Daily Digest

Daily Digest - February 5

Friday, February 5, 2010, 9:04 AM
  • The Ticking U.S. Fiscal Bomb
  • Gold’s Pick Pockets Continue To Prosper
  • Fears of 'Lehman-style' tsunami as crisis hits Spain and Portugal
  • World Oil Capacity to Peak in 2010 Says Petrobras CEO

Economy

The Ticking U.S. Fiscal Bomb (Ben Johnson)

Despite the ticking fiscal bomb, midterm and presidential elections in November 2010 and 2012 respectively will further constrain the political will to undertake necessary reforms. With a subpar economic recovery and an unemployment rate above 8% during 2011-12, the Democrats, struggling to maintain power, are unlikely to approve spending cuts, while the Republicans, seeking to revive their prominence, will be unyielding on tax hikes. 

Gold’s Pick Pockets Continue To Prosper (Davos)

Please return to December of 2009 when the impending dollar rally was sold based on a sustainable US economic recovery. That was enough to convince money managers. That demand then triggers the algorithms which fires off huge fund buying for what today is no reason at all.

Our friends at the COMEX use this phenomena to bomb gold and so many of you have a heart attack selling your insurance in both shares and metals. It is like living in a mental hospital where emotions drive all decisions and most of those are total madness.

Fears of 'Lehman-style' tsunami as crisis hits Spain and Portugal (joemanc)

The Greek debt crisis has spread to Spain and Portugal in a dangerous escalation as global markets test whether Europe is willing to shore up monetary union with muscle rather than mere words.

Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.”

Energy

World Oil Capacity to Peak in 2010 Says Petrobras CEO (Ben Johnson)

Mr. Gabrielli, the CEO of Petrobras, gave a presentation in December 2009 in which he shows world oil capacity, including biofuels, peaking in 2010 due to oil capacity additions from new projects being unable to offset world oil decline rates.

Please send article submissions to: [email protected]

22 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4060
Re: Daily Digest - February 5

"LONDON—The pressure in sovereign debt markets continued Friday with the cost of insuring Greek and Portuguese debt against default remaining at record wide levels."

""With sovereign debt and fiscal difficulties remaining a concern, sovereign spread volatility will not disappear soon," said Tim Brunne at UniCredit SpA. "

""The crisis in euro-area sovereigns is reaching new proportions, and the contagion is getting more serious," said analysts at Royal Bank of Scotland in a note. "

  (Note: The Wall Street Journal changed the story. Original headline still shows up on Google News search here)

"Feb. 5 (Bloomberg) -- The cost of insuring against U.S. and U.K. debt defaults may rise in the same way as it has for so- called European peripheral nations including Greece and Portugal, Deutsche Bank AG said.

“The problems currently faced by peripheral Europe could be a dress rehearsal for what the U.S. and U.K. may face further down the road,” Jim Reid, a strategist at Deutsche Bank in London, wrote in a research note today.

“These countries have similar issues to those facing peripheral Europe but have the luxury of a flexible currency up their sleeves as a first defense if the market wants to attack them,” Reid said. “Such a defense means that the market, for now, thinks there are easier targets.”"

“This is basically payback time for the rescue of the global economy last year, which was through government over- spending,” said Dariusz Kowalczyk, chief investment strategist in Hong Kong at SJS Markets Ltd. “Because of exposure to exports and high foreign debt, the Korean won is vulnerable to what’s happening with European sovereign credit.”

"LONDON — The euro tumbled on Friday to the lowest point against the dollar in since May as concerns mounted about a potential sovereign debt default in Europe, dealers said."

"LONDON: The euro sank under the 1.38-dollar mark for the first time in seven months yesterday as the debt troubles in some eurozone countries weighed down on the single European currency, analysts said. "

"The European currency has been under pressure for weeks due to persistent concerns about the health of Greece’s public finances and analyst have warned that the problem could spread to Spain and Portugal. “It would appear the sovereign debt problem is turning into a contagion in the Euro zone,” said Michael Hewson of CMC Markets. The European Central Bank welcomed Greece’s plan to tackle its debt crisis but warned all eurozone countries to get their finances in order.

“It is of paramount importance that the stability programme of each euro area country clearly defines the fiscal exit and consolidation strategies,” the ECB said after holding interest rates steady at a record low of 1.0 percent. "

"Feb. 5 (Bloomberg) -- The cost of protecting Asia-Pacific corporate and sovereign bonds from default surged on concerns that weak U.S. jobs data and sovereign debt risk in Europe may stifle the global economic recovery.

The Markit iTraxx Australia index jumped 11 basis points to 107 basis points as of 9:14 a.m. in Sydney, according to prices from Westpac Banking Corp. That’s the biggest increase since Aug. 17 and takes the index to its highest since Oct. 9, according to prices from CMA DataVision in New York. Benchmarks in Asia and Japan also rose."

"The Federal Reserve would consider reopening its program to support the mortgage market if interest rates spiked or the economy showed new weakness, Federal Reserve Bank of New York President William C. Dudley said in two new interviews. "

"The number of people who were declared insolvent in England and Wales hit a record high in the last quarter of 2009 and during the year in full.

The figures from the Insolvency Service marked the depth of the recession, with 35,574 people declared insolvent in the last three months of the year.

That was a rise of 25% on the same period a year earlier. "

"Feb. 5 (Bloomberg) -- Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said.

“We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.”"

"U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke were meeting with their counterparts from the other G-7 countries.

Geithner is expected to urge other G-7 nations to keep providing stimulus through the rest of this year, arguing that without continued government support the fledgling recoveries could falter, plunging the world back into recession. "

"A sharp increase in the number of people giving up looking for work helped to depress the jobless rate. The number of 'discouraged job seekers' rose to 1.1 million in January from 734,000 a year ago."

"Last month, the services sector added 40,000 jobs after shedding 96,000 positions. The figure included a rise in federal government employment, partly as a result of the hiring of staff for the 2010 Census. Temporary help employment rose 52,000, maintaining a rising trend seen in the past month."

"The Senate shifted into jobs gear on Thursday, priming the pump for a new $80 billion economic injection Democrats hope to pass next week.

With the Dow plummeting 268 points on word that unemployment unexpectedly rose last week, Senate leaders unveiled the rough outlines of their package of tax breaks and new spending to spur a recovering but still-sluggish economy."

"The budget crisis New Jersey is facing appears to only be getting worse.

David J. Rosen, the Grim Reaper of the New Jersey state government's fiscal nightmare, appeared before the Senate Budget and Appropriations Committee Thursday and told them the deficit legislators and the governor must overcome when crafting the 2010-11 budget by June 30 could climb as high as $11 billion.

Rosen, the budget and finance officer for the non-partisan state Office of Legislative Services, also warned the legislators that even if tax revenue should grow at a rate of 4 percent or 5 percent annually, it will take until 2014 for the government to recover to where it was financially in 2008."

.................................13A) Wealth is leaving New Jersey, BC study shows

"From 2004 through 2008, $70 billion dollars in wealth left New Jersey while the state’s charitable capacity declined by $1.13 billion, according to a new report from Boston College’s Center on Wealth and Philanthropy.

"Wealth began to leave New Jersey around the time when a series of changes to the state’s tax structure made it less competitive for charitable families compared to neighboring states," a press release on the BC report said. "New Jersey’s state income taxes have risen to levels above New York, Pennsylvania, and Connecticut, and there is not a deduction on state income taxes for charitable giving.""

"France's budget deficit stood at EUR 137.99 billion in December, the Budget Ministry said on Friday. This compares to a budget deficit of EUR 56.27 billion recorded in the same month a year ago.

State expenditure totaled EUR 367.10 billion in December, up 5.5% from a year ago. At the same time, state revenue came to EUR 237.25 billion, down 18.5%. "

"Joerg Asmussen told reporters that the deficit is projected to climb to 5.5% of GDP this year as the government continues stimulus programs and other measures to battle the financial crisis. He said "2010 is still a crisis year." "

"NEW YORK, Feb 5 (Reuters) - U.S. commercial real estate prices fell 4.9 percent in the fourth quarter, setting a new low for the current downturn, according to a leading property index released on Friday.

The slide to 139.25 points wiped out a 4 percent rise recorded in the third quarter and takes the index -- by the MIT Center for Real Estate (MIT/CRE) -- below 140.06, the cycle's previous low reached in the second quarter.

For the year, the index, which includes prices for commercial property sold by major institutional investors, is down 22.5 percent since the end of 2008. At the end of the 2009, the index was 39.5 percent below the second quarter 2007 peak of 230.26."

"NEW YORK, Feb 4 (Reuters) - Smaller-sized U.S. banks will be hardest hit by their exposure to commercial real estate loans, and many of those banks will collapse, Moody's Investors Service said in a report released on Thursday.

A large number of smaller-sized banks, which are not rated by Moody's, make up only 15 percent of U.S. bank system assets but carry 50 percent of commercial real estate loans outstanding, and will struggle under the weight of that exposure, Moody's said."

"Los Angeles Mayor Antonio Villaraigosa ordered officials Thursday to eliminate 1,000 city jobs and begin planning employee layoffs, one day after the City Council failed to do so amid a deepening budget crisis."

"With a $484-million shortfall looming next year, Santana said, he planned to recommend another round of job cuts within a few months. "We won't lay off any coalition members this year," he said. "But we plan to next year.""

"Officer Jason Willingham says nearly one-third of the department's officers were laid off because of budget cuts. The city laid off 124 officers Jan. 29 with the majority of them working in patrol.

Willingham says there are enough officers to respond to emergency calls.

He says officers will not respond to noninjury collisions unless a crime is involved. And they will not respond to crimes such as fraud and forgery, burglary from vehicles and larcenies — unless the crime is in progress."

"Arbitration briefs filed by the city describe West Haven as “one of the most financially distressed municipalities in the state,” and say even a few extra snowstorms this year could push its finances over the edge.

The revelation comes just weeks after the city angered cops by borrowing $1.2 million from the police pension fund to make payroll in December. The city has since returned the money, but questions remain about how dire the city’s situation is."

"More than 100,000 state residents could lose their unemployment benefits by the end of April unless emergency measures are taken soon, state lawmakers warned Thursday.

The state Department of Workforce Development already sent about 8,000 letters on Tuesday notifying people their unemployment benefits will end within several weeks, spokesman John Dipko said. Once the remaining amount is gone, additional benefits will not be available, the letters said."

"Feb. 4 (Bloomberg) -- Serbia is following the terms of a 3 billion-euro ($4.2 billion) International Monetary Fund bailout, the government said today, disputing a report that the country is risking its next loan payment."

"Times are tough in the mansion market. Last year's sales of $1 million-plus homes in California were paltry compared to the boom days, according to a real estate report released Thursday. "

Tight credit, skittish buyers and sagging prices caused the number of homes changing hands for more than $1 million to fall 23.8 percent in 2009 compared with 2008, according to MDA DataQuick, a San Diego real-estate firm.

A total of 18,621 California homes sold for more than $1 million last year. That's barely a third of the 54,773 such homes that changed hands in 2005."

"The news you should have heard, but didn't. "

Listen about Fannie and Freddie at 7 minutes into this.

"Please go to page 5 and 6 of the above report and you will find discussion and tables of the annual revisions. While they present the table, they don’t bother to add up the revisions, but I did… and the number is 617,000 more jobs were lost than they originally reported! This is largely due to their use of a totally false “Birth/ Death model” for businesses. Below is a picture of their revision table, note only one month was positive, and in the average month, jobs were overestimated by 51,400 people!"

"All city employees hired before Jan. 10, 2009, have a vested right to lifetime retiree health benefits after only five years on the job. Thus, for each vested employee — active and retired — The City has a debt obligation. Add them all together (there are about 60,000, not including dependents), and we have one big debt. How big? According to an actuarial study released in July 2006, the number is — hold onto your hats — $4.9 billion.

The problem is, instead of setting money aside to pay the debt, San Francisco has been doing “pay as you go,” which is the equivalent of paying the minimum on a credit card. Each year, The City only pays the cost of covering current retirees. For fiscal year 2009-10, that number is budgeted at almost $129 million."

""WASHINGTON (Reuters) - The Labor Department on Friday blamed faulty estimates of how many companies were created or destroyed for its unusually large revision to payrolls that showed job losses were considerably steeper than first thought.

U.S.

Once a year, the Labor Department compares its payroll data with unemployment insurance tax reports and releases a "benchmark revision" that adjusts for discrepancies.

Normally the difference is relatively modest. This time, the Labor Department revised the level of employment for December 2009 down by 1.39 million, bringing the total number of jobs lost since the start of the recession to 8.4 million.

The primary culprit behind that huge revision was the so-called "birth-death" model, a method the Labor Department uses to try to estimate how many jobs were gained or lost because of companies opening or closing in a given month.

While economists have long questioned the accuracy of the model, it had performed well up until the latest recession.

This time, it overstated job creation by 779,000 in the year that ended in March 2009. The Labor Department also revised its monthly jobs data for April through December 2009, and found the birth-death model had overstated job creation by another 405,000."

"The pronounced recession led to a breakdown in that stability from March 2008 to March 2009," the Labor Department said in an article posted on its website, detailing the massive revisions. The article is available here: www.bls.gov/web/cesbmart.htm

"These errors started to grow in the fourth quarter of 2008 and got significantly larger in the first quarter of 2009," the Labor Department said.

Economists at the department are still researching ways to improve the model so that it can better estimate job creation and destruction, particularly in times of economic upheaval.

The Labor Department said it was investigating whether it would be helpful to run the model quarterly instead of once a year, and adding other variables."

 

Note: Don't  fall for the latest unemployment headline numbers. The St. Louis Fed just updated all of the economic numbers and graphs today. This one is for Civilians Unemployed for 27 Weeks and Over. Click here to see the graph and the new numbers (under "latest observations").

Latest Observations:

Date 2009-09 2009-10 2009-11 2009-12 2010-01
Value 5447 5620 5901 6130 6313
rjs's picture
rjs
Status: Gold Member (Offline)
Joined: Aug 8 2009
Posts: 445
Re: Daily Digest - February 5

a little comic relief from our northern neighbors, who dont seem to take all this seriously:

Finance ministers promised a meal of seal at G7 summit in Iqaluit - Seal meat, an Inuit delicacy still legally hunted, and a traditional meat pie made with caribou are both on the menu for the Canadian gathering of the world's leading economic ministers.  In a decision described by one European official as "crazy", the Canadian government has chosen the city of Iqaluit, home to 7,000 in an icy landscape 200 miles south of the arctic circle, as the venue for a gathering of G7 finance ministers. With patchy phone coverage and February temperatures dipping to -20C, Iqaluit has only 300 hotel rooms, obliging some visiting officials to sleep in dormitories.

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Daily Digest - February 5

Good grief.  On days like today you almost have to watch CNBC.  Too bad you have to sit through Jim Cramer/Maria Bartiromo talking nonsense.  Maria asked Jim just now if the dollar going up means the US is respected again?  Of course Jim agreed it did.  What a bunch of 3-yr olds! I can't believe this passes for financial news/insight.

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4060
Re: Daily Digest - February 5

Listen at 1 1/2 minutes into this. They also talk about the huge revisions in the unemployment numbers.

The big problem with this video is the solution that follows.

At  2 1/2  minutes into this it goes downhill, since they think we can spend our way back. It then gets even

worse with the Paul Krugman comments.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - February 5
Farmer Brown wrote:

Good grief.  On days like today you almost have to watch CNBC.  Too bad you have to sit through Jim Cramer/Maria Bartiromo talking nonsense.  Maria asked Jim just now if the dollar going up means the US is respected again?  Of course Jim agreed it did.  What a bunch of 3-yr olds! I can't believe this passes for financial news/insight.

My little girl had colic. Made more sense then MB and sounded a heck of a lot better than MB. 

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Deep Blue Friday?

Deep Blue Friday?

http://theautomaticearth.blogspot.com/2010/02/february-4-2010-deep-blue-friday.html

Today, February 4, may turn out to be an aberration, markets may regain some space. But it will be temporary, the pressure is here to stay now, there are default risks wherever you care to look (California?!). And so it all comes back to what we at the Automatic Earth have been saying all this time. A rising US dollar when trouble comes, gold not great in the short term, and a downturn on the horizon like you’ve never ever seen, let alone imagined.

Sam's picture
Sam
Status: Bronze Member (Offline)
Joined: Jun 5 2009
Posts: 51
Re: Daily Digest - February 5

Gosh, big suprise, the DJIA is having a magical late day rally. Hmmmm. Cui Bono.

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2219
Re: Daily Digest - February 5
Sam wrote:

Gosh, big suprise, the DJIA is having a magical late day rally. Hmmmm. Cui Bono.

"Thanks, PPT!!"

Sam's picture
Sam
Status: Bronze Member (Offline)
Joined: Jun 5 2009
Posts: 51
Re: Daily Digest - February 5

Plunge Protection Team. Patriot Act. Anti Dog eat dog measures. So many ways to lie.

solitonsurfer's picture
solitonsurfer
Status: Member (Offline)
Joined: Jul 17 2009
Posts: 3
Re: Daily Digest - February 5

Technically we're right here at the DOW 10,000 and notice that the S&P 500 technical level of 1050 was breached during trading today as well.  Prop. trading (proprietary and now propping up)  is in full effect.  As long as the Fed can print money,  the primary broker dealers can push the markets higher.  Ultimately this will, and has always, failed.  They just don't get it.  There's no economic recovery taking place, just the opposite is happening.  Sooner or later technical levels of the stock markets re-align themselves with the fundamentals.  PEs are astronomical.  Take defensive measures now if you are long side investors/traders.

 

regards,

Solitonsurfer         

Bogdan's picture
Bogdan
Status: Member (Offline)
Joined: Dec 14 2009
Posts: 13
Question about the fiscal/debt bomb

Hello,

I have a question about the US public debt. How much of that 12+ trillion is in bonds that get adjusted bu inflation? I mean, how much of that debt cannot simply be paid by printing dollars?

Thanks,

Bogdan.

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: Daily Digest - February 5

Hi Bogdan!

Welcome.

I don't know the numbers but that doesn't matter.

The bond market IS going to collapse. The plan is to pay off the debt (in whole or in part) by devaluing the dollar. This IMHO is the end game. You devalue the dollar by printing more of it. Do you think the government is so stupid that they don't know where all this money printing will take us? They know. That's the plan.

Its basically a simple game. If you want your fiat currency to increase in value then you squash PM (precious metal) prices thru market manipulation. If you want fiat currency to devalue then you print more paper money AND you raise the price of PM's (See FDR's Executive Order 6102). But you don't raise the price of PM's until you have enough control of them to benefit from it.

A transition will take place at some point here where the government will simultaniously crash the dollar by using PM's and the printing press and make the transition out of the CURRENT fiat money and into PM control.

Again this is just my opinion.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - February 5

I'd add that the 12 trillion isn't the 900# gorilla. Magilla Gorilla is the 106 trillion in unfunded liabilities, unfunded largely because they have been looted. Magilla's mom and dad are the 1.6 quadrillion stuffed in the shadow banking system's off balance sheet derivatives.

No, when this thing unwinds, and unwind it will, it is going to look like armagetton. 

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2219
Re: Daily Digest - February 5
Davos wrote:

[W]hen this thing unwinds, and unwind it will, it is going to look like armagetton. 

And most folks will be living in the arma-ghetto.

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: Daily Digest - February 5

omg Sager...that was awful Wink

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - February 5

Funny!

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3124
Re: Daily Digest - February 5

I've brought this up before and no one seems to be willing to answer it.  Why does this all have to end in a crash?  Why can't the Fed just engineer a gradual devaluation of the dollar that will effectively pay down debt over time?  If the dollar loses about 3% a year (easily tolerated by the myopic masses) the dollar will be somewhere around half its current value in 10 years.  If you assume that the projected debt is accurate (big assumption I know, but stay with me for a moment)  we will add about $1 trillion per year in the meantime.  Then the US will still have lower debt than it currently does in 10 years.

I know the math is inexact, but you get the idea.  If we add debt slower than the rate of devaluation, we effectively pay down debt.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - February 5
Doug wrote:

I've brought this up before and no one seems to be willing to answer it.  Why does this all have to end in a crash?  Why can't the Fed just engineer a gradual devaluation of the dollar that will effectively pay down debt over time?  If the dollar loses about 3% a year (easily tolerated by the myopic masses) the dollar will be somewhere around half its current value in 10 years.  If you assume that the projected debt is accurate (big assumption I know, but stay with me for a moment)  we will add about $1 trillion per year in the meantime.  Then the US will still have lower debt than it currently does in 10 years.

I know the math is inexact, but you get the idea.  If we add debt slower than the rate of devaluation, we effectively pay down debt.

With the deficit going exponential and our debt going exponential I myself don't think the lever will hold up. Just my 2 cents. 

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Daily Digest - February 5
Doug wrote:

I've brought this up before and no one seems to be willing to answer it.  Why does this all have to end in a crash?  Why can't the Fed just engineer a gradual devaluation of the dollar that will effectively pay down debt over time?  If the dollar loses about 3% a year (easily tolerated by the myopic masses) the dollar will be somewhere around half its current value in 10 years.  If you assume that the projected debt is accurate (big assumption I know, but stay with me for a moment)  we will add about $1 trillion per year in the meantime.  Then the US will still have lower debt than it currently does in 10 years.

I know the math is inexact, but you get the idea.  If we add debt slower than the rate of devaluation, we effectively pay down debt.

Hi Doug,

The simple answer to your inquiry is this: The Fed can't devalue the dollar (via "printing") without the country taking on additional debt. So in this situation, the Fed can't devalue the dollar as you propose because the private sector can't take an anymore debt.

Ahhhh, the ramifications of debt deflation in debt-saturated economy with a credit-based monetary system.....

The market might be able to devalue the dollar, aka the dollar-trade, but its effects will be short-lived as assets prices mean revert over time.

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: Daily Digest - February 5

Doug

It didn't have to end in a crash. But crashes effect some people negatively while effecting others in a very positive way. I think there is an assumption in your questions. The government doesn't work for the people it works for the banks. I know a lot of people thinks this kind of talk is crazy but they won't for long. Of course they could do what you say. So why don't they? That could also of been done in 1929. So why wasn't it?

Its all about wealth transfer. The world bankers are the ones that control the shots because they control the wealth. They can pay off politicians, manipulate markets, etc. So here is how it works.

Think about it like this. If you are fishing with a net and you use the logic that the more times you cast the net out and draw it back in then the more fish you will catch, you will find you are wrong. The right way is to cast the net out and wait until the area around the net is full of fish. Then you draw it in. The market works the same way.

It takes sometime to create a really good bubble. If you and your fellow bankers are smart you let Keynesianism work its magic on the market. Wait for interest rates to drop really low. Wait for people to soak themselves in debt. Remember. As a banker you loaned the money into existence without risk. Once the market is saturated in debt then you and your banker friends slowly (or not so slowly) choke off credit. What happens then? People/businesses can't maintain there debt driven ways of life and they default. The more the credit is tightened the more they default and the banks assume their very real assets that these people purchased with money that was just loaned into existence. Sweet deal right? Its all about timing. You can't do it all the time just after the market has been soaked with so much debt that it is near the breaking point. Then your nets are full.

JAG wrote:

The simple answer to your inquiry is this: The Fed can't devalue the dollar (via "printing") without the country taking on additional debt. So in this situation, the Fed can't devalue the dollar as you propose because the private sector can't take an anymore debt.

 

But the dollar has been devalued on purpose before (again see FDR executive order 6102). So how did they do it? They  used gold to devalue the dollar. In other words they devalued one percieved idea of 'money' (fiat) wih a different idea of money (gold). They decouple the concept of real wealth from the dollar. If what JAG is suggesting where true then currencies could never experience hyperinflation because the debt would be too great for the private sector (whatever that means).

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Daily Digest - February 5

JO,

Perhaps some Steve Keen would be helpful here:

A good starting point would be Dr. Keen's, The Roving Cavaliers of Credit

Note Bernanke’s assumption (highlighted above) in his argument that printing money would always ultimately cause inflation: “under a fiat money system“. The point made by endogenous money theorists is that we don’t live in a fiat-money system, but in a credit-money system which has had a relatively small and subservient fiat money system tacked onto it.

We are therefore not in a “fractional reserve banking system”, but in a credit-money one, where the dynamics of money and debt are vastly different to those assumed by Bernanke and neoclassical economics in general.[10]

Calling our current financial system a “fiat money” or “fractional reserve banking system” is akin to the blind man who classified an elephant as a snake, because he felt its trunk. We live in a credit money system with a fiat money subsystem that has some independence, but certainly doesn’t rule the monetary roost—far from it.

The following interview Dr. Keen did with Max Keiser a few months back might be helpful as well. The interview starts at the 12:43 mark.

Spending a few hours on Steve Keen's website would be very educational as well.

Or you could just dismiss this education and post your nine-steps to hyperinflation for the 20th time if you want, because after all its a free country. Personally I'll take the work of Steve Keen over Eric deCarbonnel's fear mongering any day.

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: Daily Digest - February 5

I like Steve Keen as well but I think he does a poor job of communicating his points in a concise manner.

His concept that the Fed can't devalue the dollar (via "printing") without the country taking on additional debt is a straw man argument. Like many of his 'emprical' facts they are really just one point of observation not necessarily universal fact. But I still like the major thrust of what he says.

It's a straw man argument because he assumes only The Fed is involved in printing money. This ignores the fact that other economies also print money and they do so in regards to how strong or weak the the US dollar is in order to keep their economies viable in regards to trade a labor costs. This also can inflate or deflate the dollar abroad.

Thus causation in money creation runs in the opposite direction to that of the money multiplier model: the credit money dog wags the fiat money tail. Both the actual level of money in the system, and the component of it that is created by the government, are controlled by the commercial system itself, and not by the Federal Reserve.

And again. Another straw man. Are the Fed and the central banks really separate? If the government (fiat) is giving central banks (commercial system) free money at zero interest is one really waging the other? They are actually partners, partners in crime.

The money printing will continue and the Fed will give central banks whatever they want and not require them to do anything specific with it.

The only way that Bernanke’s “printing press example” would work to cause inflation in our current debt-laden would be if simply Zimbabwean levels of money were printed—so that fiat money could substantially repay outstanding debt and effectively supplant credit-based money

 Which is what I said previously. That is the plan.

Another thing ignored is the switch to a new definition of what money is and that is PM's, specifically gold. If you

JAG- what do you think will happen? Deflation? Inflation? A leveling effect?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments