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When the NY Times announced on Sunday that Obama would or could no longer work with Putin and intended to make Russia a pariah nation I expected an explosion in the blogosphere, left right and center. Instead, zilch. Even on what passes for the left here it isn’t even on the radar.
Was this all a joke only i am taking seriously? I am literal minded to a pathological degree I admit.
The currency and energy wars, if they come become hot, will be declared or stumbled into and fought for other announced reasons. As were Iraq, Syria and now Ukraine.
Well Obama just declared war on Russia
” Mr. Obama is focused on isolating President Vladimir V. Putin’s Russia by cutting off its economic and political ties to the outside world, limiting its expansionist ambitions in its own neighborhood and effectively making it a pariah state.”
Funny the article doesn’t mention methane. Good luck with cutting off that economic tie with the “outside world”. Is China the outside world? No, I think they are destined to be the enemy too.
This will now function as a line in the sand to determine domestic enemies. Show me a skeptic about the popular version of events in Ukraine and I will show you a subversive. Since Obama did it no Democrat can be against it. Except the occasional back bencher. Nobody running for president is going to be soft on Russia. Instead our national politicians are going to be falling all over themselves to be the toughest on Russia.
A massive fall in the human population is implicit in AE’s analysis, taken to it’s logical conclusion. It actually is so obvious a conclusion it seems explicit to me but obviously saying it out loud takes many people aback. Such a conclusion, massive depopulation, to use a crafty sort of neutral term, is outside most known history and outside virtually all stories one is told about the future and so outside peoples imaginations.
The only exception in recent history were the stories that arose from fear of nuclear war. Fiction in the 50’s through the 80’s provided stories of a nuclear weapons route to depopulation but they pretty much ended when the USSR did. McCarthy’s The Road revisited it but the how is invisible. Actually I think nuclear weapons could play a part going forward. The crisis in financial, energy and environment played out as a clashes of nations. Come to think of it the asteroid is popular as the destroyer.
Let’s not forget the Biblical End Times and Jesus coming down somewhere near the Texas Oklahoma border. Certainly a third of Americans believe God is going to put an end to the world sooner rather than later and many think they are looking forward to it. If it plays out as some combination of economic dislocation on a grand scale with environmental problems and wars too they will just see the hand of God. This is an important point because it exactly requires people to do nothing to stop it. This sort of meta view infuses huge portions of even our elites who are barely Christian at all.
How can you imagine 2 billion or 4 billion or 5 billion people dying off from want of human basics or violence in the course of a decade or three? I can’t and I accept the probably correctness of Nicole’s analysis.
“Faber says the markets are figuring out that the Fed is clueless, and I’m not so sure about that, I think it’s more likely that the Fed is not trying to do what it says it is, and that what it does try it does very well. And if that includes a stock market bust, it won’t hesitate. ”
Yes, well down the rabbit hole we go.
To start let’s review Lee Adler’s analysis wherein the Fed starved the Primary Dealers and shrunk it’s System Open Market Account. Lee’s site has buried the chart so let link with apology link CNBC. At the 2 minute point note the fall in the SOMA pre crash 08. {which Santelli (father of the Tea Party, in a way) ignores. That drop in SOMA late 07 and 08 presaged the crash.
Did the Fed do this on purpose to foment a crash? A crash which resulted in more power and wealth for the few. Especially those within or attached to the TBTF banks. Perhaps but it seems unlikely since that would be conspiracy. Wherein nice economists are actually not nice but part of some secret cabal. I doubt it. Would very nice Janet Yellen now take the same path? I vote unlikely.
While it is true the Fed’s Open Market Committee members for the most part do know that QE does effect stocks and asset prices favorably it seems extremely unlikely that they don’t believe that in so doing that self sustaining ‘organic growth’ will follow.
So I call the Fed leaders usefull idiots to the few, not conspirators, Others may differ.
I’ve pre ordered All The President’s Bankers which will be released tomorrow. I, we, know the outlines of this story and I tell it often but nobody listens. I tell them the banks and bankers were saved because they are a vital part of the government. US power inseparable from the giant banks.
No book ever changes anything much but this story is ripe for telling with so many people trying to connect dots. It would be difficult to imagine a story which is a bigger assault upon our elites. At the margin this is going to be a confidence destroyer.
Of course confidence is a direct function of liquidity. Which is why I think Dargi is going to open the flood gates. In part because behind the scenes the new Chinese leadership is going after those who have been taking their money and sending it out into the world. That slowing if not reversing a bit is what ails the market now i think.I could be wrong on that of course.
Stockman has a true believers faith in the power of markets to solve everything but not in the neo liberal ways. Neo liberal used to mean being a liberal who wanted to use conservative methods to achieve their liberal results, especially market ones. Which lead to identification with corporations and a slavish loyalty to elites in general. So strip away Christian fundamentalism and add some modern views on cultural things and a neo liberal is just an old fashioned businessman conservative who embraces just about anything that anyone who is high up in any institutional hierarchy does.
Stockman started from that old small town Chamber of Commerce sort of conservatism and never left. It’s an odd political space rarely seen. He became famous and infamous as Reagan’s Budget Director for blabbing to liberal crusading writer William Greider about how that administration didn’t cut the deficit but exploded it. Which was a tip off that he was naive since to this day nobody really cares about deficits. All they care about is not giving money to ‘blah’ people. (That’s people of color)
So yes Stockman believes permanent growth would be achievable if only the ‘free market’ was allowed to operate. He was even in on the ground floor of one of the first M&A outfits but didn’t quite fit in yet he still never connected the dots. Those being that power determines economic outcomes, not the system, not even the ‘free market’ system. I’ve always sort of liked Stockman because of his naivete. He does often hit the right notes but the biggest picture escapes him. Like the Constitution. A document which has mean less and less after every American war starting with 1812 to the permanent war which started officially in 1941 and never ended. Having morphed into a sort of talisman which means pretty much what anyone wants it to mean.
Getting money out of politics is as unlikely as getting CO2 emissions down significantly. These two things are entwined and really inseperable. When they happen they will happen together and neither will happen by choice.
Muzychko killed by the ‘police’, whatever that means in Ukraine, check. Now Klitschko bows out of the election. A nice wad of cash and some pictures of Muzychko’s body probably did the trick. Well the ultra right served their purpose as useful idiots and now will disappear from any proximity to power This stuff is pretty easy really. It doesn’t even rate a bad melodrama it just too predicable. Oh, and a billionaire president. That’s a real surprise, not.
Having a presidential system not a parliamentary one makes government dysfunction more likely. I suppose the newly formed democracies that came out of the old USSR would not have been better off with parliamentary systems as the parties were not organized and the prospect of governments failing multiple times a year didn’t seem very attractive.
I expect that in the future there will be no president in the world who isn’t a billionaire or who won’t be one soon after retirement. So no president will even think about any steps that would deflate financial asset prices. In tandem with the firm belief, a moral one they imagine, that the poor deserve their fate.
When the USSR collapsed the US via NATO made absolutely certain that Russia would remain our enemy by expanding NATO Eastward. There was no possible purpose for NATO expansion except to be sure we cultivated an enemy or to be kind, an opponent.
American needs enemies. We invented Salafi Jihadists so they could become our enemy but we have been unable to contain them so we are turning back to old reliable Russia.
It helps to get some perspective on this. Tommy Friedman of all people provides some with a chat with George Kennan in 1998.
“Yes, tell your children, and your children’s children, that you lived in the age of Bill Clinton and William Cohen, the age of Madeleine Albright and Sandy Berger, the age of Trent Lott and Joe Lieberman, and you too were present at the creation of the post-cold-war order, when these foreign policy Titans put their heads together and produced . . . a mouse.”
Someone, I forget who, called the US/EU involvement in Ukraine monumental incompetence, or something on that order. Perhaps IM I don’t recall. Pretty much everything looks like incompetence now. The ‘wars’ in Afghanistan and Iraq, check. The housing/credit bubble and money printing aftermath, check. I could go on.
If any are the result of incompetence, honest mistakes, or dishonest ‘mistakes’ in order to expand the power and wealth of the main players probably does not matter much for you and me. While I lean to the incompetence, Twilight of the Elites sort of view, even if that were true the gain power and wealth crowd is probably prepared. What better way to explain the decline of the middle classes than it’s Putin’s fault?
In the corner of more than a few minds is that war by would be a likely outcome of the condition the world finds itself in vis a vis the AE view of things. That being declining cheap energy availability and credit over expansion. Pick any story you want about the hows and the whys of war or the preparations for war evolve, error or design, for you and me the result will be the same.
IM isn’t American but Americans are taught that world events, historic events, do not much effect them. No, Americans determine their own destiny. Individually and collectively, is the lesson we are taught. If as Wodehouse wrote, “Unseen in the background, Fate was quietly slipping lead into the boxing-glove.” we will remain blissfully unaware. The final chapter of the story would be if the elites found they had lost control or should I say the ability to profit by events. The last to discover that history, fate if you will, favors nobody all the time.
Oh oh, now NASA is getting in on the act. Nasa-funded study: industrial civilization headed for ‘irreversible collapse’? says the headline.
It goes on to mention resource depletion, not oil specifically. but seems to concentrate on wealth distribution. Laying out a sociological narrative of why major empires collapsed in the past. That being elites insulate themselves from the problems until it’s too late. Sounds about right for history and now too. Then the obligatory but
“The two key solutions are to reduce economic inequality so as to ensure fairer distribution of resources, and to dramatically reduce resource consumption by relying on less intensive renewable resources and reducing population growth’
As if.Setting aside the politically impossible first part the second part is a sort of definition of collapse in itself. Functionally for most people it would be collapse.
The financial world absolutely does not need this trouble. My admittedly crackpot analysis has always centered on the transfer of sovereignty and power to corporations and away from governments/nations. All done through the partnership with democratic governments via the shared interests of the players within governments and the triumph of neo liberalism.
Still there are frictions. Forces and power within governments always have a contingent that draws on nationalism/militarism and what I call Grand Global Strategic thinking.To the extent this generates a lot of business for corporations then they are good with it but when it goes to real conflict then they get sad. JPM may have been happy to help ‘privatize’ Ukraine but they don’t want some big fight to get the opportunity.
There are of course many ways to make a narrative about these events but I think this one may be useful.
“Since the real economy is hardly budging at all, the “new profits” can only come from QE-esque money streams, and that, after 5 years now, is getting extremely worrisome.”
I don’t think they are worried. Well not seriously worried. There is no limit to what the Fed can and will ‘print’ and everyone knows it which means the markets will have a bid kept under them which means capital flows from the worlds ever multiplying trouble spots will continue to flow in. That means the credit can continue to flow for even the most desperate borrowers.
I’m speaking some intermediate time frame here. Till summer at least and who knows if not many seasons. I consider and epic blow off well within probabilities.
Some side notes. I work in manufacturing and the man on the floor, and street, is getting the stock market bug again. NPR had some story today about the jobs number and were touting like crazy the idea that American’s confidence is growing. It isn’t new but with NPR touting ‘confidence’ and ‘growth’ who’s left to question such things. Truth be told Americans are loving the rest of the world falling apart even if most can’t admit it to themselves. Such is a feature, not a bug, of the neoliberal (now quasi neo conservative) game plan as being executed by or through the Obama administration. The operators in the Beltway have no trouble admitting their love of the devolution of the ROW.
Where is the EU going to get the $15 billion? It’s a mystery to me. $15 billion for a country that barely exists anymore and isn’t an EU member. This will be popular. Aren’t there EU elections coming up? Not that it will make any difference I guess. The good part of this story is if it goes through at least somebody is going to be paid back. EU banks mainly. It seems the rest of today’s stories are about people who are not going to be paid back.
The other great thing about this Ukraine bailout is that apparently it isn’t a loan. I didn’t see the word loan anyway. It does occur to me a few billion quickly poured into what passes for a government would go a long way in creating a government that functions, sort of, again. Which I think is the point. Plenty of serious people with their hands on that kind of money to hand out can make a lot of friends fast and after all money is legitimacy.
Let’s see if Obama has the balls to throw into the kitty. His opponents are all for blowing something up over there but I doubt they want to send cash to be blown up. I fail to see the necessity of actually appropriating the money however. In a crisis why bother with such formalities. I am not kidding on this. ‘Money’ is just keystrokes, among friends, after all. No keystrokes for Detroit or Chicago of course. Well maybe Chicago, a bit.
I will say the Ukraine narrative here or Orlav’s or on other alt sites is so opposite of the US media one I’m not willing to throw in fully with the alt view. Despite my knowledge of all the sins of US ‘news’ I’m not ready to buy Putin’s Russian version verbatim either. Waxing philosophical no story, no narrative, can encompass reality.
The economic system and thus the culture cannot survive even a 20% reduction in carbon based energy use and it probably can’t survive any decline at all globally. Thus there is no way it will be reduced by choice. I have to be a fatalist about this. Let the optimists be optimists.
I occasionally have this silly thought that Gaia hypothesis, all the rage in the 80’s, which said the earth its mineral and living things is self regulating, taken to an absurd conclusion, means we will have economic collapse. I don’t really buy this idea about some causal and almost mystical self regulating planet but there is a rather satisfying logic to this line of thinking. One can certainly say that the economic system is out of balance and thus so is the earth. There is a link.
I’m loath to grant deniers anything but they are sort of right that the climate is always changing, but admittedly not usually so quickly. At any rate it seems we had been in a climatological sweet spot since the end of the last glacial advance which certainly played a part in our economic and population explosions. The latter, the population one is rarely brought up. To put it kindly, as if that’s possible, some decline in population seems probable. Blame economics, blame climate, blame both if you will. Americans above all suppose, backed by experience, that great historical events and trends do not threaten their lives. I suppose we might suffer them least and last but won’t be spared. To ramble further, I suppose the current market melt ups are being caused by hot liquid money flowing here to, as Lee Adler calls it, the last Ponzi standing. Setting the US up as the last safe haven.
Why do the Chinese loans have to be repaid? Why do any loans have to be repaid? I’m serious. Why?
So the banks won’t be bankrupt? Well if the books don’t balance but nobody cares then they aren’t bankrupt are they?
There is an entire monetary ‘school’ now called Modern Monetary Theory which totally and completely ignores that loans are assets. Well that’s my reading anyway. Just lend, borrow and spend, and there will be growth, end of story. When Mark to Market accounting was suspended by the congress for the banks so they did not have to deflate the assets on their balance sheets the principal was put into action. A perfect fait accompli. Well ordinary citizens still have to pay off their loans but beyond that the powers that be can pick and choose what has to be repaid and who has to repay and what and who doesn’t.
The Chinese, the ones not worrying about the bubble anyway, must be laughing their heads off at the US and its drive to lower the deficit and thus shrink credit growth. I’d figure 75% of that 15%/yr credit growth there is government borrowing. Mostly via local consuls building whole cities and all the rest. If the banks books don’t balance here and it makes little difference that should go triple for China. I mean really, whose to say what the numbers are?
Again, this is all only half tongue in cheek. I am at a loss to think how it could end if nobody says it has to end. That the loans have to be written down. The banks bankrupted. Maybe Mother Nature will be the only brake.
If AE and others are correct about the credit/financial/monetary collapse coming then this income and asset distribution skewing will come to an end anyway. Not one brought on by policy but by events. It’s good to recall that much this wealth and income held by the top is fictitious. Based upon inflated prices of assets. It all seems so real now but much of it could disappears in an instant, poof. I always try to withhold some outrage over these things because I try and focus on the illusory aspect of it all.
Perhaps some outrage would be useful, politically and socially, but by this late date it is in short supply. Except on the US right where it can all be summed up in, Obamacare. In other words nowhere useful. Where the political answer will lead to reaction and repression. In service of the 1%, again. The memes of the populist Tea Party right front and center on ZH every day, all dressed up in libertarian garb but don’t be fooled. To the extent that the so called Tea Party is actually populist it sometimes stumbles upon the true nature of this income and asset distribution thing but they are always brought back into line by their hatred of blech people and love of ‘free enterprise’.
I’m talking the multiple millions salaries. It has to be understood that the numbers don’t really mean that much in and of themselves but the important thing is the relative pay. If the highest paid quarterback or CEO was on million a year not six they would be just as satisfied because they were number one.
When the top tax rate was 90% let me assure you that this was a powerful dis incentive to seeking higher pay not only for the recipients but the payers too. Boards of directors don’t like to pay taxes and giving money to execs so they could pay taxes on it would have little appeal. You don’t hear much on in now but in the 2000’s there was endless talk about executive wage inflation and studies were done and they always recommended that corporate boards stop the inflation. They didn’t.
In the corporate world who doubts for a moment that top management has fetishized short term profits, or the appearance of profit, to boost their income over most all other considerations. Taking it one step further those seeking top executive status are more and more those driven by greed. Not that corporate top executives were ever kindly seekers of good for all but I certainly recall that top execs used to be quite a bit more believable when they talked about serving the larger good. Now your likely to get huge raise if you take a public dump on the very idea of some, any, common good.
The primary effect of very high tax progressive tax rates at the top is not to take the money and redistribute it but rather it discourages the payment and even seeking of very high pay. This for the most part nowadays would mostly apply to top executives of corporations, assuming their options were treated as ordinary income. After them it would apply mainly to entertainers/sports stars. That would leave out a large swath of the very wealthy who gain their wealth from capital gains. (There is the carried interest thing too but no space for that here but that has to stop too)
I propose that much higher capital gains taxes, which fall according to the length of time the asset is held, would be a far more effective strategy to fight our malaise but it’s really too late isn’t it. For it is the quest for inflating assets which more than anything shapes our economy, the entire political economy and our culture. Well this will not happen either. Capital gains taxes will disappear eventually.
I’m not sure where ZH got their historical Jan jobs numbers. My go to guy is Lee Adler and he says Jan 14
“The issue is how the current decline compares with the norms of the past. By that standard, January was an average month. The decline was smaller than in 5 of the past 10 years and larger in 5. It was virtually the same as last year’s January decline of 2.86 million. And it was almost identical to the 10 year average. ”
https://wallstreetexaminer.com/2014/02/07/nonfarm-payrolls-misleading-headline/
More here
The basic story is bad but that chart of past January’s is not right.
Ulterior or not, their motives don’t seem to even hint at good ones. Whatever it is, they’re against it, except Ron Paul. Ron Paul!
All in all ZH is an odd sort of thing coming straight out of the heart of the beast, The Street.
What happened by the way was the crash of 08.
In regard to Zero Hedge I am falling victim to my own conspiracy theory of sorts. First off Tyler Durden is the name of Brad Pitt’s character in Fight Club and is used as a pen name by various people who are the sites editors. My theory which is not quite a conspiracy is that Zero Hedge acts as a conduit for ‘modified limited hangout’. If you don’t know the term see here.
https://en.wikipedia.org/wiki/Limited_hangout
As to the editing of the site ,which means what points of view it seeks to advance, when it comes to politics it is to me profoundly reactionary. Essentially they always show absolute contempt for all standing politicians, except Ron Paul. It’s fine to hold some contempt for all politicians, especially Ron Paul, so to me the sites point of view is odd if not highly suspect. Many linked articles are good and contain good info but the greater purpose of the site is rather mysterious.
Then too its impact on the broader public conversation, the media one, seems to be about zero. Which is where my modified limited hangout theory comes in. The cognoscenti get to understand how the world works and it filters down, slowly, sans outrage.
I’m sure Ilargi will agree in regard to central bank balance sheet expansion is that we are damned if they do and damned if they don’t. Like so many other things now both economic and environmental we are facing true dilemmas. The proper definition of dilemma is a choice between undesirable or even impossible alternatives. I think the definition in most peoples minds today is simply a hard choice. The choices are not hard here they are impossible or as an old US saying goes the choice between the devil and the deep blue sea.
Prichard’s comments are sort of hard to put in context. Is he saying or advocating for more central bank action? Since the article presents the balance sheet contraction as a mistake, I think. I douby he comes from an AE context.
In making the impossible choice I would choose taper but nobody in power who wants to stay there will. The results will be terrible, but sooner rather than later with another and bigger stab of printing and asset inflation or at least asset non severe deflation. I am certain the Fed will reverse course at some point and so will the ECB. I don’t think we are yet in a bear market. If we were then monster bear market rallies could be expected to coincide with central bank announcements of more printing. If the current snap back rally holds, above S&P 1740 say then we are in no mans land for awhile.
“And I’m naive enough that I don’t understand why people let that happen.”
Yes it is more than a little naive. The naive mistake I think is to imagine that in modern representative democracies that things can happen starting at the bottom. What is needed is institutional leaders to take up a cause or an idea. The civil rights movement in the US was not a success that sprang simply from the bottom. Powerful people and their institutions, including Lyndon Johnson’s Democratic party came along and lead change.
There is not as far as I know more than a tiny handful of people with institutional power, be it governmental (Elizabeth Warren or a few others) , corporate or the large area between the two, who believes there is anything other than what I will call the neo liberal orthodoxy that can or should operate our political economy. (Political Economy is a rather antiquated term admittedly) That orthodoxy being the belief in markets as the arbiter of most everything and not just markets but the ones we have now.
One simply does not get to positions of institutional power or even usually seek it anymore if you have any kind of alternate view of how the world works or should work. We can be absolutely certain that there was not a single person in the corporate or government world in either a position of power or given a public forum who was sympathetic to something like Occupy Wall Street. An example I choose because it was organized for political action but no leaders took up the cause. Instead it was denigrated. As I knew it would be. It was a Quixotic effort. So how are people going to rise up? For what? They don’t even know. There is not even any language for them to use. Only the the ideas and words of reaction supplied by the right to the growing right rump of the GOP.
In America there has never been a peoples movement that did a thing on its own.
This all is a profound danger. If, or when, the AE scenarios begin to unfold there will be an absolute political vacuum. Of course there was a vacuum from 1929 to 33 as well.
https://goldsilverchat.com/gsc/archive/index.php/t-4088.html
But FDR had a small but significant army of alt thinkers to draw on when he came in and his own ideas about the nature of the banking and financial elites.
“Primarily this is because the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.
True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.
The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.”
Try to imagine who could even hint at such things now.
Corruption is inevitable in a one party state. Not that corruption is absent anywhere but it’s always worst in single party states. I used to ponder this about China but began to think of not corruption so much as just the sheer volume of money that is exiting. If the money is ill gotten or not is perhaps secondary. At least as far as the global financial system. Of course it could be a gigantic issue in China starting as a domestic political problem. Trying to predict anything about that is probably impossible or extrapolating the global consequences would be impossible times ten.
These articles giving numbers to offshore money give some indication of the scale. But how much if the money is in the control of the individuals and how much is invested on their behalf by managers? Individuals probably would not liquidate but what about wealth managers and funds? Could such funds end up being orphaned by disappearing managers or individuals who are prevented from or unable to manage the accounts? Are very wealthy individuals leaving with their families so as to help guarantee access to their assets.? Are many planning too if the political situation gets volatile? Questions abound.
Maybe the first issue will be a slowing of money flowing out of China into the global financial system? The visible liquidity situation as followed by Lee Adler has the current situation as extremely positive yet the markets in the new year are anything but. Could Chinese flows, lack of same, or liquidations be playing a part? I wouldn’t bet against it.
Somebody mentioned that this China Credit Trust default warning would be a very odd trigger for a panic because it is so visible so far in advance. The markets never ring a bell to announce a real big move. Such well publicized stories usually act as a hook to get the max amount of people on the wrong side of a trade. If everyone is talking about Jan 31 as a D Day, don’t count on it.
Probably 90% of Americans have no idea that debt has two sides. The borrower gets the money and that they understand. But then they think the other side is the lender gets the money back as the debt is paid, end of story. That isn’t the end of the story at all. For the lender that loan is an asset on a balance sheet and balance sheets have to balance.
Or do they? Since most people don’t know that debts are assets on balance sheets they don’t care about balance sheets. If nobody cares about balance sheets then it in theory could make no difference if the balance sheet doesn’t balance. Since mark to market accounting was thrown out the window we are already have put balance sheets behind us. Nobody has to declare bankruptcy if their balance sheet doesn’t balance. The balance sheet is no longer a determinate of bankruptcy. What forces bankruptcy of a bank or financial institution is if they can meet their obligations today. Flood the world with liquidity today and the system continues on today.
A whole school called Modern Monetary Theory, propounded by liberals especially of the neo variety, banishes the idea of a central bank balance sheet. They propose that central banks simply print money and hand it out. No need to get an asset in return. While the naive followers of this think the money could and would be given to citizens, somehow, we know that won’t happen. It will be given out to the financial sphere. In essence this is what is going on already. The Fed prints and in return takes financial assets, Treasury paper and MBS, but they price they pay is inflated because of, guess what? Their previous purchase of those assets. A virtuous circle is created. They are not officially getting nothing in return, just getting less and less, except it does not look like less on their balance sheet. The one they still keep for appearances and out of tradition or habit I suppose but nobody really cares about that silly old balance sheet anyway.
Sorry to be so long winded. What I am trying to get at is financial and government debt does not have to collapse under this regime until someone says the emperor has no clothes. The the only ones watching the parade are partners with the emperor. The only reporters at the parade are partners with the emperor. Well there are other reporters but they are not ‘credible’ and are perhaps enemies. What I am trying to say is the US and other favored nations could keep this game going for a very long time. Keeping the financial and government economy running, as the people economy runs down. If nobody can or will say BAC or the Treasury or the Fed is bankrupt, then they aren’t bankrupt, today, as long as they system is liquid.
I am sure this isn’t clear.
I believe it is possible that the US can be the last to suffer any of the worst of these bad outcomes or otherwise suffer them the least, and last. Which would serve to mitigate the problems for our elites and permit their retention of power.
Even if America’s absolute condition is falling if it’s relative strength rises then time can be bought to maintain many elements of the status quo.
I am just saying that such is possible.
The number of imponderables is big but don’t forget the Army and the state owned enterprises, which to complicate things overlap. Don’t forget single party states succumb to corruptions quickly and Chinese culture has never shown a particular ability to avoid corruption. Don’t forget that certainly some very wealthy Chinese are surely working overtime to move their assets out, which is where the JPM’s of the world might be playing a part.
Don’t forget that when domestic political problems become acute political leaders find military threats if not actions a seductive way to deflect the pressure. China hardly being the only place where war and rumors of war are a possible strategy. I am not predicting super power war but such does offer a possible way the the financial and monetary systems could dislocate. Presumably with current leaders thinking it would be a way to avoid blame for economic failure and so be able to retain power and even get more. That does not even have to be a conscious strategy on their part. It’s easy enough for leaders to mistake what’s good for them as being good for the nation.
Doug Noland addresses this power relationship between the banks and the central bank by always noting it is far far easier for the latter to loosen than tighten. Tighten and the banks and the financial players may just just threaten to blow the whole thing up. Leaving the central bank on the horns of a dilemma. In the end they always have to relent so they can live another day. It’s rarely understood in terms of power but that is exactly what it is.
The world over the elites are gaining wealth from the flow of funds and asset inflation engendered by the credit bubble. While the Fed doesn’t have the slightest interest in upsetting the apple cart of the rich even if they did, like the PBOC they wouldn’t have the balls.
Corporations have value and people don’t. That’s all you really need to know. This is the dominant narrative of our culture and Professor Perry is perfectly in tune with it.
As I have said before corporations have become the dominant human organizational model. So it follows that corporations whose very existence is founded upon their capitalization will hold those values as supreme.
We are in a phase where corporations and government are fighting out what powers each will have. In the West there is not a single elected government that is not eager to cede all sorts of power to corporations. In part of course because corporations have such a powerful influence on which politicians lead governments. So it isn’t really a fair fight and so also as I say and will repeat; corporations are the dominant human organizational model. Superior to people,or super people because as we know in the eyes of the law corporations are people too. You see how circular it all is?
“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”
The problem is that monetary policy can’t do these things. This was the Humphrey Hawkins bill and it marked the end of governance as we knew it. It soon followed that the Fed was full of people who were eager to take on the impossible task and so here we are. The Fed lead by people who believe despite the fact that almost nobody else who understands finance does, but most of who are happy to cash in.
Half of the richest counties in the country adjacent to the Imperial Capital where things have never ever been better by several orders of magnitude. One does not sense any possibility of change.
From perspective of the US elites, the language of large banks who are Fed Primary Dealers, the apparent disconnect is an illusion born of what isn’t said. What isn’t said is that a large lower class and a small very wealthy upper class is the ideal society. Such is a conservative society.
It is a liberal idea that the majority of people can live in relative prosperity. This worms its way into the AE narrative in interesting ways. We know that prosperity for the majority on the traditional model is going to be impossible. Now we may not like the shape of the Conservative narrative but in general it is more realistic. If what passes for liberals now were more honest they would argue that we are still very wealthy and there is enough to go around to reverse the slide of the middle and lower classes but they can’t say that because it means redistribution, never mind that the wealth has already been redistributed to the top, so they cling to growth. For the most part ‘growth’ spurred by monetary means. Which of course leads to more unequal distribution, in a vicious circle.
Meanwhile Conservatives revel in thoughts of real suffering for the lower class for they believe that the fear of loss of everything will make people more conservative.
In the Conservative ideal people know their place. They know their class and expect to stay there. De Tocqueville addressed this in his Democracy in America from the perspective of a noble, a Conservative. He thought people would be happier and better served if they accepted their class and did not strive so much. Isn’t this how all those seeking a more sustainable simpler maybe debt free life embracing?
In general the political economy in the US is now prepared to abandon, as Mitt Romney identified 47% but let’s say half. For the 5th to 7th decile things will be OK and for the rest on up they will be great. This is the Nomura perspective.
It needs mention that in the US this embrace of a lower class in insuperable from race. Recall that non whites are approaching a majority here. It is no coincidence that this is the number now embraced.
This idea is pipe dream. He’s saying 5 years. Sure. Well maybe in a few tony suburbs as a demonstration. Where all dwellings are single family on large lots with no riffraff to steal the items or the drone itself or to vandalize it. All while losing more money than they usually lose on a sale. Recall Amazon makes no money and forget all that ‘because of capital investment’ stuff. Amazon is not making particularly large capital investments now compared to most corporations. More than pure tech companies sure but for a retailer not so much.
Those drone components, should they be built, will be in high demand going forward. I am sure those here can imagine how and why in 5 or 10 years the demand for advanced drone hardware will not be fueled by just fun loving backyard hobbyists.
Large multi national corporations are sovereign or at least approaching it. The problem now is governments still claim sovereignty so there is a dust up over which power is sovereign over what. It’s kind of a dual sovereignty system. Corporations have almost achieved sovereignty over money. Not by force but simply by convincing anyone who can achieve political or government backed power that corporate interests are in the interest of the common good. Oddly the only common good that is accepted as being define-able or recognizable comes out of things that allow corporate profits. It’s really all a stunning intellectual achievement. Well if historical trends are an intellectual affair. Maybe a better word is cognitave, as in cognative shift.
Let’s face it, central government have not always been a benign organizational model over the last 100, 500 or 8000 years. So if the environment allows it I posit that a newer form of human organization based upon corporations will continue to evolve.
Admittedly I have spent very little time outside the US but I am going to make an assertion anyway that pertains to this. That is American’s above all people defer to money more than people of any other place on earth. The more wealth an individual or company has or is thought to have the more citizens and institutions will defer to them. Wealth defers not just deference but respect. If the sums are large enough then respect and deference is almost absolute.
de Tocqueville noted this and attributed it largely to the idea that everyone deferred to the wealthy in order to have some chance of getting a part if it for themselves. It is also basically true that anyone who gets paid to comment about news and policy would be blocked from career advancement in the mainstream media, where the money is, if they dumped on Dimon or JPM. The same holds for government institutional leaders, regulators and law enforcement.
Obama has repeatedly met with financial and banking top executives and always speaks deferentially about them afterwards. The most rabid of right wing talking politicians never ever speak ill Wall Street. At least there, 100 and more years ago, populists of what we now call the right were active enemies of The Street but no more.
There is nobody within 2 degrees of separation of government executive power in Federal or State governments who would even consider taking JPM’s “licence”. Nobody who would think such thoughts could possibly rise to power in the first place. Not in America nor increasingly in the rest of the world.
RE 8195 “and when that tsunami of liquidity finally hit’s the streets, “
There appears to me no way for those bank deposits to ‘hit the street’. Unless people go on a borrowing binge and that isn’t going to happen.
Let’s follow the money. The Fed buys Treasury paper and MBS from those that have them. The sellers in turn buy mostly other financial assets from those who have them and so on and so forth and the money is every step along the way is a bank deposit. So note that for the most part it is assets which inflate and the money stays in the financial economy.
Now some of the money is being put closer to the real jobs economy via increased mortgage lending but there again the main effect is the increase in prices of real estate and we can be almost certain the sellers are plowing the sale proceeds back into RE.
The level of government borrowing is no effected by QE, only their cost of borrowing. Government borrowing and the previously gigantic but now shrinking deficits were a way for the Feds purchases to be intermediated, ie. put out into the real people real jobs economy. The deficit shrunk more than 40% last year.
I’m open to suggestions on how Fed ‘printed money’ is going to find it’s way into the non financial economy because I don’t see it now.
As a side note if the prices of the assets inflated by Fed ‘printed money’ falls then the ‘money’ would disappear, as the assets deflated.
We knew Bernanke was lying when he said the latest QE round is supposed to help the jobs economy. That was almost a year ago and it is now fully mainstream that QE doesn’t do that. However nobody in the mainstream says he was and is lying, the never do when a persons job demands they lie and really everyone with a good executive position job in the world has to lie.
Everyone has to speak the company line, the Party line, the government line. Not doing so is the essence of a whistle blower. The stupendous majority of people climbing the rungs of any organization have internalized this. They accept it and celebrate it. They hold loyalty to the organization as the highest standard. They self select.
Everyone expects these persons to lie. So they lie even though they know we know they are lying. It’s their job after all. I always like to go back to the famous tobacco executive hearing. Everyone remembers this.
https://www.youtube.com/watch?v=jQUNk5meJHs
Note the congressman asks “if they believe nicotine is addictive”. He probably didn’t quite know it but by asking the question that way, instead of just asking as a point of fact if it is he was giving them permission to lie. Once ‘belief’ is made part of it then no lie can ever be proven. Still, we knew they were lying but could not be convicted of it.
At any rate most probably don’t remember that they knew the executives were lying because they had to lie as part of their job. And some part of everyone understood this and forgave it. It’s just how the world works.
Now around places like this, dusty corners of the internet, where non company, non party, non government people roam and protecting their organization and thus themselves is not part of the equation ideas run free. However they carry no weight. If anyone here would by chance enter into an organization with a mind to advance, oblivious to the necessities of being a ‘company’ man they will soon be weeded out.
I’m not sure why Bernake lied about the reason for QE. It doesn’t really matter.
The thing which pops into my mind is that savings in bank deposits and maybe money market accounts are minuscule in the big picture.
To really tax ‘savings’ one would have to tax assets, presumably on some mark to market basis. Well why even think about such things, it’s impossible. Impossible functionally to do and politically impossible to even enact . One can suppose taxing cash equivalent savings might be doable but I doubt it would add up to all that much. Not enough to be a game changer to reset the system.
It’s all rather sad really. Them having to go down this rabbit hole. A rabbit hole with a dead end.
Our American conservatives know instinctively but usually not consciously that poverty and even slavery are a precondition of freedom. If American had never had slavery it would never have been free. All those pictures of child laborers in the South AE is so fond of represent the widespread poverty of the region which in fact is an ideal held by the powerful conservative minority represented by the states of the Confederacy who dictate our politics today.
I know it all seems non nonsensical. The first thing to understand is the modern conservatives in the US, England and to some extent other Western countries want firstly a proper social order. An order where people know their place. Prosperity is actually anathema to that proper order for it makes people think they can rise, take risks, go it alone. All things destructive of a well ordered conservative society. All the nostalgia for the old South brushes right up against all this but never admits it. De Tocqueville specifically addressed the Conservative idea he shared that a better and happier society was one where people knew and accepted their class, their place.
The growth thing is really a liberal idea more than a conservative one. Decry as one might about the desire for more poverty and all the baggage which goes along with that the sad fact is that Conservatives are more in tune with what is happening and will continue to than liberals who think austerity is an option.
