SAVING PRIVATE BANKS BY PRIVATIZING PUBLIC WEALTH

Article from: emsnews.wordpress.com
May 6, 2009...3:41 pm

Many websites are not fooled by all the mainstream talk about springtime shoots showing signs that the economic woes are now past and we can resume business as usual. The hope of the elites is very simple: the status quo must return and MINIMUM changes in laws and regulations. If there are to be any changes, they hope to shovel all of these out of Congress and the Treasury and into the private Federal Reserve where they can do business as usual with no interference from the proles in America.

First, an article from Seeking Alpha and my reply:

"U.S. Econony: Little Shoots of Horror"

Has the economy turned a corner? Have I come up with the best goof on "green shoots" yet? Unfortunately, the latter is more likely, even though I'm not a very witty writer.

Despite pleas from the cliche-swamped masses, the media continues to bombard us with this rosy (and probably early) catch phrase. Just Tuesday Forbes published an article titled "The Street Eases, But Green Shoots Abound". Really? They abound? Call me skeptical.

I think this post at ZeroHedge provides a more realistic view. It refers to those Green Shoots as Venus Fly Traps. I've extended that metaphor to a nastier plant: Audrey II, the man-eating crooner from Little Shop of Horrors.

Why so skeptical?

Because there is only one thing propping this market up - government intervention. And the scale of it is mind-boggling. Bailouts have been arranged (directly or otherwise) for banks, commercial real estate, homebuilders, automakers, and insurers. Bailouts and guarantees amount to over $10.2 trillion, last time I checked. So what would happen if the Gov withdrew their support? Zerohedge sums it up:

The problem is that despite what Bernanke is saying right now, that he doesn't view government stakes in banks as long-term propositions, there is really no way to extricate the government without suffering the kinds of economic tremors on par with the Lehman collapse.

Roubini: We Can't Subsidize the Banks Forever

A new WSJ piece by Nouriel Roubini and Matthew Richardson shines more light on the issue. It's yet another must-read to add to your list. The title may strike some officials as outrageous and presumptive. But should we not at least consider not bailing out bottomless pits of bad bets? The official plan seems to be this: Bailout the too-big-to-fail banks, regardless of the moral hazards and scale. Then collapse the small banks and fold them into the giants. What could possibly... Oh well, back to the article. Among other things, Roubini and his colleague top the IMF's recently-doubled loss estimates with their own:

The International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak -- $2.7 trillion, double the estimated losses of six months ago. Our estimates at RGE Monitor are even higher, at $3.6 trillion, implying that the financial system is currently near insolvency in the aggregate.

But Roubini wasn't mentioned much by mainstream media outlets Tuesday, despite his solid track-record. CNBC and others were laser-focused on pumping Ben Appleseed's message that "All will be better in Q4 (unless something bad happens), and gosh, look at all those Pretty Green Shoots!" Bernanke's track record should give pause to anyone who is tempted to listen to his monotone cheering.

Messrs Roubini and Richardson also highlight the fallacy of these so-called Stress Tests:

For example, the first quarter's unemployment rate of 8.1% is higher than the regulators' "worst case" scenario of 7.9% for this same period. At the rate of job losses in the U.S. today, we will surpass a 10.3% unemployment rate this year -- the stress test's worst possible scenario for 2010.

Why is the Fed so wrong, so often? By now it should be obvious that we can't trust predictions made by the Fed or Government. It's clear that Greenspan and his Reserve blazed the trail to bubbledom, and that Bernanke is following along wholeheartedly. But why? I see 3 possibilities:

They are simply academics out of their league, reliant on faulty models and advice from bankers
They believe deceiving the public is a necessary evil to provide a "soft landing"
They are doing all they can to rescue their banking buddies, and they justify this in ever-changing ways that suit the current environment
But their intentions really don't really matter, for now. We should focus on their actions, which only prolong and exacerbate the inevitable pain. Many amateur investors, who tend to buy high and sell low, are destroying their portfolios because of the extreme volatility we've experienced. This volatility is largely due to government intervention, and possible manipulation via proxies in equity markets.

What's really sprouting up? Moral hazards, like weeds

We're creating a new financial system, one more dependent on the government than ever. Banks and others can start taking ridiculous risks again, assured that the ol' reliable taxpayer will bail them out if anything goes wrong. Weaning the market off the taxpayer-teet will be extremely difficult. My only advice is to stay flexible, and prepare yourself for various outcomes: inflation, deflation, stagflation. It all depends on the whims of the Federal Reserve and Government, and the politicians that (kind of) watch over them.

I see big-inflation as the most likely outcome. But who knows? It all depends on the Federal Reserve and Government. My beliefs regarding inflation are largely based on Bill Fleckenstein's writing. He is fond of saying, "In a Social Democracy with a Fiat Currency, All Roads Lead to Inflation." His message has become more emphatic as the Fed has gotten more radical and increased quantitative easing. I've read the deflation arguments, and they don't make sense to me in anything other than the short-term.

How to prepare for possibly nasty inflation? Precious metals, and cheap stocks with good cashflow, among others. I'll delve into this more in upcoming posts. This one has already dragged on too long.

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Replys;

there is only one thing propping this market up - government intervention. And the scale of it is mind-boggling. Bailouts have been arranged (directly or otherwise) for banks, commercial real estate, homebuilders, automakers, and insurers. Bailouts and guarantees amount to over $10.2 trillion, last time I checked. So what would happen if the Gov withdrew their support? Zerohedge sums it up:

The problem is that despite what Bernanke is saying right now, that he doesn’t view government stakes in banks as long-term propositions, there is really no way to extricate the government without suffering the kinds of economic tremors on par with the Lehman collapse.

Roubini: We Can’t Subsidize the Banks Forever

A new WSJ piece by Nouriel Roubini and Matthew Richardson shines more light on the issue. It’s yet another must-read to add to your list. The title may strike some officials as outrageous and presumptive. But should we not at least consider not bailing out bottomless pits of bad bets? The official plan seems to be this: Bailout the too-big-to-fail banks, regardless of the moral hazards and scale. Then collapse the small banks and fold them into the giants. What could possibly… Oh well, back to the article. Among other things, Roubini and his colleague top the IMF’s recently-doubled loss estimates with their own:

The International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak –$2.7 trillion, double the estimated losses of six months ago. Our estimates at RGE Monitor are even higher, at $3.6 trillion, implying that the financial system is currently near insolvency in the aggregate.

The other paradox is even simpler: the lower the interest rates, the bigger the principal owed on all debts. Remember: if you pay off the principal, the interest rates don’t matter. But if the principal grows and grows in size, eventually—like in the case of Japan’s government—the principal owed becomes so very immense, it can only be rolled over and over and over again.

This means, the government must have deflation all the time in order to access ZIRP interest rates so they can roll that immense ball of debt forever and ever. Notice how the US is going into ZIRP financing of its own debts? Only, ours is physically bigger than all other nations.

England’s immense public debts are also growing very rapidly and are the third largest on earth, after the US and Japan. They, too, are going ZIRP so they can finance this ball of debt. Already, the official interest rate set by the Bank of England is 2.9% and the interest rate being offered for the markets is 0.5%. Talk about negative interest rates!

Japan did this last year: 0.25% official rate sitting on top of an inflation rate of over 3%. If the top G7 nations on earth including the world’s biggest debtor/trade deficit/economy all run on negative interest rates that depend on keeping rates far, far below the rate of inflation, we get a future global bond collapse of epic proportions.

It will make this one look like small potatoes. This is exactly why other bond holders, the creditor nations, talk more and more about a new global international trade resolution system exactly like the pre-Nixon one, based on gold again.

At Culture of Life News, we keep a wary eye on what really matters in all this: world trade, world debt and the tendency of all global empires to go kaput due to too much debt on top of too many wars.

ΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

The author, by the way, is correct. So are Zerohedge and Roubini. It is very easy to be correct about the long term implications because they are hideously obvious. Only by thinking backwards [many people have this skill, by the way, it is inherent to our brains] can people delude themselves into thinking, all is well and this little storm is now over, the third major storm since 1987 such as the Asian Currency Crisis/Dot Com Bubble storm. Each storm causes more damage. And each time, the US refuses to reform and correct course.

So we are now entering a new bubble, one that will be far worse than the previous bubbles. All of these are really debt bubbles and despite all the news about people paying down debts, the ones that really matter—public debts—are shooting upwards. These are far deadlier than personal debts.


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