Jun 042012
 
 June 4, 2012  Posted by at 5:12 pm Finance
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2008 was a practice run, or a warning shot across the bow, compared to what is coming over the next few years.

2008 did not demonstrate what a liquidity crunch really means, but this time we are going to find out. As with many aspects of financial crisis, Greece is the canary in the coalmine, demonstrating what happens when liquidity disappears and it ceases to be possible to connect buyers and sellers or producers and consumers.

As we have said before, and for a long time now, money is the lubricant in the engine of the economy in the way that motor oil is the lubricant in the engine of your car, and you know what will happen to your car if you drive it with the oil warning light on.

Greece stands on the verge of an energy crisis caused not by lack of energy, but lack of money within the energy sector. This will become a common refrain throughout Europe and beyond in the coming months and years. Loss of liquidity has a cascading effect on supply chains, causing them to seize up.

For a long time, money will be the limiting factor, and finance will be the key driver to the downside, just as was the case in the Great Depression of the 1930s. Resources will remain available, at least initially, but no one will have the means to pay for them during a period of economic seizure. Harry Papachristou has this for Reuters:

Greek power regulator warns of energy meltdown

Greece's power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country's electricity and natural gas system.

RAE took the decision after receiving a letter from Greece's natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.

Greece is seeing a similar dynamic unfold in relation to pharmaceuticals. Reimbursement arrears from the public sector payment system are building up, pharmacies can no longer offer credit, and people are going to have to pay up front for medicines or go without. Many will be going without. Masa Serdarevic writes for FT Alphaville:

Greece: when the drugs run out

The country's pharmacies are owed 500m by the state-backed healthcare insurer, according to reports. From next week patients will have to stump up the cash for their medicines upfront, and then claim a reimbursement from the National Organization for Healthcare Provision (EOPYY).

It doesn't take a genius to figure out that a) medicines tend to be very expensive, b) so paying for them may be very difficult for a lot of people, especially pensioners. And c) if the EOPYY is having trouble paying the pharmacists, it's unlikely to find it any easier to reimburse individuals.

In recent months pharmacies have promised to halt credit to patients unless they get paid, and the EOPYY has thrown some money their way. But its arrears are rapidly rising and clearly the pharmacists can only provide so much credit.

Government attempts to reduce their cost burden are only making matters worse. Parallel trades are developing, with medicines priced artificially low in Greece being sold elsewhere for more. When arbitrage is both possible and profitable, it will happen. Naomi Kresge reports for Bloomberg:

Greek Crisis Has Pharmacists Pleading for Aspirin as Drug Supply Dries Up

The reasons for the shortages are complex. One major cause is the Greek government, which sets prices for medicines. As part of an effort to cut its own costs,Greecehas mandated lower drug prices in the past year.

That has fed a secondary market, drug manufacturers contend, as wholesalers sell their shipments outside the country at higher prices than they can get within Greece.

Strained government finances only make matters worse. Wholesalers and pharmacists say the system suffers from a lack of liquidity, as public insurers delay payments to pharmacies, which in turn can't pay suppliers on time.

Reimbursement fraud compounds the drain on the country's health resources, Richard Bergstrom, director-general of European Federation of Pharmaceutical Industries and Associations, said in an interview. Drugs shipped elsewhere yet submitted for reimbursement to public insurers as if they had been prescribed to patients cost Greece more than 500 million euros a year, Bergstrom said, citing figures he said he got from the Ministry of Health.

In a later e-mail, Bergstrom said he had personally seen packs of drugs with Greek reimbursement stickers on the market outside of Greece, suggesting that exporters were reimbursed and able to ship the packs abroad.

"If the pack is exported, the exporter is obliged to 'cancel' the code, a bar code, by using a black pen," Bergstrom wrote. "But this is not monitored."

Greece's problems are going to increase the more a currency reissue is seen as probable.

Already Greek citizens are delaying payment of taxes, on the grounds that they may be able to pay later in heavily devalued new drachmas. This, of course, worsens the ability of the Greek government to meet its obligations, causing a greater shortage of liquidity and strengthening the power of the self-fulfilling prophecy.

The political risk resulting from the new round of elections – a referendum on austerity measures -is a major stumbling block. Brinkmanship of this kind heightens market insecurity and therefore fear, and fear is catching. Greek political opportunists are holding the members of the eurozone to ransom, threatening to stop making debt payments if future tranches of support are not forthcoming. From Martin Straith at the Trendletter:

Greece's Syriza Threatens to Stop Paying Their Bills.

According to recent opinion polls, Tsipras' party is poised to win the most votes in repeat elections next month, bettering its surprise, second-place finish in an inconclusive May 6 vote that left no party or coalition with enough seats in parliament to form a government.

Tsipras says that, if push comes to shove, Greece can manage on its own. By not paying its debts, the country will have enough cash to pay its workers and retirees. He also proposes cuts in defense spending, cracking down on waste and corruption, and tackling widespread tax evasion by the rich..

The craziness in Greece doesn't end here. The government has been having trouble getting the citizen's to pay their property taxes, so they decided to bundle the property taxes with the electricity bills, since the citizens were more inclined to pay those bills. The government had hoped to raise 1.7bn-2bn from the levy in the fourth quarter of last year.

But a massive unions-led civil disobedience movement against this "injustice" scuppered that and a ruling that it was illegal to disconnect people's electricity supply for non-payment sent the collection rate even lower.

Now the power company is not getting the revenue from the electricity bills and it has now had to be bailed out by the government to avert a nationwide energy crisis.

In addition, international insurers are suspending coverage for shipments to Greece on the grounds that the risk of non-payment is unacceptably high. This will compromise the ability of Greece to obtain all manner of imports.

Top insurer pulls cover for exports to Greece

Trade insurers have been reviewing their Greek exposure ahead of the country's June 17 general election, seen as a potential trigger for a euro exit if victory goes to parties that oppose spending cuts agreed under a European bailout deal.

"It's a watershed – everyone's watching what happens and trying to make contingency plans," said Richard Talboys, head of political and trade credit risk at insurance broker Willis.

"There are smoke and flames coming out of Greece but we don't know if it can be put out, or if the Greeks will pour oil on it by voting against restructuring and austerity."

Reduced availability of insurance cover for exports to Greece will likely make it harder for manufacturers there to source imported components and materials, said Vincent McCue, trade credit client team leader at insurance broker Marsh.

"The trade credit insurers are saying if, as a result of the election a government comes to power that is committed to overturning the austerity package, even the very best of companies in Greece will no longer be able to pay their debts as they fall due," he said.

The drawn-out, yet inevitable, Greek exit from the eurozone is prolonging the agony, while leaving the country open to being asset stripped. The same process has played out many times before, but humans are resistant to learning the lessons of history and applying them to their own situation.

What is beginning now, or more accurately resuming now, is already familiar to the citizens of Russia or Argentina. We can expect payments to dry up, notably public sector obligations. In Russia people went to work anyway, despite being paid months late, if at all, because they had much less dependence on liquidity for rent and utilities.

In Greece (and later elsewhere in Europe and the West in general) this dependence is far greater, and the impact of the loss of liquidity will be far worse as a result.

Europe is at the epicentre at the moment, but contagion will ensure that the dynamic will spread. In the European context, we are likely to see the liquidity crunch currently focused on the periphery spread to the centre.Initially the centre appears to be perceived as a safe haven, but probably not for long as the systemic risk associated with the single currency becomes increasingly apparent.

 

Home Forums Crashing the Operating System – Liquidity Crunch In Practice

This topic contains 0 replies, has 0 voices, and was last updated by  Nicole Foss 1 year, 10 months ago.

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June 4, 2012 at 5:12 pm #8506

Nicole Foss

2008 was a practice run, or a warning shot across the bow, compared to what is coming over the next few years. 2008 did not demonstrate what a liquidi
[See the full post at: Crashing the Operating System - Liquidity Crunch In Practice]

June 4, 2012 at 11:13 pm #3755

Golden Oxen

It would appear from this article that Germany will have to extend it’s credit card to all of Europe or get washed out to sea with the rest of them when the dike breaks. Seriously, what alternative do they have? The Chinese are starting to suffer mightily from this situation as well. They wanted a world economy, and they got it so Germany will have to inflate.
The world will not allow Germany to destroy it’s financial system and plunge billions of people into misery. Buy Gold, lots of inflation on the way, and soon.

June 4, 2012 at 11:16 pm #3756

jal

news flash :)

All germans will get 50% discount coupons for their next Greek holiday if they go to the newly acquired/nationalized club med.

June 5, 2012 at 1:23 am #3758

deflationista

WELCOME BACK NICOLE!

You have been missed.

An Ilargi post and a Stoneleigh posting within one week?!?

Is this a sign that you and Ilargi are easing back into the flow?

Or are you just teasing?

In any case, it is good to see you back here.

June 5, 2012 at 3:58 am #3765

Greenpa

Hiya, Stoneleigh! I’m not dead yet either! :-)

“scuppered that and a ruling that it was illegal to disconnect people’s electricity supply for non-payment sent the collection rate even lower.

“Now the power company is not getting the revenue from the electricity bills and it has now had to be bailed out by the government to avert a nationwide energy crisis.”

Wow. Serious craziness. If I were there, running a power company, I’d be seriously tempted to mail the keys to the power plant to the local mayor, with a note “Ok, so; YOU run it.” – and disappear.

It does look like the insanity is accelerating. But it does amaze me at how slowly it hits. The momentum behind the old pathways is astonishing.

June 5, 2012 at 4:36 am #3766

Hircus

Glad to see you back, Stoneleigh (and Ilargi as well). I really appreciate your well-thought-out commentary on these crazy times.

That we’re all ‘going down’ isn’t in doubt. I’m just amazed at how long the sinking ship can remain afloat.

It’s funny, for years I always thought the folks on the Titanic must of been idiots — I mean, they hit an iceberg, the ship was listing…who couldn’t see what was going to happen? Why stay for one more dance, another shrimp cocktail, or the relative security of your cabin?

Now, when I talk to friends and colleagues who refuse to admit what’s going on, I understand.

June 5, 2012 at 11:12 am #3768

Reverse Engineer

Welcome back Stoneleigh. I’m the new Troll here. :woohoo:

Greece is going down here for sure, but of course it won’t stop with Greece either. Let’s let Ben Lichtenstein make the call one more time.

Here they come to Sell ‘em AGAIN!”

http://www.youtube.com/watch?v=WrxlVjZJawQ&feature=player_embedded

RE

June 5, 2012 at 11:56 am #3770

snuffy

Hi stoneleigh,
One of your statements struck me harder than the others…it was when you mentioned that citizens of Greece going to find out,as did those of Argentina and Russia…. essentially what malfeasance of the financial sector/government results in….No payment.

We have a saying in my business[contract tech]

No checkee,No techie
No diem,No seeum

When the .gov starts to stiff everyone for cash,and the old are dying in the streets,and everyone is dying in hospitals from lack of medicine…how far is a military government,[and that can of worms] away?Or [insert other] worse?
Russian /[soviet] bureaucratic structure ground along until whatever they have now formed,.
“Ferfal”,that oft quoted Argentinian,watched copy after copy of a .gov form in his country,only to fall within days as the sand of power slipped through their hands,from a seriously pissed-off population…

Here?

I wonder.I have heard the rage..in the voices of those who have already dropped of the edge…and in those hanging on by their fingernails…who have seen the equity of their home[nice nest egg ehhh?] destroyed…with a kind of a numb realization [boy,did I just get screwed]…
Contrary to the propaganda that we,here in america the beautiful, get from birth….no ,you will not “win”,if you play by the rules.This nation is run,in large part,by the sociopaths who have stabbed,hacked ,or clawed their way to the top of the corporate monsters they control.

We now have the voices from the edge…the 99%…the occupy movement [whose reported death,by all accounts ,was waaaaay premature].And have a whole lot of people who are getting over their “WTF just happened to me and my saving?” moment,and asking hard questions to their “representatives in .gov.

I think what tempers the population here,is what terrifies a good portion of the powers that be.

At any given time,if enough folks are REALLY unhappy,things will start to happen ….very,very bad things.

We are not like the rest of the world.The reason that the rifles have stayed in the closet has been that our nation exists,by the consent of the governed.TPTB know that…which is why,as Chomski as pointed out,we have the best propaganda machine money can buy…And the rifles stay in the closet [for now].

In the back of everyone[with two brain cells working in tandem], mind is a picture of what will happen,should that consent be removed.

Little imagination is needed…

Bee good,or
Bee careful

snuffy

June 5, 2012 at 12:25 pm #3772

Glennjeff

Stoneleigh, Illargi, Greenpa and Snuffy…..awesome. You were missed a little folks.

RE, that was an algo panic was it not?

June 5, 2012 at 1:50 pm #3773

mbp8081

The following makes me feel sad:
I believe that serious Doom before the end of 2012 is coming, yet none of the ‘alternative media’ I follow online (and SO MUCH ADMIRE) will forecast this.
You were both totally wrong regarding your forecast of market tank in Spring 2009. How much bearing does this have on your current outlook vis: “next few years as opposed to this year”
Be honest, what do you rate the chances of total worldwide bankding collapse before end 2012?

June 5, 2012 at 3:46 pm #3775

m111ark

Lesson’s learned.

1. Governments must not borrow their own money.
2. Sovereign nations must print/spend their own money.
3. Banks cannot be permitted to create money by making loans.

However, who would trust our present government, or any government currently in power, to print their own money??? Not any I can see.

The monetary system of a civilization can be used to gauge the level of advancement of any society. Using that measure we are no better than rank savages.

June 5, 2012 at 5:20 pm #3776

Bot Blogger

GlenJeff:

http://en.wikipedia.org/wiki/2010_Flash_Crash

The May 6, 2010 Flash Crash also known as The Crash of 2:45, the 2010 Flash Crash or just simply, the Flash Crash, was a United States stock market crash on Thursday May 6, 2010 in which the Dow Jones Industrial Average plunged about 1000 points—or about nine percent—only to recover those losses within minutes. It was the second largest point swing, 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in Dow Jones Industrial Average history.

From the SEC/CFTC report itself:

The combined selling pressure from the Sell Algorithm, HFTs and other traders drove the price of the E-Mini S&P 500 down approximately 3% in just four minutes from the beginning of 2:41 pm through the end of 2:44 pm. During this same time cross-market arbitrageurs who did buy the E-Mini S&P 500, simultaneously sold equivalent amounts in the equities markets, driving the price of SPY (an exchange-traded fund which represents the S&P 500 index) also down approximately 3%.

Still lacking sufficient demand from fundamental buyers or cross-market arbitrageurs, HFTs began to quickly buy and then resell contracts to each other – generating a “hot-potato” volume effect as the same positions were rapidly passed back and forth. Between 2:45:13 and 2:45:27, HFTs traded over 27,000 contracts, which accounted for about 49 percent of the total trading volume, while buying only about 200 additional contracts net.

June 5, 2012 at 5:51 pm #3777

Greenpa

In the WSJ, Spain admits they’ve “lost access” to capital markets. The admission is pretty huge. Following the patterns established by Iceland, Ireland, and Greece- the revelations of reality will not be far behind.

http://online.wsj.com/article/SB10001424052702303830204577448023082690142.html

June 5, 2012 at 5:53 pm #3778

Greenpa

Snuffy-

No checkee,No techie
No diem,No seeum

Yeah- but- there seems to be a counter-trend-

http://www.nytimes.com/2012/06/02/us/02iht-currents02.html

Have you run into this yet? It’s an o-so-human tendency. We see it in the farmers market we participate in- the eggs get cheaper every week.

June 5, 2012 at 9:00 pm #3781

Nicole Foss

mbp8081,

Why do you say we were wrong in spring 2009? We forecast a major rally, at the same time as most people were forecasting imminent demise of the banking system. We were right that there would be a rally, although we underestimated its duration. Now that rally is over. Various asset classes have topped at different times over the last few months, with the major trend change dating to May 2011. All of them, including the holdouts, have topped now. The next phase of the credit crunch has begun. Watch out below….

Nicole

June 5, 2012 at 9:39 pm #3782

jal

@ I&S
You got to spend more time posting.
You bring out the old/new posters :-)

Concerning Spain.

(From MT)
Spain now claims to be “locked out of the market” at a 6% 10 year bond yield. Let this sink in for a minute. It was not long ago that a 6% bond yield was considered reasonable. This ought to tell you exactly where everyone in the Eurozone is — they cannot afford the interest payments if and when the bond market normalizes. Consider that a 6% mortgage was considered incredibly good just a few years ago but Spain cannot afford to pay that rate on their borrowing.

If 6% is bad for Spain then what would you say it is for people paying 29% for credit cards?

There use to be a time when people did not have mortgages, debts and did not give the majority of their income to the financial institutions.

The system has been rigged in favor of the financial system.
Extraction of your earnings by any and all means.

June 5, 2012 at 10:11 pm #3783

pipefit

It is almost universally agreed that the Euro is dead, except that a half billion people are still using it out of habit. And yet it still buys 25% than a dollar. Where is the deflation, lol?

The dollar is on par with a dead man walking (Euro), and is losing ground to another guy with ALS (Yen). And there is a cliff of social security and medicare payments dead ahead.

It is apparent that hyperinflation is only a year or two away, at most. Got metal?

June 5, 2012 at 10:38 pm #3784

snuffy

Greenpa,
Best example I can think of is Craigslist…which is killing the local newspaper.Many entrepreneurial types on that…as Portland is the top of the “silicon forest”,I would expect to see more of the same here,sooner or later..
Egg price is based on feed price…you can only cut so far..and chickens for us,is a sideline,that I sell mostly to offset feed cost.
I had a long-winded response which took me 30 min to type out.It took me 1 second to erase.God,I hate learning a new format

Bee good,or
Bee careful

snuffy

June 5, 2012 at 10:48 pm #3785

BC Nurse Prof

Good to see these posts by I&S and I look forward to the detailed updates and commentary on these ideas from Ash. I read this today and I think it answers many questioners we see on this blog. From Dimitri Orlov:

http://cluborlov.blogspot.ca/2012/06/fragility-and-collapse-slowly-at-first.html#more

It’s all about how easy it is to predict collapse and how difficult it is to predict timing. With graphs, mathematics, and examples. Read this and you’ll quit asking, “But, but, when?”

Then you can see the European collapse accelerating by reading John Ward’s entry:

http://hat4uk.wordpress.com/2012/06/05/breaking-eurozone-monthly-sales-trend-ten-times-worse-than-expected-15/

Bad signs.

June 6, 2012 at 12:39 am #3786

ashvin

pipefit post=3406 wrote: It is almost universally agreed that the Euro is dead, except that a half billion people are still using it out of habit. And yet it still buys 25% than a dollar. Where is the deflation, lol?

The dollar is on par with a dead man walking (Euro), and is losing ground to another guy with ALS (Yen).

Is that all an aggregation of 17 developed economies can muster – 25%? Not too long ago, the euro was purchasing twice as much as the dollar. Isolated stock comparisons of currencies make for BAD analysis.

And there is a cliff of social security and medicare payments dead ahead.

It is apparent that hyperinflation is only a year or two away, at most. Got metal?

Exactly, a cliff – meaning, many of those payments won’t be made. Defaults on obligations = hyperinflation? I think not.

June 6, 2012 at 1:51 am #3788

pipefit

Hi Ash—If you have to cherry picks entry points to make your argument, you are conceding that you don’t have a strong one. Over the last decade plus a few years, or the entire life of the Euro, the exchange rate to the dollar has bounced around a lot. I don’t know what the average exchange rate is, but probably about where we are now.

So the point is, the dollar isn’t much stronger than the Euro, even with Greece, Spain, etc. in the front row.

Our refineries have so much extra gasoline capacity that they have to export some of it, even with no new refineries built here in 35 years. Yet gasoline prices are up 200% from a decade ago.

Ash said, “Exactly, a cliff – meaning, many of those payments won’t be made. Defaults on obligations = hyperinflation? I think not.”

Sorry, sir, but that is absolutely preposterous. The entire edifice (including the dollar) will fail before they stop sending out social security checks. If you don’t understand that, you don’t grasp the very basics of American politics. I suppose you could argue that there will be a military coup, and a suspension of the constitution, , but in that case they won’t need dollars to pay the workers in the concentration camps.

Why can’t you face it that ALL fiat currencies are failing together? Remember the 1990′s? The Mexican Peso was losing 15% or or more per YEAR to the dollar? That’s all it has lost in the last 15 years!!! To Mexico, a failed Narco State!!!

June 6, 2012 at 2:43 am #3790

Reverse Engineer

pipefit post=3411 wrote:

Ash said, “Exactly, a cliff – meaning, many of those payments won’t be made. Defaults on obligations = hyperinflation? I think not.”

Sorry, sir, but that is absolutely preposterous. The entire edifice (including the dollar) will fail before they stop sending out social security checks. If you don’t understand that, you don’t grasp the very basics of American politics. I suppose you could argue that there will be a military coup, and a suspension of the constitution, , but in that case they won’t need dollars to pay the workers in the concentration camps.

Continue passing out of SS checks doesn’t equal HI. Da Goobermint isn’t passing out enough Free Money to J6P to buy what is being sold. What is happening instead is production is being shut in. Overall, the transmission mechanism of moving money created by the banks and Goobermint through the loaning process has been broken. More and more people have fewer and fewer dollars to spend. All Da goobermint here is doing (and just barely) is providing a SNAP Card system that just about allows people to buy the food they need to live. Again, this does not HI make.

RE

June 6, 2012 at 3:52 am #3792

ashvin

pipefit post=3411 wrote: Hi Ash—If you have to cherry picks entry points to make your argument, you are conceding that you don’t have a strong one. Over the last decade plus a few years, or the entire life of the Euro, the exchange rate to the dollar has bounced around a lot. I don’t know what the average exchange rate is, but probably about where we are now.

I wasn’t cherry picking anything, but rather pointing out the absurdity of your argument that the $ is failing because the euro is still 25% above parity. That is an absurd argument… those short term FX fluctuations really have nothing to do with general confidence in global currencies as stores of value.

Our refineries have so much extra gasoline capacity that they have to export some of it, even with no new refineries built here in 35 years. Yet gasoline prices are up 200% from a decade ago.

So you notice that energy demand has plummeted, yet oil prices have remained elevated (still more than 50% down from 2008 peak), and your conclusion is that people don’t have faith in the dollar anymore?? Keeping dollars cheap for big financial speculators to bet on oil does not equal HI any more than betting on RE prices did.

Ash said, “Exactly, a cliff – meaning, many of those payments won’t be made. Defaults on obligations = hyperinflation? I think not.”

Sorry, sir, but that is absolutely preposterous. The entire edifice (including the dollar) will fail before they stop sending out social security checks. If you don’t understand that, you don’t grasp the very basics of American politics. I suppose you could argue that there will be a military coup, and a suspension of the constitution, , but in that case they won’t need dollars to pay the workers in the concentration camps.

Who said they will stop sending out checks? American politics right now is no different than Greek politics, except the non-stop propaganda and mind games are at a larger scale and drawn out over a longer time. They will reneg on promises, rejigger the rules and bleed the people dry until they can no longer take it anymore, and then they will bleed them some more… and THEN comes the martial law.

June 6, 2012 at 5:32 am #3795

pipefit

“I wasn’t cherry picking anything, but rather pointing out the absurdity of your argument that the $ is failing because the euro is still 25% above parity. That is an absurd argument… those short term FX fluctuations really have nothing to do with general confidence in global currencies as stores of value.

Our refineries have so much extra gasoline capacity that they have to export some of it, even with no new refineries built here in 35 years. Yet gasoline prices are up 200% from a decade ago.

So you notice that energy demand has plummeted, yet oil prices have remained elevated (still more than 50% down from 2008 peak)”

You say you are not cherry picking, and then you cherry pick!!!!

The 2008 top lasted for what? 10 seconds, lol. From 1979 to 2001, 22 full years, the USA economy went into recession every time the price of crude exceeded $30/bbl. Then, they decided they would try a work around. The workaround is still in progress, but getting a bit played out.

The mailing of ss checks, combined with their other spending, is contributing to consumer price inflation, currently about 6%/yr, per shadowstats.com. As the federal deficit widens going forward, inflation will increase.

The trillions they give to AIG and JPM were never going to be spent on consumer goods, so therefore they have no effect on inflation. They are merely accounting entries. Any simpleton can see that.

SS checks, on the other hand, buy gasoline, food, etc. Why don’t you take a class on economics, perhaps econ 101, lol?

June 6, 2012 at 10:06 am #3798

TheTrivium4TW

Bot Blogger post=3399 wrote: GlenJeff:

http://en.wikipedia.org/wiki/2010_Flash_Crash

The May 6, 2010 Flash Crash also known as The Crash of 2:45, the 2010 Flash Crash or just simply, the Flash Crash, was a United States stock market crash on Thursday May 6, 2010 in which the Dow Jones Industrial Average plunged about 1000 points—or about nine percent—only to recover those losses within minutes. It was the second largest point swing, 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in Dow Jones Industrial Average history.

From the SEC/CFTC report itself:

The combined selling pressure from the Sell Algorithm, HFTs and other traders drove the price of the E-Mini S&P 500 down approximately 3% in just four minutes from the beginning of 2:41 pm through the end of 2:44 pm. During this same time cross-market arbitrageurs who did buy the E-Mini S&P 500, simultaneously sold equivalent amounts in the equities markets, driving the price of SPY (an exchange-traded fund which represents the S&P 500 index) also down approximately 3%.

Still lacking sufficient demand from fundamental buyers or cross-market arbitrageurs, HFTs began to quickly buy and then resell contracts to each other – generating a “hot-potato” volume effect as the same positions were rapidly passed back and forth. Between 2:45:13 and 2:45:27, HFTs traded over 27,000 contracts, which accounted for about 49 percent of the total trading volume, while buying only about 200 additional contracts net.

That’s the narrative and, as usual, they don’t tell you the real important information. Think of it as a “lack of context” fallacy.

Here’s what they left out…

Brown/Kaufman Too Big to Fail Amendment Falls

http://senatus.wordpress.com/2010/05/06/brownkaufman-too-big-to-fail-amendment-falls/

Note the date. I remember the day well.

They tried to sell us on the “fat finger” – like we are soooooo stupid to believe that was the first time in the market’s history that someone hit the wrong key stroke.

Yes, they think we are *that* gullible. I’m offended… and wish more people understood why they ought to be offended as well.

The bottom line is that the Congress was in session deciding on if they should vote to limit the size of the TBTF&Jail bankster cartel front banking corporations and, shall we say, out of nowhere and economic “hit” came down as though from those claiming to do “God’s work.”

Big Finance Capital was just, shall we say, letting the puppets they financed into office (and track all their dirty secrets via their police state apparatus) who was boss and that they had better not mess this up.

By the look of the vote, the message was sent.

June 6, 2012 at 10:13 am #3799

TheTrivium4TW

ashvin post=3415 wrote: …and THEN comes the martial law.

No, the martial law is already here – the NDAA sealed that deal. Plans for re-education of American political opposition in camps… The President claiming the right to murder anyone he so chooses. The U.S. fair game for U.S. military operations. I’m sure there were people in rural Germany that didn’t feel the whole Hitler thing, but that didn’t mean it wasn’t there.

Yes, I’m being nit picky – but the point is valid. Martial law is already here. What you speak of is a more aggressive implementation of what already exists…

June 6, 2012 at 10:30 am #3800

TheTrivium4TW

pipefit post=3418 wrote: The mailing of ss checks, combined with their other spending, is contributing to consumer price inflation, currently about 6%/yr, per shadowstats.com. As the federal deficit widens going forward, inflation will increase.

The trillions they give to AIG and JPM were never going to be spent on consumer goods, so therefore they have no effect on inflation. They are merely accounting entries. Any simpleton can see that.

SS checks, on the other hand, buy gasoline, food, etc. Why don’t you take a class on economics, perhaps econ 101, lol?

I took Econ 101 and earned a 4.0 – it was my favorite class in all my years of school…

pipefit, you don’t quite seem to understand that money is debt – every dollar out there is an obligation to pay it back with interest.

You know what group owns the most of that debt and controls most of the dollars per group capita?

I call them Big Finance Capital, but what you need to know is that they own the mega banks and the people that sit on the Federal Reserve Board are their operatives.

Yes, serious to hyper-inflation will come, but it won’t come while Big Finance Capital is loaded to their gills owning the debt of the people and trillions of cash.

Apparently, you missed the part about “self interest” in Econ 101.

Jamie Dimon sits on the Board of the New York Federal Reserve and his bank is lending 30 year money for 4%.

Oh, you are smarter than the OWNERS of JP Morgan (and almost all Western governments, BTW) WHO LITERALLY CONTROL THE FEDERAL RESERVE, are you?

They are so stupid they will wipe out the debt owed to them and hand the homes over to their debtors for the price of a loaf of bread?

Come on.

Of course they are gonna bust the economy first, asset strip society in the “Great Deleveraging” and then, after they own almost all the hard wealth, they will seriously or hyperinflate to “balance their books” and call it even.

The mega banks are TBTF, what do they care if the housing drops 90% – they can’t fail. Their competition is eliminated. They own the world.

No, but they are gonna give up that power and control so your gold fetish is fulfilled.

Right.

That’s what Ash doesn’t get. This isn’t mechanics any more. The mechanics will be changed whenever it suits BFC. Period. Of course, the current mechanics suit BFC just fine, so they won’t change it – that’s why they set it up this way in the first place.

It used to be that you couldn’t lie on your balance sheet – then the “mechanics” changed and criminal fraud is now legalized for the BFC front corporations (but not their competition, see…).

Believe me, I despise what the dollar is… but when debts are called in, the debtors will need dollars very, very badly or else they will lose all their stuff… to BFC front corporations.

Oh, and hyperinflation doesn’t mean the banks are somehow saved. Who loses when people get their homes for the price of a loaf of bread – the banks that lent out a house only to receive a loaf of bread. Come on!

Think!

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.” Henry Ford

“Under the Federal Reserve Act, panics are scientifically created. The present panic is the first scientific one, worked out as we figure a mathematical equation.” (Congressman Charles A. Lindbergh, The Economic Pinch, 1921.)

PS – Mises was brought to America and funded by the Rockefeller Foundation… they viewed him as an *asset* worth funding. Because they are nice people, no doubt.

June 6, 2012 at 5:17 pm #3802

Anonymous

I wonder what you think about this analysis by Soros: http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/

June 6, 2012 at 5:22 pm #3803

m111ark

Thetrivium4tw has it exactly right.

As I trade to make a living, I still can’t get the timing right. I want to load up on shorts but the threat of QE and more financial/accounting fraud is keeping them small. Looking to sell more after June OptExp.

I also wonder if the people of the US will wake up and stop the capital machine from running the same game on our Asian brothers. They’ve stolen Europe, ravaged the US, and are on their way to sucking the lifeblood out of Asia. It’s a big IF. Can it be done without a bloody revolution. Is the destiny of the US to finally put an end to the Feudal system or will we roll over like Europe.

I dunno. It’s one of the big questions I have. I’d like to see I&S tackle that one.

June 6, 2012 at 8:15 pm #3804

ashvin

The 2008 top lasted for what? 10 seconds, lol. From 1979 to 2001, 22 full years, the USA economy went into recession every time the price of crude exceeded $30/bbl. Then, they decided they would try a work around. The workaround is still in progress, but getting a bit played out.

No, the US economy went into recession every time it accumulated too much PRIVATE debt relative to its ability of servicing that debt. That’s something your conservative neoclassical gold bug classes didn’t teach you.

The mailing of ss checks, combined with their other spending, is contributing to consumer price inflation, currently about 6%/yr, per shadowstats.com. As the federal deficit widens going forward, inflation will increase.

The trillions they give to AIG and JPM were never going to be spent on consumer goods, so therefore they have no effect on inflation. They are merely accounting entries. Any simpleton can see that.

SS checks, on the other hand, buy gasoline, food, etc. Why don’t you take a class on economics, perhaps econ 101, lol?

I took a bunch of econ courses and they were all neoclassical hogwash. If you want a real econ schooling, read Dr. Steve Keen’s “Debunking Economics”, which in your case could be called “Debunking a Naive Gold Bug’s HI Fantasies”.

Like Triv said, you fail to understand the system is saturated with DEBT. The question isn’t what SS checks will buy people lucky enough to retire, but how much additional demand it will provide to offset the cratering demand due to deleveraging, debt servicing and unemployment. Maybe you live in some rich community where people blow every extra dollar they get on food/gas, but most people have to find ways to save and cut back.

You also don’t understand the difference between HI and inflation. HI is NOT inflation on steroids… it is a complete loss of confidence in the currency’s value storing function. Weimar didn’t happen because the Germans went buck wild with SS checks and medical payments. But, then again, that’s not something they will teach you in Econ 101. You have a lot of catching up to do, my friend.

June 6, 2012 at 8:41 pm #3805

ashvin

TheTrivium4TW post=3423 wrote: That’s what Ash doesn’t get. This isn’t mechanics any more. The mechanics will be changed whenever it suits BFC. Period. Of course, the current mechanics suit BFC just fine, so they won’t change it – that’s why they set it up this way in the first place.

This is like saying our energy flow issues aren’t about the mechanics of producing energy anymore, but instead are only about the interests of the people who produce/control most of the world’s energy flows. They may have set up the current fossil fuel system, but they cannot deny the reality of its physical, thermodynamic constraints.

Granted, debt-driven economics may be more attuned to their control since it is also tied up with political/legal issues, but there are still constraints that the system imposes – yes, even for THEM, the people who set up the system.

It used to be that you couldn’t lie on your balance sheet – then the “mechanics” changed and criminal fraud is now legalized for the BFC front corporations (but not their competition, see…).

It never really used to be anything fundamentally different. The only thing that changes is that financial speculation, fraud, misrepresentation, embezzlement, etc. became more common because the system NECESSITATED those things. We should actually view these developments as a form of desperation on the part of the elites who are trying to maintain the current system, at least until they are ready with something completely new (and a million times more oppressive). If they did not change/undermine the existing regulations/laws, generate more credit/debt and concentrate more wealth among fewer and fewer corporate powers, the financial capitalist system would have broken down a long time ago.

June 6, 2012 at 8:57 pm #3806

jal

If they did not change/undermine the existing regulations/laws, generate more credit/debt and concentrate more wealth among fewer and fewer corporate powers, the financial capitalist system would have broken down a long time ago.

The number of players/gamblers/traders/fools trying to make money in the stock market are getting fewer by the day.

Any intelligent person can see that its impossible for the traders to set the value of an index to be below its 200 day moving average by 100′s of point and then within days reverse that move.

If the economy was bad yesterday its still bad today.

June 6, 2012 at 11:17 pm #3807

Ken Barrows

Being devil’s advocate here: I think it’s a bit too soon to say the next phase of the credit crunch has begun. After all, markets still rally on soothing words from the central banks. The problem will be when they don’t.

June 7, 2012 at 4:26 am #3811

Reverse Engineer

Sloshing Water in the Sinking Euro Titanic now up on the Diner Blog.

…Everybody on board knows the boat is sinking, but nobody wants to Jump Ship here, particularly since those Tiny Lifeboats named Drachma, Lira, Pesetas, Punts etc don’t look like they will hold up too long in such rough Seas. Everybody wants to get aboard the Lifeboat with the Swissie Cross painted on the front, but that one looks too overloaded already. Other folks want to get on the Golden Lifeboat, with the small problem that Gold doesn’t Float too well. Others wait for the Krauts to build a D-Mark Lifeboat, except only Krauts will be allowed on board that one if they build it in time….

June 7, 2012 at 8:15 am #3817

paperwings

I just happened by and am so happy to see Snuffy & Greenpa and I&S, just like old times . . . ha I’m still here, doing everything I can which isn’t enough and wondering when and where I’ll go down. (Snuffy, wonder if it’ll be in the streets – might not be a bad place to do it; I just worry about being thrown in jail etc, don’t think I’d survive that; prefer the street, I’m told they’re buying more than enough powerful bullets.) The ER the other night was crammed with people with “anxiety” …. Nicole I heard you’re moving to Australia, any truth to that?

June 7, 2012 at 9:42 am #3818

Glennda

Good thread of discussion.

Ash said:
“The only thing that changes is that financial speculation, fraud, misrepresentation, embezzlement, etc. became more common because the system NECESSITATED those things. We should actually view these developments as a form of desperation on the part of the elites who are trying to maintain the current system…”

A recent item in ZeroHenge suggests the end of 2012 into 2013 as a time for the US unwinding. Certainly TPTB will keep all those plates in the air as long as possible, especially with the November election. They are getting more and more desperate, with more and more “consolidations” of companies as growth at any cost is pursued.

Something Greenpa gave as a link was to the underground market and the new “networking” of workers companies. It makes me think that is the next wave of “growth” companies as we get in to a Salvage economy.

I’m still an optimist about the things that will grow out of the decline of capitalism. There was an inspiring OccupyTheFarm situation in Berkeley area. A long running debate on what UC should do with selling it to a Big franchise grocery store and for a ball park, OR to set up a community farm in that area. Naturally the Occupy group was evicted after a few weeks of getting their crops started, so that the UC profs could do their classes. (3 out of 4 profs wanted the Farm to stay and share together, but…”ringleaders” were arrested and others evicted.)

The Oakland/Berkeley area has TransitionTown groups along with numerous Urban Farms. (I have my chickens almost ready to start laying.) The whole urban farm movement is growing here and to me that is a good sign that some people at least are awake to the impending descent of capitalism. The OccupyTheFarm gathered a lot of support here and is a sign that alternate structures are developing.

With so many young people out of jobs and homes, abandoned houses are more and more being squatted complete with raised bed farming. It seems as if all this is completely under the radar of TPTB.

To me this is a very positive development of co-operative support among people.

PS Glad to seem some names from the old site again.

June 7, 2012 at 10:47 pm #3821

Bot Blogger

Triv,

Sounds a lot like: ‘Hand over all your money or the banker gets it!’

June 8, 2012 at 6:55 am #3825

TheTrivium4TW

Bot Blogger post=3444 wrote: Triv,

Sounds a lot like: ‘Hand over all your money or the banker gets it!’

http://www.youtube.com/watch?v=AjPBp6DOwgU

Hi Bot, yeah, that about sums it up once you see the main character as the banksters.

It is that obvious to the very few thinking people.

Ben, a villain in the TV show LOST, said something that we could explain it.

“I find emotional needs and then I exploit them.” ~Ben (a 3rd season episode)

Or, is that that the show’s financiers taunting those of us who still *think*.

What we all ought to think about is…

what emotional needs do I have that make me vulnerable to exploitation?

I have friends that think everyone running the system is a stupid moron.

I look at the system and I can’t rule out supernatural genius.

June 8, 2012 at 6:30 pm #3829

Therooster of Christ

The operating system is fine. I understand the function and the reasoning behind the article’s opinion. It’s how the user responds to its capability that is the challenge. We can each add to economic liquidity without adding to existing debt by monetizing and circulating precious metals at the grass roots level. It’s a market function, not a top-down responsibility. Now that gold and silver trade in real-time, the liquidity of those PM based currencies has been greatly enhanced. Bullion based payment processors make the process for each even easier.

Chew on this one all you wannabees. The USD’s ultimate purpose is/was not created for the sake of fulfilling a currency role. That’s but a stop-gap measure on route to fulfilling its ultimate role as a real-time measure for gold weighted payment in a world that prices things , as a matter of habit, in fiat currencies.

Real-time capability has been essential to this real-time gold-as-money paradigm. This was not possible with a FIXED peg on the price of gold, which is why the FIXED peg had to be severed. It’s all about gold and monetary commodities.

You cannot pour new wine into old wineskins

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