC was important. There were bank failures in the 30's, again in the '70s, and again in the S&L crisis. The FDIC never looked antiquated, so the rules stayed right in place... and are even now safeguarding the retail banking sector. There have been no general bank panics, and the FDIC is why.

This immediately suggests a mechanism for crafting enduring institutions: ensure that they become necessary more often than once per saeculum. If the SEC rules had somehow prominently rescued America in the '70s, for instance -- perhaps by Whipping Inflation Now? -- it would not have been half as easy to manipulate (still within living memory), therefore harder to monkey with, therefore not the cause of the crash.

The question is not whether we have a crash, but whether it is more painful than it need be. The Great Depression was Great because the actors at that time made things even worse than they had to be. Can we avoid the same? Perhaps. We are about to see if you really can learn from history.

History Lesson One: I tell you three times I tell you three timesI TELL YOU THREE TIMES never ever EVER hand ANYONE dictatorial powers, no matter how constrained or how sunsetted or how reserved! Secretary Paulson has asked for dictatorial powers over a large portion of the American economy, and dictatorial control of the power of the purse to execute his mission to save the economy. It's a classic "man on a white horse" request. Fortunately, I don't think even Congress is that stupid.

[John]

The Hunting of the Snark: an Agony in Eight Fits
Carroll, Lewis

Pages 46-47:

"Just the place for a Snark!" the Bellman cried,
As he landed his crew with care;
Supporting each man on the top of the tide
By a finger entwined in his hair.

"Just the place for a Snark! I have said it twice:
That alone should encourage the crew.
Just the place for a Snark! I have said it thrice:
What I tell you three times is true."






http://etext.lib.virginia.edu/images/mo ... rSnar1.jpg


http://etext.lib.virginia.edu/etcbin/br ... tag=public

[John]

> What I find more interesting is which of the institutions thrown
> up after the Depression are *holding* instead of failing. That the
> SEC has failed is now starkly obvious; made more so by this story
> http://bigpicture.typepad.com/comments/ ... -exem.html
> which details how the SEC deliberately gave the five investment
> banks that are going off like firecrackers -- Goldman, Morgan,
> Lehman, Bear, and Merrill -- exemptions from the rules on
> leverage.

This is a very interesting article, and it's part of the entire
fabric of things that caused the credit and real estate bubbles.
However, it has to be remembered that EVERYONE was at fault. It was
GENERATIONAL stupidity, not just regulators.

> But the FDIC, so far, is holding. I don't think the FDIC will fail
> if/until the United States Government as a whole does -- and if
> they're careful about how they run the presses, there's no reason
> the Government has to actually fail. (They can cause the currency
> to collapse instead -- that's what FDR did, the last time.)

> Why? Because there were intermediate panics and stimuli which
> reminded people why the FDIC was important. There were bank
> failures in the 30's, again in the '70s, and again in the S&L
> crisis. The FDIC never looked antiquated, so the rules stayed
> right in place... and are even now safeguarding the retail banking
> sector. There have been no general bank panics, and the FDIC is
> why.

I really don't see how the FDIC is going to survive much longer. The
FDIC's insurance fund is much smaller than the amount it will need.

Also, remember that what FDR did, he did four years after the panic.
What FDR did in 1933 would not work today, although it might work in
2012.

> This immediately suggests a mechanism for crafting enduring
> institutions: ensure that they become necessary more often than
> once per saeculum. If the SEC rules had somehow prominently
> rescued America in the '70s, for instance -- perhaps by Whipping
> Inflation Now? -- it would not have been half as easy to
> manipulate (still within living memory), therefore harder to
> monkey with, therefore not the cause of the crash.

> The question is not whether we have a crash, but whether it is
> more painful than it need be. The Great Depression was Great
> because the actors at that time made things even worse than they
> had to be. Can we avoid the same? Perhaps. We are about to see if
> you really can learn from history.

> History Lesson One: I tell you three times I tell you three timesI
> TELL YOU THREE TIMES never ever EVER hand ANYONE dictatorial
> powers, no matter how constrained or how sunsetted or how
> reserved! Secretary Paulson has asked for dictatorial powers over
> a large portion of the American economy, and dictatorial control
> of the power of the purse to execute his mission to save the
> economy. It's a classic "man on a white horse" request.
> Fortunately, I don't think even Congress is that stupid.

A web site reader wrote to me that according to the lastest BIS
figures, there are now $1,000 trillion in credit derivatives
outstanding, not just $700 trillion.

It's nice to know that the bubble is still growing larger somewhere,
but that's one quadrillion dollars.

I don't really think it makes any difference what Congress does or
does not do, or what Paulson does or does not do.

Anything they do will be a tiny drop in the bucket, compared to
what's out there.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

[The Grey Badger]

Urban masses leaving for the hinterland - and fortifying their holdings - only happened once in my knowledge of world history. During the long, slow crash of the Roman Empire. I doubt we're there yet. However, there has been a trickle of back-to-the-landers and off-gridders which actually started with Robert Heinlein's very post-seasonal 1946 advice to turn survivalist; the Russians were going to prolong the 4T past recognition. Never happened. (Could have wasted 60 years doing so.) Followed by Idealists doing it a la Thoreau, with a 90%+ failure rate due to trying to live communally etc. Check out a documentary - and an article in the weekly Alibi - about "the Mesa People." There will always be some. But as a mass movement? Not unless things go so very badly sour we're in a civilization-ending moment. Which I seriously doubt we are.
(Actually, IMO, Western Civilization - at least Part 1- was one of the casualties of the Western Front. We're in its successor civilization now. However - the Hellenistic cultures thought of themselves as Greek, and Byzantium thought of itself as Roman. But I digress. I always do.)

Your probably right. In North Korea there is a profession of picking up the hundreds of bodies that have starved to death. That is a dead end job.

Huh? OK - whatever's happening in North Korea was outside of my ken. If it is, then, pity. And also places like the Sudan - my focus was to narrow, it seems.

[catfishncod]

I really don't see how the FDIC is going to survive much longer. The
FDIC's insurance fund is much smaller than the amount it will need.

The FDIC is inevitably going to become part of the mechanism for deflating the bubble, precisely BECAUSE it is still doing its job when everyone else has lost their head.

A web site reader wrote to me that according to the lastest BIS
figures, there are now $1,000 trillion in credit derivatives
outstanding, not just $700 trillion.

Except that nearly all of these derivatives are between the firms that are blowed up or about to be blowed up, and exist only in terms of other derivatives. They are like virtual particles in nuclear physics: they are notions that make math come out, but aren't REAL. They can't be detected (or, in this case, bought and sold). Their values are purely theoretical. There ARE no "quadrillion dollars" to be poured into such items; it's all a pipe dream. The only question is how many REAL (non-derivative) dollars were used as starter yeast to create this malarkey -- because that's how many dollars we're really out. I suspect that's more in the range of a trillion dollars, which is bad enough but is manageable -- and realistic.

[Gordo]

I really don't see how the FDIC is going to survive much longer. The
FDIC's insurance fund is much smaller than the amount it will need.

Uhh, maybe you missed it, but virtually overnight the government whipped out a pen and produced a magic plan to remove $1 trillion of bad debt from their friend's portfolios. Do you really think they won't do likewise if and when FDIC needs some more cash? Fiat currency. They have a blank check to do whatever they want when it comes to spending and you have to be insane to think they will eliminate FDIC - this would cause massive runs on banks everywhere and a complete and total collapse of the nation. It ain't gonna happen. They can and will inflate their way out as they have been doing, and probably destroy the dollar in the process, if not now than at some future point. Collapsing credit is by definition a deflationary event, this actually gives the government even more leeway when it comes to massive inflationary "fixes".

GDX up over 8% today.
Oil with its largest one day gain ever, back up to almost $130/barrel.

These are historic times...

[John]

I don't have much time to write this evening, so I can't respond in
detail to the comments.

But I want to caution everyone to be careful in interpreting the
events of one day. On Thursday and Friday, Wall Street skyrocketed,
and today it fell sharply.

Last week commodities plummeted, and today they set records for
one-day spikes.

What you have are two sides of the same coin -- panic buying and
panic selling are both panic. And the huge index changes (up or
down) signal the following above all: People are increasingly anxious
and panicky.

The long-term trends that I've identified are valid. I can't tell
you what the price of oil and gold, or the DJ index, will be next
week, but I can tell you with absolutely certainty that the Law of
Mean Reversion will apply to all of them.

Remember Stein's Law: If something cannot go on forever, then it
won't.

Today's world financial structure is based on the assumption that
things will go on forever -- that public debt will continue to grow
exponentially, that the balance of payments deficit will continue to
grow exponentially, that population will continue to grow
exponentially, that China's economy will continue to grow
exponentially, that the volume of credit derivatives will continue to
grow exponentially, and so forth. These things cannot go on forever,
and so they won't. The prediction is absolutely certain.

The only thing that can't be predicted is the timing. But the
historic events of the last two weeks, and the spike in panic buying
and selling, are signals that the explosive light at the end of the
tunnel is in sight.

Take care, my friends.

Sincerely,

John

John J. Xenakis
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.GenerationalDynamics.com/forum

[malleni]

...

The question is not whether we have a crash, but whether it is more painful than it need be. The Great Depression was Great because the actors at that time made things even worse than they had to be. Can we avoid the same? Perhaps. We are about to see if you really can learn from history.
...

Generally on the first look, the view of Generational Dynamics method and History - are two absolute opposites.
Anyway I agreed with catfishncod because - only when event is already happened, you can with more sureness developed the complete "story".


That is of course clear even for the - Generational Dynamics method.
This method is quite interesting but as I could understand from this site - there are some paradigmatic limits in it.
For example:
1. - the view on the all world events is - American. It is of course normal and could not be easy avoided, since everybody look on the world events (finances) from own point of view.
2. - the paradigm probably very hard routed in the American minds is : "The Americans are always "good guys" - other people on the Planet can be "good" or "bad" depending in which relations they are to the "American way". I think this picture is developed with time of the US society in the last 100 years and perhaps could be explained with Generational theory... Perhaps, but I do not believe that generation of "Boomers, X-genarations etc. - have another picture on the own society.
It is clear that any (even the most friendly) critics of the US society and its monopolistic position in the world financial system - would be dismissed as "conspiracy" or even "hate" against USA and much worse - "world democracy".
3. - In one of explanations "inflation/deflation" case - John mentioned something like only a big war could made situation goint to the inflation (as in the Wiemar Germany). If we considerate that USA:
- has about 150 military bases in the foreign countries,
- fighting at least two big wars (Iraq & Afghanistan) with more than 200 thousands soldiers deployed there.
- huge amount of the intelligence organizations involved in the "war of terror"
- enormous amount of security personal (Home Security, police forces...
- with evidentially neccesity of almost 700 billion dollars - yearly
... it is really difficult to say that USA in "not in the big war".

The facts are obviously - opposite.

All this paradigms (and probably more of them) more or less influence the correct and objective predictions, even if some of them were evidentially proved with time.


Regarding financial development it would be interesting to see if Generational Dynamics method, History and perhaps Psychology has some explanation of the this assumption. Since:
- The financial system today is based on the dollar hegemony, with deviation of the "free market" - which should be the base of the economy.
- The monopoly position (since 1971) of the US dollar is destroyed definitely only due to misuse of this position by the US administrations.
- The enormous debt financed ALL activities of the US state as well as all wars of course cannot be infinite financed by the foreigners... Even worse some of those foreigner are politically in the conflict with the obvious US aggressiveness, and ONLY reason that they still financing the all US wars as well as complete state - is own intersect because big amount of dollars they have in treasuries. (Shares are already on the bottom - and for sure the foreigners know it too!)
...
Do you believe that all those foreigners do not thing to escape the - dollar trap?
With other words - what they have to loose - if US continue to live on the foreign money?
They have two possibilities:
1. If they stop infinite payment of US state (with all wars and even threats to this countries) - they loosing a big amount of money since dollar will be worthless.
2. If they continued with this madness - the US can never (even today) pay back this debt. Moreover, the US can aggressively use these debt money to develop more ("sophisticated") weapons in the future wars and threat this country as well.

I believe that the First possibility is more real.
Additional, I believed that "the foreigners" after the "decision" to choose First option - going to try to make another financial system which is NOT based on deviation of the monopoly of dollar even if they are in position to loose huge amount of wealth.

Only question is if USA going to watch it - without aggression?
I am not sure.

I understand that this view probably would not be very popular here since this is "American site", but this is apparently also an site which try to find the next step in the world financial development - and this view is probably more "European" as you can imagine.

(I apologize for my incorrect English since it is not my native language.)

[The Grey Badger]

This bear just took some of my stock money market fund and bought Family Dollar Stores. If anyone can ride out a financial meltdown, they will. The middle classes are starting to buy there now.

The Grey Badger, who remembers Woolworth surviving until prosperity was a done deal.