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Too many errors in this sorry excuse of a blog post to take it seriously. Too many errors to respond to in a timely way.
Sad to see Automatic Earth turn into Daily Caller.
Citing the morons at Zero Hedge is never a good look.
BTW: the media is owned by a small handful of billionaires (including the media in Russia and China) so what do you expect?
Trump or anyone else cannot ‘weaken’ the dollar because of its relationship to petroleum.
A weaker dollar = higher petroleum price that nobody an afford to pay.
Since the US is the largest consumer (waster) of petroleum, the dollar-fuel relationship is hard to break. The US would have to ‘go off’ oil, and that does not appear to happen any time soon.
The banks can lend but not forgive unless coerced.
Governments can create money but don’t. There are laws against doing so favoring the banking monopoly.
If government changed the laws and issued money it would reduce exposure which would ultimately benefit the banks. Yet, they would be up in arms, not because they collect interest but because they collect collateral which is generally worth more than the original loan.
Not saying it could not be done but a combination of coercion and persuasion would be required.
” .. grief doesn’t occur only when we lose loved ones. Ask anyone who has seen a local forest they once played in as a child demolished for another cookie-cutter development or has watched as fewer bees and butterflies show up in their garden each summer. Or ask any conservationist who has to witness year-after-year as the species they work with slowly vanish, ask any marine biologist about coral reefs or any Arctic biologist about sea ice. Grief can extend far beyond our human parochialism. “We realized that there was a hunger for a way of grieving ecological loss through ritual,”
Easy, jump in the car and drive around the block a few times. “This is for you, species!”
The more things change the more they remain the same.
“It’ll have to be back all the way to Henry Ford, paying people more so they can afford what they produce”.
Where did Ford get the money? A: he borrowed it, first from his own investors- and partners’ banks and later from his customers’ banks. The nominal amounts were smaller during Fords’ time but the amounts represented debts in proportion to those today. The Great Depression was the deflating of the debt bubble created on to finance Ford’s industry and all those car makers.
“There was a time when America worked for its money, for its homes, for its cars, its healthcare, for the education of its children. There was a time when America produced and sold enough to be able to afford all that.”
Where did the employers get the money to pay the workers? A: They borrowed the money from their customers’ banks; from the banks of their customers’ bosses’, from their customers’ bosses’ customers’ banks, and their customers’ — and workers’ — banks and from the bank workers’ banks … from daisy-chains of millions of smaller loans aggregated into a vast debt tsunami. Wherever the customers ‘came up short’ they borrowed as they do it today, as they borrowed hundreds of years ago.
Work does not produce money, banks do, Debt is neither a vice nor is an option to be done without, it is the prop for all industry: no debt = no industry.
Regarding, “Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars.”
First of all, a car is a car petrol fueled or not. The steel, glass, plastic and fibers used in the making of the car requires fossil fuel to produce. The electricity to run electric cars is generated using fossil fuels (in Germany, lignite which is the poorest quality coal). The roads, fuel distribution infrastructure, the real estate (destinations), insurance, government, finance and even militaries are fossil fuel dependence. Neither excavators or jet fighters can be propelled using solar panels. Hundreds of trillion$ of dollars of loans cannot be rolled over by way of a handful of wind turbines.
Even nuclear reactors are fossil fuel dependent, requiring consumption for mining, processing, transport, construction, disposal and finance,
In addition, the whole shebang is dependent upon credit: without credit there is no industry. If it were otherwise the industries would have paid for themselves already and there would be no debts!
Our economy is fraud and false beliefs. Don’t just ban gas cars, ban ALL the cars.
Not that it matters but North Slope Prudhoe Bay play contained 25± billion barrels proved whereas US shale plays (EIA) = 13 bn barrels. At current rate of consumption shale plays would provide the world with about 2 months of supply. That this makes any sort of difference other than in the most speculative sense is irrelevant.
The problem is the absence of any real returns — of any kind — for the majority of end users. Yet someone must pay somehow: that is by way debts that have become so large they cannot be retired (even serviced) except by taking on even more debts … overly indebted is where we are right now.
As debt increases, finance capitalization deteriorates, so does the ability to finance more fuel extraction as well as to roll over maturing loans.
This absence of return for the hundreds of millions of end users is the black hole in the center of the industrial economy that nobody — including economists and policy makers — dares to discuss. The implications are too profound … that we are bankrupted by our precious toys. That trying to expand the economy by increasing (fuel) demand is suicidal.
UK abandons the sinking EU ship because it has to.
City of London banks have £6+ trillion external balance sheet with dicey assets on one side of the ledger. The City cannot finance itself any more much less the rest of the country … and its massive fleet of non-remunerative, fuel guzzling automobiles.
The 31 million cars — the resource equivalent to 630 million additional Britons — have bankrupted both UK and the EU (and USA and China): the Brexit vote is the English voting against their cars.May 26, 2016 at 5:15 am in reply to: Brexit: Wrong Discussion, Wrong People, Wrong Arguments #28353
Nothing will change, Britain will remain within the EU which itself will be duct taped and wired together even as it loses relevance. All is to be sacrificed for the euro.
No euro = no gasoline. No gasoline = no cars … that is the end of the world, Europe without cars may as well be Syria or Yemen.
RE: Immigration into Europe: now we know how Rome ‘fell’; millions of economic refugees from northern lands seeking work in the prosperous Empire.
The Green program cannot solve anything as all funds including debt repayments must be borrowed. In Europe, the source for euro-denominated loans is German and French banks.
No matter which direction the streams of funds wish to flow the source is the same German and French banks, everyone else is an intermediary (rentier): ECB, IMF, ISM, etc. The only way to reduce debt in one area is to increase it elsewhere.
At bottom the debts will be repudiated and everyone in Europe will suffer. The cost will be measured in the depth of Europe’s ruin. Keep in mind, there is no more growth, the means to recover after calamities does not exist. Europeans must be careful, to look past the numbers offered by bankers and politicians and decide for themselves what matters: fake Las Vegas-style ‘prosperity’, money-wealth and wasteful lifestyles or some alternative way of existence that does not require energy imports … financed with tens (or hundreds) of trillions of borrowed euros. The problem in Europe and elsewhere is not the pensioners or even governments but hulks at the end of the continent’s driveways.
The Europeans have a choice, they can either live in Tuscany or they can live Syria. Drive a car = borrow money = Syria.
The cost to extract petroleum is greater than what can be earned by way of its use which is simply waste. What pays for fuel are trillion$ in loans. The credit regime is falling apart, not the petroleum industry (although that is going to fail as well).
There is nothing the establishment can do about it. More easing/QE = more bankrupt customers = less bid for fuel. Cutting extraction will bankrupt more customers and the bid will vanish. Increasing extraction will simply dump excess fuel onto the markets. The same bankrupt customers who cannot afford fuel are looked to pay for tax cuts and other driller subsidies. This ignores the +5 years of subsidies for drillers already, including ZIRP and bottomless moral hazard. There is no bid because of the effect of these subsidies on the customers … who now have no means to pay.
Price does not reflect the cost to extract but the (negative) return on consumption = Conservation by Other Means.
We are all Greeks, now. Enjoy your car-free future!
Oil prices have declined b/c customers lack access to sufficient credit to bid the prices higher.
Credit system appears to be broken, partly a consequence of major countries’ monetary easing, which shifts purchasing power from customers to big businesses and their lenders. There are two outcomes: customers are broke, ballooning big business debts cannot be serviced either by the businesses themselves or their broke customers. After that = insolvency.
The problem in our economy has been energy shortages all along. Oil availability ‘peaked’ in 1998 and it has been downhill ever since.
The current price decline has fingerprints of Bank of Japan all over it. More easing = more declines. Draghi’s promise of euro QE has affected the price, actual easing will knock another $20 off Brent; (the price in euros will remain as current as depreciation of euro will = decline of dollar price of fuel.)
Keep in mind, what is being priced in oil markets is not cost of extraction but the actual return on consumption (most of which is simply non-remunerative automobile waste). About 5% of energy consumption since beginning of industrial age has been/is directly remunerative (farm tractors, delivery, transit, construction and emergency vehicles, etc.) only returns from these uses are available to bid for- and purchase fuel. Look for about $8 – $10/barrel when all is said and done.
Oh yeah … and it stays down there, too. Nobody has any money; no real productivity.
Syriza and Greeks don’t like austerity any more than the French did but it doesn’t matter. Austerity is not the fashion it is inescapable reality.
Also reality: euro = gasoline. If Greece wants to de-car itself it should go back to the drachma and see how many oil exporters will accept it … Syriza looks to be part of another positive feedback loop that reinforces dollar preference. A depreciated euro = less gasoline, conservation by other means.December 25, 2014 at 3:06 am in reply to: Broken Energy Markets and the Downside of Hubbert’s Peak #17803
Just dropping by to say that central banks cannot ‘print money’ or create new credit. What they can do is shift bits of purchasing power around to their clients from everyone else. If you take fifteen minutes and think about it you can see how silly it is for any firm to simply give away its product willy-nilly. What the central banks do is lend against collateral … which tends to be the IOU for a loan that has been already made. By making unsecured loans commercial banks create new money, that is, money (credit) that did not exist in any form before the loan was made.
Purchasing power flows from customers to oil drillers leaving too few with funds able to support high prices. What appears to have caused the oil price crash is Abenomics which has contributed to the decline of the yen by 35% in a matter of months. That means Japanese customers = 35% poorer, taking a bite out of global consumption. American- and S. European non-speculators are also broke = more bites out of consumption. China is slowing down … you get the picture.
Assuming peak oil was supposed to take place in the future: the ongoing crash means it is happening right now. All your tar sand, deepwater, arctic and fracking plays are too costly to pursue, so are oil plays where above ground costs have ballooned out of control such as in Iran where corrupt fingers of government are in the oil pie.
Energy deflation is running away on its own, Saudi oil minister is simply admitting it. There is nothing they can do but hold on and pray. We should do the same.
The idea that the US (government? Central bank? Musicians’ union?) can ‘bail out the US energy sector’ is absurd.
It is like grabbing your shoes and pulling up. You cannot pull yourself off the ground no matter how hard you try.
The establishment can shift funds from customers to drillers … or annihilate purchasing power altogether by making costly errors. It can add (or subtract) claims but the establishment cannot create some new form of fuel with which to bail. After all, the US energy sector’s product was just that: a new form of fuel, ‘unconventional’ crude.
Keep in mind, central banks have been shifting funds from customers to drillers (and bankers) since 2009 and the result can be seen in the lower prices! Customers are broke! They can’t (won’t) get credit. This plunge has fingerprints of Bank of Japan all over it: the Japanese are 35% broker than they were before Abenomics due to the collapse in the price of the yen! Some bailout …
The current oil price decline is structural in nature rather than a market defect. Market defects are price distortions. Customer insolvency has been caused by proportionately high energy prices since 2000: our consumption infrastructure is non-productive, fuel use is non-remunerative. High real prices are the outcome of increased scarcity: to make use of fuel we borrow as we cannot earn. Driving the car does not pay for it, what pays is debt. Exponential growth of loans has rendered insolvent those responsible for rolling these loans over — the customers.
Look at it this way: what is being priced lower is not extraction efficiency but the worth of the consumption regime. This regime is non-productive, it always has been, it has always required a massive debt subsidy. Exeunt the subsidy and the expected price of crude in such a regime is zero (or negative). It is not hard to calculate how little oil will be extracted under the circumstances because all the easy-to-extract forms have already been pillaged.
That the crisis has taken the form of lower crude prices has caught analysts by surprise but that is a defect on the part of the analysts not of the markets. There is nothing to ‘bail out’, only reality to deny.
BTW: some government action is inevitable but it will likely take the form of either another invasion of another country (Venezuela?) or gasoline rationing. Neither one will work.September 18, 2014 at 7:00 pm in reply to: Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash #15230
Su-25 does not fly @ enough altitude to attack passenger jet w/ machine cannon. It is a ground attack aircraft like US A-10.
Discredits the entire report, written by amateurs w/ axe to grind.September 4, 2014 at 2:40 pm in reply to: Debt Rattle Sep 2 2014: This Is As Big As We Will Get #14981
All growth is net increase in real unsecured debt. (Once an IOU is produced by somebody-anybody the debt becomes instantly secured).
Growth = inflation.April 21, 2014 at 5:52 pm in reply to: Debt Rattle Apr 21 2014: The Twilight Of The Rising Sun #12444
Enough with the David Stockman and Zero Hedge, already.
Stockman is a crank who gets the history and the economics wrong, everything out of his mouth is creepy, self-serving, self-justifying drivel; his articles are like something written by Albert Speer.
Zero Hedge rants are also self-serving, stupid and flat out wrong. it’s bad enough to continually see Russia Today propaganda over here; Keiser is at least entertaining.
Thank you.March 21, 2014 at 12:14 am in reply to: Debt Rattle Mar 20 2014: An Unprecedented Opportunity #11875
Greece is cracking under the weight of dead money. Its streets are strewn with broken lives even as the same streets are choked with automobiles.
Greece has set its priorities; ‘Automobiles Uber Alles’, cars first, everything else second. Here is a broke country that relies on tourism and exports of olive oil to meet its hard currency needs. It can’t earn enough to buy the fuel needed to operate its non-remunerative auto fleet or the fleet itself … so it has to borrow. It borrows today and will need more loans tomorrow, either that or get rid of the cars.
The Greeks will allow half of their number to die off before they turn loose of their stupid toys. As long as there is one car operating in Greece that country will continue to unravel … until it is indistinguishable from hell-holes Somalia or Haiti.
Same for the rest of Europe, btw. It’s us or the toys, there is no other way.
Chinese cannot lend to US government and businesses b/c US consumers don’t buy as much Chinese poison dog food and lead-painted children’s toys.
Less dog food sales => less consumer borrowing => less dollar flows to China => fewer dollars to be lent back to US government to kick the ‘lending to China’ can down that road one more time.
Why less dog food sales? Previous rounds of sales have bankrupted US consumers. You cannot get blood out of a bag of poison dog food or a can, either. China is also burning candle at both ends: spending its remaining dollars on petroleum to feed its ballooning fleet of useless automobiles. Not only is US bankrupt but so is China. Both need bailouts!
At some point China joins Japan w/ trade deficit and that is the end for them just like trade deficit is knife in eyeball for Japan. Neither country can exist for long as industrial state on domestic energy production, they must import or die.
Both China and Japan have relied on US and European customers to finance these imports. No more.
Cars … poison dog food … 400 years of ‘progress’ have come to this. Good grief!February 6, 2014 at 12:15 am in reply to: Debt Rattle Feb 5 2014: From the Bernanke Put to the Yellen Trap #11095
Central banks cannot create money, they cannot offer unsecured loans. Sorry, they just can’t.
If they do they are busted, there are bank runs … because then there are no lenders of last resort.
Money increase is due to private sector lending = Wall Street finance along with City of London and Frankfurt lending. Central banks can front-run on interest rates but that’s about it.
Tapering is ‘au courant’ because it doesn’t matter in the real world whether it is taking place or not. However, the Fed cannot afford to be ‘caught out’ … seen as irrelevant otherwise it would be irrelevant. Afterwards, bank runs … because then there are no lenders of last resort.
Remember, Walter Bagehot’s famous remark about bankers and credit applies to central banks as well.
: )February 3, 2014 at 8:53 pm in reply to: Nicole Foss Talks About David Holmgren’s Crash on Demand: Podcast #11036
MoFlora, the player appears on Safari, not on Firefox.
If course the recovery is paid for with debt, there is no other way.
The preceding boom was paid for with debt as it was the recovery from the preceding bust. The boom before that was fueled by debt and so was the boom before that.
Our money is debt how could booms or busts be anything else?
In the old days there was that first round of debt: a dozen post cards for fifteen cents. This was paid for with the second round of debt @ twenty cents then the third which paid for the second round @ thirty cents and what remained of the first. Followed by the fourth, fifth, sixth-seventh-eighth … on and on and on. “I pay with cash …” you cry! Not really, your boss borrows from his customers’ banks whose money is lent to your sellers’ banks depending on what it is you ‘buy’. The customers borrow from their bosses’ customers’ banks and so do their bosses. On and on it goes: the country-world is made up of daisy chains of loans, amounting now in 2014 to hundreds of trillions of dollars worth which will never, ever be repaid.
… and it all started with a dozen post cards.
Next thing we will talk about is the ‘productivity of industry’ … (chortle, chortle)
Some runs the bank offered pennies (USA during the Great Depression) some bank runs the bank offered $1,000,000,000,000 bills (Zimbabwe during their Great Financial Crisis).
There are all kinds of bank runs: the Chinese buying houses in Detroit is a bank run (out of Chinese banks), so are Japanese companies buying multi-billion dollar US companies (a run out of yen). Indians buying gold is a run out of rupees … as well as Indian banks. If the loans held by banks are large (deposits) and redemption demand is severe and instantaneous, the banks run out of ‘money’ (GFC in US such as Wachovia bank or Lehman Brothers). Of course multi-billion dollar electronic transfers from one bank to another does not require the printing of bills and is not considered to be hyper-inflationary it nevertheless is a run.
In both instances, the bankers hope that the panic ends before their funds ‘run low’ and the bank must close. Both are incentives for other depositors to remove their funds even more quickly before the pennies or billion-dollar bills run out. You are right about one thing: the singular characteristic of both and other instances is the time pressure on both depositors and bankers: for the depositors to gain their funds as quickly and surely as possible and for the bankers to evade that demand … one way or the other.
A better question is whether it is possible to have hyperinflation with electronic money, I’m not sure I can shed much light on that …January 1, 2014 at 4:57 am in reply to: The Taper And The China Credit Power Struggle Squeeze #10142
@ ilargi says:
National Photo Co. Roller Coaster Dips, Montgomery County, Maryland 1928
I rode that roller coaster back in the 1960s when Glen Echo was still an amusement park.
It was indeed death-defying.
@ njparkin says:
“Why could the Central Banks not deposit $10k in everyone ‘s bank account with a key stroke or better yet insist on 10ks worth of debt repayment.”
Central banks are collateral constrained, that is, they cannot lend without accepting collateral in equal- or greater amounts. The CB’s always lend, they never offer gifts and indeed cannot without destroying themselves (they have no capital structure).
Central banks cannot create ‘new money’ and in fact do not do so. Central banks cannot cause inflation by themselves. This is the unending big lie of libertarians and so-called Austrian ‘economists’. The private sector creates all new money by making unsecured loans. As it is, the increase of unsecured loans = ‘economic growth’. Unsecured loans ARE inflation, not the cause of it.
Central banks making unsecured loans = system run as there is no lender of last resort.
Hyperinflation is not out of the question. Hyperinflation is not the increase in ordinary inflation but a currency phenomenon: the US holds +$7 trillion in insured deposits but only -$500 billion in cash currency (there is more overseas). In the event of a major bank shutdown and/or ‘holiday’ there will be massive demand for currency … rather than bank wire transfers from one insolvent bank to others. Excess leverage would be the cause of the holiday or the run caused by the central bank making unsecured loans. Because governments can never under such circumstances keep up with the demand for paper bills the temptation is for them to offer bills in extremely large denominations: in other words, instead of the bank offering 1,000 hundred dollar bills to a depositor, he is given a single $100,000 bill. As these circulate: the floor becomes the ceiling and the $100k bill is replaced by the $1,000,000 bill and $10,000,000 bill. Remember, bank depositors are unsecured lenders to their own banks: it is the banks rather than their creditors who would demand the large-denominations. Keep in mind, one of the characteristics of hyperinflation is the apparent ‘demand’ for currency even as larger and larger notational amounts keep circulating.
Among other things, hyperinflation = cynical tactic on the part of the establishment to keep banks open and public distracted with the need to ‘chase’ their own funds.
Demurrage money: no place has used it for a long period, there has also been little- or no use in a place where an effort is made to evade the demurrage cost. That would be done by ‘leasing’ the money at a rate higher than the stamp fee which is simply another form of lending at interest. Banks in Austria could not do this as the worgl were held outside of them: this has to be a reason why the experiment ended: no one was willing to lend the worgl @ interest or pay the higher cost incurred by borrowing.
The demise of the worgl is unclear as it has been buried under an assumption: crushed by the Austrian central bank. It is possible that worgl succeeded due to circumstances unique to the time and place including payments in schillings to the town from both remittances and from the capital. There are other interesting aspects including seigniorage gains to the issuer and currency worth gained because of holders failing to redeem their funds in schillings. It is not clear whether the worgl would have functioned without the demurrage feature (making it easier to lend). See:
Local currencies: it is the need for items outside of the locality which unravels local currencies which are just that. The discounting of ‘bank tender’ in the 19th century US free-banking era is what put an end to it. Boston bank dollars were not useful in Philadelphia or Savannah, Georgia except at punitive discounts. After awhile, the businesses demanded a real ‘national money’ that could be exchanged without a fee for time and distance.
The decline of the dollar = the decline of US petroleum imports exchanged for (false) promises. I entertain myself by imagining Americans trying to live without their precious cars … it is going to be almighty entertaining.
“And that’s not even half the story. The banks that buy the sovereign bonds with ECB money/credit turn right around and offer those same bonds, which are listed as “safe”, or “cash good collateral”, to the ECB the next day as collateral in exchange for more loans. With which they proceed to buy more sovereign bonds, which provides wiggle room to their governments etc. It carries the strong odor of a scam, if not a Ponzi scheme. “
When a central bank makes unsecured loans it is instantly and permanently insolvent for the same reason as its clients … too much leverage.
What matters at that point is who notices whether the central bank is lending in this way?
One insolvent bank cannot bail out another insolvent bank => there is no effective lender of last resort => incentive for Southern Europeans to open accounts in Germany => bank runs, run in euros toward a near-certain deutschmark. The central bank making unsecured loans is fatal as no central bank hold more than the tiniest amount of capital.
If the central bank is insolvent its reserves are worthless, that is reserves created upon the ledger of the central bank. The ‘collateral’ for these are securities of the state in this case the entirety of the European Union. Because there is no coherent state what is ‘real’ collateral is the implied guarantee of Germany (and its ability to borrow).
However, Germany is unwilling to borrow …
It is common sense that reserves are inadequate to make whole the entirety of claims that can be lodged against them by depositors. In a panic, the depositors will not accept bank money nor will they have any repository for it, they will want cash-currency and it will not be had.
Instead of stability, the act of unsecured lending is incentive for depositors to be ‘the first out the door’.
In a world where automobile rules over all and is supreme in all things, money is priced @ gas pumps everywhere including Europe. Priced in crude, the euro has great worth: the central bank is irrelevant, it cannot fix anything even as its desperate hunt for legitimacy drives it to act in destructive ways … it can only make things much worse.December 3, 2013 at 3:20 am in reply to: How To Stop Jeff Bezos From Filling Our Skies With Drones #9531
Jam, Baby jam! A $50 police radar jammer was enough for the Iranians to gain control over a multi-million dollar drone belonging to the military.
Rajiv Sehti, Ken Rogoff and Susan Webber/Yves Smith are all wrong about central banking. Not just a little bit, either: they offer politically-motivated drivel/wishful thinking.
The Fed is a reserve bank not a depository institution. It’s job is to backstop deposit banks when the market mis-prices bank assets during a money panic. It does so by lending against these assets at par (face price). During a panic, the market discounts assets in ‘unpleasant ways’; the central bank insists that the market is temporarily wrong and backs its opinion with credit.
The central banks can hold reserves (they do not create reserves). Reserve amounts in excess of currency are for all practical purposes non-existent. They are assets that only appear as bank liabilities in the even of an extraordinary demand for them — shrinking deposit bank balance sheet as during a bank run.
QE is lending against assets; a) without a repurchase agreement, b) when the asset holders are insolvent rather than during a money panic, and c) when the cause of financial distress is outside the reach of monetary policy; the relentlessly increasing real cost of energy. QE = scraping the bottom of the barrel.
Sehti & Co.’s claim is as clueless as Susan Bair’s ‘suggestion’ that the Fed lend everyone $10 million. Only those with $10 mil in collateral can borrow from the central bank … anyone with that much unencumbered collateral doesn’t need a loan! People with no money need the loan and nobody will risk lending to them because they cannot service the loan … that is they cannot borrow. (Loans are serviced by refinancing them.)
Central banks have no capital structure, only balance sheets; there is very little capital and no equity to speak of. Fed capital is <$50bn yet is has a $3+ trillion balance sheet. However, assets and liabilities are equal, there is no leverage against collateral @ the Fed.
Think of the Fed as a giant pawn shop. It will lend you $500 (billion) but you have to hand over the Rolex watch. No watch, no $500. The Fed cannot lend $500 billion against a watch. It has no underwriting department. It cannot tell of the loan is good or bad. At the same time, if the Fed loaned $500 bn against a watch, all the other banks would show up @ the Fed’s doorway with watches. Long before that point the Fed would cease to be a serious institution => would be a joke, instead.
If the central bank leverages against its collateral it becomes instantly insolvent … and is so the same as the other insolvent deposit banks … and for the exact same reason. When the central bank becomes a deposit banks there is effectively no lender of last resort => no guarantor of assets => bank run.
This would be a bank run that could not be stopped by the central bank = it would be a run out of the currency. This run is already underway with all this foolish nonsense in the media about NGDP targeting, Abenomics and from the central banks themselves. This is the reason for the taper talk:
This is what a run out of dollars looks like, folks.
BTW: giving depositors incentives to flee is also a bank run, not likely that any bank would do so. Sometimes the things bankers say is simply gibberish.
Liabilities are impossible to guarantee b/c they are pledged as collateral as soon as they appear on the bank ledger. Any subsequent pledge(s) become … ‘excess claims against underlying real wealth’.
Insert gratuitous, well-deserved clubbing of Webber here, she’s clueless … I don’t know about the other dude but Rogoff should know better, he’s a paid economist. Next thing you know he will be saying the Fed prints money … oops, he did!
(Central banks don’t create new money, they cannot.)October 30, 2013 at 3:54 am in reply to: Energy Is A Power Game – 3 (They Cheat And They Lie) #8926
Heaven forbid the UK establishment demand that Britons use less gas or oil, they will let events reduce energy consumption for them.
Too bad the English don’t have products to offer in trade for fuels other than bad loans. That sort of thing went out of fashion when Maggie arrived as well.
Certainly, the 21st century will leave a lot of exotic ruins all over the place … empty concrete shells of reactor containments, rusting turbine masts looming hundreds of feet in the air, gas pipelines to nowhere, derelict oil drilling platforms … along with the crumbling and useless freeways, bridges, tunnels, car parks, towers … and the millions of rusting hulks that used to be the precious cars.
Funny thing is that Britons lived within their solar budget for thousands of years. They forgot … now = madness.
Anything by ‘Tyler Durden’ is simple garbage, why his/its nonsense is repeated over and over is hard to understand. I guess a lie repeated enough becomes the truth.
Central banks cannot create ‘new money’, they do not ‘print money’ they cannot do so. Central banks can only offer secured loans. Any loan (bond buying) by the central bank must be collateralized. The collateral offered are IOUs for loans already made. When the central banks lend they are simply changing custody of pledges.
Instead of repaying the issuing lender, the borrower pays the central bank instead.
Money is entirely created by the private sector, which can and do offer unsecured loans; against repledged collateral or against no collateral at all. (See Schumpeter, Keen)
+95% of private sector dollar debt is unsecured. US currency is secured 100%; the difference between currency in circulation and total booked debts is unsecured loans: in the US it is + $50 trillion.
Central banks cannot offer unsecured loans or they immediately fail. This is not a rule but a condition, like gravity. If the commercial banks are insolvent it is because they are overleveraged, that is, they have made unsecured loans that cannot be retired. When the central bank does the same thing as the commercial banks — or takes on the commercial banks’ loans as collateral — there is no discernible difference between the central bank and commercial banks. The entire system from top to bottom is perceived to be insolvent: there is no guarantor of bank liabilities, no real lender of last resort, only a bankrupt banking system and runs out of it … as are seen in Europe, Japan and China.
Capital flight is a run, BTW.
QE is an asset swap, BTW, there is no way the asset side of a bank’s balance sheet can migrate to the liability side where the bank’s depositors reside.
Durden should stick his head in a toilet and flush a few times.
The euro = gasoline.
” … if leaving half your children with the prospects of being condemned into meaningless lives, of being ostracized as modern day untouchables, is not enough to wake you up and say No Mas, you really need to wonder what is.”
Ordinary folks are throwing their children into the fire so that they might continue to drive cars.
The euro is strongly supported from the bottom up for this reason. Love of the car = love of heroin.March 18, 2013 at 10:42 am in reply to: The Cyprus Deal is Already Under Threat (Of Course) #7166
Bank runs have been underway in the EU since the first Greek bail almost 3 years ago. They ebb and flow but have never stopped.
Central banks’ strategy is to force dis-hoarding which is tantamount to triggering a ‘bank walk’ or a flight out of accounts into consumption. The use of negative real interest rates is the tactic, there are no earnings for savers/’hoarders’. The 10% levy is negative real rate, for example.
All this is pretty classic Keynes business. What is underway in Europe leaves out the necessary Keynes’ fiscal stimulus to replace private sector demand. In that instance there would be an economic return to depositors in place of the 10%. For instance, when Roosevelt took specie out of circulation in 1933, both the US money supply and the economy expanded about 100%. The trade of some gold for an improved economy was a good one.
There is to be no improvement in Cyprus as the problems are not simply money or credit. After this bailout will come others … until bailouts become impossible and the banks unravel.
Bank runs occur for different reasons. The biggest problem in the euro-banks isn’t tactics, but the ongoing bankruptcy of the system in its entirety and the lack of a real lender of last resort. The reason for this latter condition is the absence of good collateral and the (implied) requirement for central banks to make unsecured loans (in excess of collateral).
The managers simply don’t know what to do. This is because the problem is a shortage of capital rather than un-balanced ledgers or irregular credit flows. We moderns have burned up our capital and there is nothing particularly useful to show for the burning. What remains is some ‘currency’ deposited in bank accounts.
These deposits are the collateral for the entire finance system: all ‘assets’ within the credit system are leveraged against these currency deposits. Dis-hoarding is a failed strategy for two reasons: a) it removes collateral from the system, b) this in turn becomes an incentive for more collateral to vanish.
Ordinary consumption recycles collateral, forced dis-hoarding simply alters how collateral is hoarded, making it less accessible.
The nominal collateral is the euro-system’s assets which are nothing more than redundant debt-claims against a) other debt-claims and b) toxic gases in the atmosphere and some used cars. Europe is literally bankrupt, depositor funds are all that are left.
What the system managers don’t grasp is simple common sense: It does not matter who owns good collateral! What matters is that the collateral remain within the system, parked safely in bank accounts. This is why the entire structure of central banks, deposit insurance and other guarantees have been implemented over the past 200 years or so, to protect the banks and banking system, by guaranteeing bank customers’ deposits.
Now, all of this is unwound in an afternoon, for what gain? There is no point to collateral being ‘owned’ by bank preferred shareholders or senior creditors. These fellows might feel like they are ‘richer’ somehow but their exposure to asset deterioration has been increased by the amount of good collateral that they themselves have removed from the banking system!
When the collateral is gone there is no more system, which is now set on ‘self-destruct’. Welcome to Argentina!January 31, 2013 at 9:00 am in reply to: France Is Dead Broke, But At Least Its GDP Came In Positive #6860
France is bankrupt … never to become un-bankrupt. Never is a long time.
The other countries are bankrupt, too … the entire world is bankrupt. Once upon a fairy-tale time the world was rich with capital which over time was burned up for nothing using the instruments of entrepreneur-devils. What Europe has are some nice buildings … and a bunch of used cars … to show for all that capital it once had.
Prime Minister David Cameron has already said that Britain will ‘roll out the red carpet’ to attract wealthy French people.
The same wealthy people who have bankrupted Britain and all the other countries. ‘Entrepreneur’ and ‘innovator’ are big words that mean ‘thief’, France would be well rid of all of them.
Never is a long time: the world’s capital is exhausted, this is our crisis and nothing else.
“Steve from Virginia has it right: industrial society cannot pay for itself, [strike]at least until the thorium reactors or nuclear fusion give us the net energy to grow out of this massive debt … [/strike]
Industrial society cannot pay for itself, period. Neither fusion nor thorium reactors can pay for themselves for the same reason coal mines and oil fields do not, they cannot meet their combined life-cycle costs + externalities. We fool ourselves with credit and misused arithmetic, false analysis and politics.
We want what we want and lie to ourselves to get it.
Keen is a giant among ordinary economic men, this does not mean there are no grounds for criticism. First of all, Keen does not question the productivity or viability of industrialization itself (which is where our problems lie). As w/ Keynes, industrialization is assumed to be ‘a force for good’/a force of nature. Economists’ job is to make adjustments at the margins so as to keep the factories and businesses running properly.
Second of all, Keen critiques finance and debt management even though finance and debt management aren’t the central economic problem (the markets are fine and finance is an important component to any way out of our mess). The real problem is the illusion of industrial productivity: at-scale economic enterprises do not pay for themselves. Speculative ‘investments’ are made in purely financial instruments because there are no other investments to be made.
The only productive enterprises are those that don’t require credit or require very little: small-scale enterprises that rely on creativity/economic necessity rather than at-scale material transformation. For instance, a town filled with cobblers and cabinet makers is productive in that there are more shoes and sofas being produced every year and a good market for these things. However, there is nothing for a capitalist to invest in … there isn’t the appearance of great output to leverage. The capitalist lends to an ‘entrepreneur’ (thief) to open shoe- or furniture factories (in China) in order to steal the markets that belong to the town’s workers (by way of credit-subsidized lower prices).
“… calorie counting is and has never been the constraints on actual production–what is the restraints is there are a fixed number of hours in a day that a laborer can work. To go on and on about thermodynamics is pure absurdity …”
That is simply nonsense, it is calorie mis-counting. The illusion is that input materials are fairly priced which they are not. If a gallon of gasoline was priced equal to the amount of human labor it represents it would cost $1500 per gallon. It is this ‘saving’ — between what an input costs and what it would cost if priced alongside labor equivalents — that sets the boundaries of industries’ false- ‘productivity’. The subsidy only lasts as long as the material input in question is in plentiful supply. If not there is a ‘scarcity premium’ attached to it and firm/system ‘profitability-narrative’ is rendered false and vanishes. More credit provides a lifeline … but only for a little while.
Only governments … can fund money-losing enterprises for long periods. The Europeans learned this lesson during some of their many wars …
The high input cost- shrinking profits/shrinking credit dynamic is blitzing the Continent’s countries into oblivion under everyone’s noses! France borrows roughly €200 million every single DAY … money that is simply thrown away for fun … There is nothing to show for that money wasted … or the fuel that money is exchanged for. How long can such nonsense go on? Once France is admittedly insolvent it won’t be able to borrow any more. Then what?
All great surpluses — including surpluses of cheap inputs, cheap credit, surplus profits — have greater associated costs. Those costs are where the thermodynamics appear.November 5, 2012 at 9:52 pm in reply to: Europe Makes Obama Look Good, But That's Not The Whole Story #6308
… and in Europe … every single day … in the month of November in the year 2012 … as in all the other months and years … 14 million barrels of crude oil are imported … from Saudi Arabia, Libya, Iraq, Russia and elsewhere … and paid for with borrowed money … These barrels are burned up for absolutely nothing … to keep the auto factories in business and the ‘entrepreneurs’ counting their money.
In November, 2012, the Continent is hundreds of trillions of euros in debt and has nothing to show for either the debt or the wasted petroleum other than some used cars and smog. There is no means to repay or even service the debt, there is no ‘collateral’ to reclaim. Europe has made itself into a desert … for ‘fun’ and ‘convenience’ and to ‘keep up with the Yankees’.
On one hand, the real good is obtained at highest possible cost … on the other hand, there is nothing gained from the destruction of the good except for some pointless and temporary ‘jobs’. Certainly the establishment did not expect the auto factories, dependent as they are on petroleum, to run forever, did they?
Keynes had the better idea, pay people to dig holes, pay others to fill them up. At the end of the day there is still the dirt.
A good pair of articles, this one and Stoneleigh’s: hers decries the failure of at-scale enterprises, this one decries the failure of (industrial) expedients.
If the human race had a 300-year plan in … 1945 … and collective good sense, there never would have been automobiles in the first place, no auto factories, no auto jobs, none of it. The world would have the greatest bulk of its petroleum and other fossil fuels and the West would be rich rather than bankrupt.
Over the course of 300 years someone smart enough would have figured out something to do with petroleum other than burn it. Now … nobody will get the chance.