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Daily Digest - March 9

Monday, March 9, 2009, 12:40 PM
  • SNL Geithner 1-800-Ideas?
  • Employment decline compared to Depression
  • Employment decline compared to Depression (Chart)
  • S&P 500 in the Great Depression, compared to the current recession (Chart)
  • Shorting to Zero, CDS, and Swords Falling 15 points a Day, Every Day...
  • Random Musings On The End Of The American Experiment (H/T CapeSurvivor)
  • vol·un·tar·y (vln-tr) 6. Law. Without legal obligation or consideration: a voluntary conveyance of property.
  • Marc Faber: "The feds poured the gasoline and lit the match. Now they've joined the fire department" 
  • Dr. Doom Forecasts Boom
  • For U.S. debt collectors, the dead are a healthy bet (H/T Zombie210)
  • Chinese political advisors propose making yuan an int'l currency (H/T PineCarr)
  • Random Musings On The End Of The American Experiment (H/T CapeSurvivor)
  • Video: Shelby: 'Dead' Banks Should Close; Citigroup a 'Problem Child'
  • Sunday Funnies... 

Economy 

SNL Geithner 1-800-Ideas?

Employment decline compared to Depression

The March payroll employment data showed that the decline in employment from the peak in December 2007 is now larger in percentage terms than the decline in the worst recession since 1960, in 1981-82. The plot below shows, however, that the decline is small in comparison to the Depression. The government did not collect monthly employment data during the Depression, so we have fitted a smooth curve through the annual data. The peak before the Depression was in August 1929, according to the NBER. 

Employment decline compared to Depression (Chart)

S&P 500 in the Great Depression, compared to the current recession (Chart)

Shorting to Zero, CDS, and Swords Falling 15 points a Day, Every Day...

Random Musings On The End Of The American Experiment (H/T CapeSurvivor) 

I think the defining moment for me was when Bernanke responded to the question from Congress, as to whether the American people (and their elected representatives in Congress) would be told to whom all their tax dollars have been given or lent. That single word summed it up perfectly for me: "No."

Any illusions that the money trust in the US, that collection of bankers and hedge fund managers and industrialists who are the beneficiaries of the systematic looting of the Treasury under the current "emergency" measures, is going to do anything other than precisely whatever it likes, or is going to report to those being looted, was dispelled at that moment. Likewise, nobody has been able to articulate why the massive swindle at AIG continues to be subsidized by our tax dollars - but again, no reporting on where those dollars are going will be forthcoming. 

vol·un·tar·y (vln-tr) 6. Law. Without legal obligation or consideration: a voluntary conveyance of property.

Marc Faber: "The feds poured the gasoline and lit the match. Now they've joined the fire department"

Meanwhile, the cop who had the Wall Street beat when the biggest heist in history was going on... and who engineered the loans to AIG and GM... is now the chief of police. Tim Geithner said he was working night and day on Obama's rescue plan, "because we know how directly the future of our economy depends on it." 

But as our old friend Marc Faber points out, neither Mr. Geithner, Mr. Bernanke, nor any of the men who rule us, seems to have any idea what they are talking about. As Chairman of the New York Fed, writes Faber, Mr. Geithner "did not seem to ‘know', in the period preceding the crisis, how the future of the economy depends on a sound financial system!"

Faber goes on to explain that not only did the key players fail to understand what was going on - when it was obvious to him, us and millions of others - they then misdiagnosed the problem and prescribed the wrong treatment. They thought it was a liquidity crisis; so they threw billions in cash at dying institutions.

At every step of the way, the feds have been clueless, hopeless, and defenseless. It was the feds who lent money at negative real interest rates for more than 5 years. It was the feds who pretended to "regulate" and "control" the marketplace... claiming to protect investors from fraud and malfeasance. It was the feds who licensed the banks... set banking standards... blessed derivatives because they "distributed risk more widely" (Greenspan)... urged people to buy adjustable rate mortgages (Greenspan again)... praised sub-prime lending because it encouraged home ownership... and even told consumers to "go out and buy an SUV" in order to give the economy a boost (Fed governor Robert Tier).

The feds piled up the tinder... poured on the gasoline... and lit the match. And now, what do you know... they've all joined the fire department!

Dr. Doom Forecasts Boom

For U.S. debt collectors, the dead are a healthy bet (H/T Zombie210)

MINNEAPOLIS: The banks need another bailout and countless homeowners cannot handle their mortgage payments, but one group is paying its bills: the dead.

Dozens of specially trained agents work on the third floor of DCM Services here, calling up the dear departed's next of kin and kindly asking if they want to settle the balance on a credit card or bank loan, or perhaps make that final utility bill or cellphone payment.

The people on the other end of the line often have no legal obligation to assume the debt of a spouse, sibling or parent. But they take responsibility for it anyway.

"I am out of work now, to be honest with you, and money is very tight for us," one man declared on a recent phone call after he was apprised of his late mother-in-law's $280 credit card bill. He promised to pay $15 a month.

Dead people are the newest frontier in debt collecting, and one of the healthiest parts of the industry. Those who dun the living say that people are so scared and so broke it is difficult to get them to cough up even token payments.

Chinese political advisors propose making yuan an int'l currency (H/T PineCarr)

BEIJING, March 7 (Xinhua) -- China should speed up reforming its financial system to make the yuan an international currency, said political advisors Saturday.

"A significant inspiration to draw from the global financial crisis is that we must play an active role in the reconstruction of the international financial order," said Peter Kwong Ching Woo, chairman of the Hong Kong-based Wharf (Holdings) Limited.

The key to financial reform is to make the yuan an international currency, said Woo in a speech to the Second Session of the 11th National Committee of the Chinese People's Political Consultative Conference (CPPCC), the country's top political advisory body.

That means using the Chinese currency to settle international trade payments, allowing the yuan freely convertible on the capital account and making it an international reserve currency, he said.

China's yuan, or Renminbi, can be freely convertible on the current account but not on the capital account, preventing it from being a reserve currency or a choice in international trade settlement.

China has announced trial programs to settle trade in the yuan, a move analysts say will facilitate foreign trade as Chinese exporters might face losses if they continue to be paid in the U.S. dollar. The dollar's exchange rate has become more volatile since the global financial crisis.

Economists say the move will increase the acceptance of the currency in Asia, which will help it become an international currency in the long run.

Video: Shelby: 'Dead' Banks Should Close; Citigroup a 'Problem Child'

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25 Comments

Davos's picture
Davos
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Re: Daily Digest - March 9

QE1.png

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FireJack
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Re: Daily Digest - March 9

What will a US economic crash look like? Will I hear of an indefinate closure of the stock markets, a declaration of martial law, or will it be one continuous fall? Wondering what to look out for.

For other canadians who read this site:

Housing starts fall in February

“The recent slew of housing sector reports have all been pointing to a
continued correction in the Canadian housing market, and this report
suggests that the pace of adjustment is accelerating, which means that
the housing sector may remain a key source of drag to Canadian economic
activity,” Toronto-Dominion bank economist Millan Mulraine said in a
research note.

 

What will happen to us canadians if the US economy falls?

 

 

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Davos
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Re: Daily Digest - March 9

http://www.ft.com/cms/s/0/5d8b5e18-0c14-11de-b87d-0000779fd2ac.html?nclick_check=1

If it didn't work the first, second, thrid, fourth....times

 "The definition of insanity is doing the same thing over and over and expecting different results." ~ Einstein

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Re: Daily Digest - March 9

Hi Firejack

I'm Canadian and I haven't got a clue.  Whilst our banks seem to be better off, I don't think that will shield us from a US currency collapse.  

Does anyone else have any ideas?  I'm expecting a fast decent punctuated by the odd plateau of semi-stability but I'm wondering how areas of resource rich Alberta will fare?  Are we at all insulated here because of our resource base or will the world not be able to collect its wits fast enough to need our oil?

Annie

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Re: New Orlov video

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Re: Daily Digest - March 9

I wonder if Mr. Reid was indeed this stupid that he couldn't understand a simple question or this dishonest that he prefered to look stupid rather than admit that income tax is nothing more than a roberry perpetrated by the government?

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Re: Daily Digest - March 9

Thanks for the Orlov link, pir8don. I found the most interesting part to be his sailboat organic food delivery network proposition. Great idea.

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Re: Daily Digest - March 9

I watched the Orlov interview on youtube.com.    I have also read what appears as the transcript of a talk he gave on February 13 -- I think this link might be posted elsewhere on PeakProsperity.com:

 http://culturechange.org/cms/index.php?option=com_content&task=view&id=325&Itemid=1

I found it quite beathtaking, similar to Gerald Celente's scenarios.  Here we are spending a lot of time on where to put our wealth & Orlov comes along & says forget the dollars, forget the coins, forget the gold, we will need things or services to barter with (assuming there is security).  I guess if I am to go with anybody maybe I should go with Celente.  Afterall the future is his specialty & he makes his living on being accurate. 

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Re: Daily Digest - March 9

mainecooncat

He has another idea of people in cities migrating seasonally to arable plots which I think is unlikely to get too much traction. But at least he is thinking laterally.

Don

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Re: Daily Digest - March 9

Couple of links:

Gerald Celente getting more pesimistic with every passing week, now sees food riots pretty soon: part1 part2.

Chief analyst of a major EU financial services firm predicting global currency and global bank in 10-15 years.

 

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hucklejohn
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Re: Daily Digest - March 9

Thanks, Nime, for the links to Gerald Celente.  He hasn't changed his tune one bit!

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Ed Archer
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Re: Daily Digest - March 9

Hi Firejack

I think no matter what Canada does we are gonna be screwed just as bad as America, simply because if social order does break down, a lot of americans have a lot of guns and if we are in better shape, they just might head north to take what they feel they need. :(

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Re: Daily Digest - March 9

Harry Reid is clearly from the Planet Oz.  This guy is so screwed up in the head he actually believes our gov't is more generous to its citizens BECAUSE they don't take every single cent of our money and then give back what the gov't doesn't "need."  This guy is completely insane.  There is no other option, in my opinion, than a complete collapse of the current system and to re-build it from the ground up.  If this isn't the definition of broken, then I don't know what is!

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Re: Daily Digest - March 9

I'm on the Mac so I don't have the spreadsheet, but if I reacall a few weeks back I posted that ofr 100 cents into the house 68 cents fly back out in taxes.....

Found it.

http://econompicdata.blogspot.com/search?q=median+income

Obama's total budget is $3.6 trillion, which works out at $34,000 per
household; median household income is about $50,000. Which basically
means that for every dollar that a US household earns, the US
government plans to spend 68 cents next year. And the ten-year T-bond
still yields less than 3%. Extraordinary.

 

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Re: Daily Digest - March 9

http://washingtontimes.com/news/2009/mar/10/world-loses-over-50-trillion/

World loses 'over $50 trillion'

Shrinkage equals year of output

(Contact)
Tuesday, March 10, 2009

Financial assets around
the world may have lost "well over $50 trillion" of value last year, a
collapse of wealth equivalent to a year's worth of world economic
output, the Asian Development Bank reported Monday.

This "astounding" decline reflects stock
market losses, write-downs on bonds and currencies losing ground
against the dollar as investors engaged in a "surprising run" toward
the greenback in search of a safe-haven currency, the ADB report said.

The report attributed the "genesis" of
the global financial crisis to growing imbalances among the main
economies of the world. It blamed the United States
for embarking on "a consumption binge and a growing fiscal deficit"
without the internal savings to finance these explosions in demand. As
a result, the U.S. trade deficit soared.

U.S. trade deficits were financed by
oil-exporting countries, China, Japan and, to a lesser extent, European
and Latin American countries.

"These imbalances grew rapidly, but markets did not respond significantly before 2007," the report said.

When markets finally did respond, they did so with a vengeance that left nobody unscathed.

Asian and Latin American economies have
been hammered by the fallout from the financial crisis, even though
investors there purchased few of the securitized subprime mortgages
whose collapse precipitated the crisis in the summer of 2007.

Financial assets in Latin America
suffered more than $2 trillion in losses last year, including $1.3
trillion in stock market losses. Developing countries in Asia and the
newly industrialized economies of Hong Kong, Taiwan, South Korea and
Singapore cumulatively suffered financial losses of nearly $10 trillion
in 2008, including more than $7 trillion in stock market losses.

The perception that developing countries
in Asia and Latin America had "broken the links with the larger
economies has been painfully refuted by the hard facts of the last 18
months," the report declared. The economies of Eastern Europe and
Russia are faring even worse. The so-called "decoupling" theory has
been delivered a fatal blow.

The world's financial markets have
experienced "the most violent shock" since the Great Depression, the
report said, and the global economy has rapidly decelerated in the
aftermath. The United States, Europe and Japan are already mired in
deep recessions, and growth in most emerging economies slowed sharply
last year. Economists expect this year will be considerably worse.

Indeed, a new World Bank
analysis concludes that the volume of world trade in 2009 will fall for
the first time since 1982 and will suffer its largest decline in 80
years.

"Global GDP will decline this year for
the first time since World War II, with growth at least 5 percentage
points below potential," the World Bank report said Sunday.

China, the largest exporter among
emerging economies, "has seen 20 million jobs disappear," said Virendra
Singh, a global economist for Moody's Economy.com. "India reports 3
million jobs were lost due to shrinking exports."

The Institute of International Finance
recently revealed that net private capital flows to emerging markets
declined 50 percent last year to less than $500 billion. Those capital
flows will plunge to $165 billion this year, the Washington think tank
estimates. The World Bank expects 98 developing countries will face a
cumulative financing gap between $270 billion and $700 billion this
year.

Both the Asian Development Bank and the
World Bank expect remittances sent home by immigrants working in
wealthy countries will decline sharply this year, worsening the
slowdown in developing countries.

"This global crisis needs a global
solution, and preventing an economic catastrophe in developing
countries is important for global efforts to overcome this crisis,"
said World Bank President Robert B. Zoellick. "We need investments in
safety nets, infrastructure and small and medium-size companies to
create jobs and to avoid social and political unrest."

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Re: Daily Digest - March 9
AIG Told U.S. Failure May Cripple Banks, Money Funds (Update5)
By Hugh Son and Scott Lanman
 
March 9 (Bloomberg) -- American International Group Inc.
appealed for its fourth U.S. rescue by telling regulators the company’s
collapse could cripple money-market funds, force European banks to
raise capital, cause competing life insurers to fail and wipe out the
taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse
that would be worse for markets than the demise last year of Lehman
Brothers Holdings Inc., according to a 21-page draft AIG presentation
dated Feb. 26, labeled as “strictly confidential” and circulated among
federal and state regulators.

“What happens to AIG has the potential to trigger a cascading set of
further failures which cannot be stopped except by extraordinary
means,” said the presentation by New York- based AIG. “Insurance is the
oxygen of the free enterprise system. Without the promise of protection
against life’s adversities, the fundamentals of capitalism are
undermined.”

Regulators revised AIG’s bailout last week to ease loan terms and
extend $30 billion in fresh capital after the firm posted a $61.7
billion fourth-quarter loss,
the worst in U.S. corporate history. Lawmakers are reluctant to give
more support beyond the package already in place, worth about $160
billion, because they say regulators haven’t given enough detail about
how the funds are being used or when the bailouts will end.

The Fed is “asking for an open-ended check” and is “not going to get” it, Senator Robert Menendez, a New Jersey Democrat, said last week in Congressional hearings.

Global Impact

AIG warned of turmoil around the globe if the government allowed the
insurer to fail, adding “it is questionable whether the economy could
tolerate another shock to the system that a failure of AIG would
produce.” The value of the U.S. dollar might fall, Treasury borrowing
costs could rise and the agency would face “doubts about the ability of
the U.S. to support its banking system,” according to the presentation,
parts of which were reported earlier by the New York Times. The
municipal bond market would be stressed and Boeing Co. could lay off
workers if AIG’s plane-leasing unit folded, the company said.

“It seems like they’re reaching on this litany of claims they’re making, some of which aren’t supported” by facts, said Haag Sherman,
who helps oversee $8 billion as chief investment officer of
Houston-based Salient Partners. “They are correct that without the
government stepping in, you’d see big holes blown in the equity of
American and European banks.”

 

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Re: Daily Digest - March 9
www.nytimes.com/2009/03/08/opinion/08friedman.html
THE INFLECTION IS NEAR? 
 
By Thomas L. Friedman
The New York Times
 
Sometimes the satirical newspaper The Onion is so right on, I can’t resist quoting from it. Consider this
faux article from June 2005 about America’s addiction to Chinese exports: 
 
FENGHUA, China — Chen Hsien, an employee of Fenghua Ningbo Plastic Works Ltd., a plastics factory
that manufactures lightweight household items for Western markets, expressed his disbelief Monday over
the “sheer amount of [garbage] Americans will buy. Often, when we’re assigned a new order for, say,
‘salad shooters,’ I will say to myself, ‘There’s no way that anyone will ever buy these.’ ... One month later,
we will receive an order for the same product, but three times the quantity. How can anyone have a need
for such useless [garbage]? I hear that Americans can buy anything they want, and I believe it, judging
from the things I’ve made for them,” Chen said. “And I also hear that, when they no longer want an item,
they simply throw it away. So wasteful and contemptible.” 


Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical
question: What if the crisis of 2008 represents something much more fundamental than a deep
recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply
unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother
Nature and the market both said: “No more.” 
 
We have created a system for growth that depended on our building more and more stores to sell more
and more stuff made in more and more factories in China, powered by more and more coal that would
cause more and more climate change but earn China more and more dollars to buy more and more U.S.
T-bills so America would have more and more money to build more and more stores and sell more and
more stuff that would employ more and more Chinese ...
 
We can’t do this anymore. 
 
“We created a way of raising standards of living that we can’t possibly pass on to our children,” said Joe
Romm, a physicist and climate expert who writes the indispensable blog climateprogress.org. We have
been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and
arable land — and not by generating renewable flows. 
 
“You can get this burst of wealth that we have created from this rapacious behavior,” added Romm. “But it
has to collapse, unless adults stand up and say, ‘This is a Ponzi scheme. We have not generated real
wealth, and we are destroying a livable climate ...’ Real wealth is something you can pass on in a way
that others can enjoy.”
 
Over a billion people today suffer from water scarcity; deforestation in the tropics destroys an area the
size of Greece every year — more than 25 million acres; more than half of the world’s fisheries are over-
fished or fished at their limit. 
 
“Just as a few lonely economists warned us we were living beyond our financial means and overdrawing
our financial assets, scientists are warning us that we’re living beyond our ecological means and
overdrawing our natural assets,” argues Glenn Prickett, senior vice president at Conservation
International. But, he cautioned, as environmentalists have pointed out: “Mother Nature doesn’t do
bailouts.” 
 
One of those who has been warning me of this for a long time is Paul Gilding, the Australian
environmental business expert. He has a name for this moment — when both Mother Nature and Father
Greed have hit the wall at once — “The Great Disruption.” 
 
“We are taking a system operating past its capacity and driving it faster and harder,” he wrote me. “No
matter how wonderful the system is, the laws of physics and biology still apply.” We must have growth,
but we must grow in a different way. For starters, economies need to transition to the concept of net-zero,
whereby buildings, cars, factories and homes are designed not only to generate as much energy as they
use but to be infinitely recyclable in as many parts as possible. Let’s grow by creating flows rather than
plundering more stocks.
 
Gilding says he’s actually an optimist. So am I. People are already using this economic slowdown to
retool and reorient economies. Germany, Britain, China and the U.S. have all used stimulus bills to make
huge new investments in clean power. South Korea’s new national paradigm for development is called:
“Low carbon, green growth.” Who knew? People are realizing we need more than incremental changes —
and we’re seeing the first stirrings of growth in smarter, more efficient, more responsible ways.
 
In the meantime, says Gilding, take notes: “When we look back, 2008 will be a momentous year in human
history. Our children and grandchildren will ask us, ‘What was it like? What were you doing when it started
to fall apart? What did you think? What did you do?’ ” Often in the middle of something momentous, we
can’t see its significance. But for me there is no doubt: 2008 will be the marker — the year when ‘The
Great Disruption’ began.
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Re: Daily Digest - March 9

That's easy.  You'll be overrun with hungry, sick Americans.

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Re: Daily Digest - March 9

Thanks Davos for the digest.  I've been reading through it daily for the last few weeks.  (I'm new to CM.) 

When I tell my wife things I've read, she says that maybe I should get a different perspective and not read this site so much.  I thought maybe she had a point until I turned on the radio over the last few days and listened to the "news" at the top of the hour.  It's starting to sound like I'm in a science fiction movie.  Sometimes I stop and think "Did I just hear that...?"  I can't believe I'm hearing such major events happening every day.  It reminds me of what the months before WWII must have been like for Europeans. People suspected something big was starting to take place but didn't have any idea how much it was going to effect them. 

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Re: Daily Digest - March 9
Mr. Fri wrote:

It reminds me of what the months before WWII must have been like for Europeans. People suspected something big was starting to take place but didn't have any idea how much it was going to effect them. 

Back then no one was thinking then something big will start, let alone a World War - even after Germany invaded Poland and France and UK were into conflict many believed this is something "local" that will be resolved within a year.  No one, maybe except Joseph Stalin, who planned for war and helped start it.

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Re: Daily Digest - March 9

Mr. Fri:

Most welcome, it is a pleasure to contribute to this fine community. I know exactly how you feel, my wife would say the same things - well up until several months ago. Now, we are both amazed how fast things unfold. Stuff I found on the best blogs before was usually several weeks or months away from mainstream. Last week I showed her Tent City Sacramento, and last night or the night before we saw it on MSBC (the only TV we can receive or watch).

The weird part is that I am old enough to have lived through the recessions of the 70s and eighties, I don't recall the one of the 60's. That said, the things I read about now are drastic as compared to those. Tent cities, house foreclosures, bank closures and so on. All spells depression not recession.

Take care 

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Re: Daily Digest - March 9

Yes, amazing how hard to be a long term prophet now - isn't it? I'd say system is unhinged from the stable states and is totally unstable, so in fact no one really knows what's going to happen.

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Davos
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Re: Daily Digest - March 9

Nime wrote:

"Yes, amazing how hard to be a long term prophet now - isn't it?" 

For some it is. Here we are in the midst of a depression if one realizes that the numbers for unemployment and GDP are baked and yet our officals haven't a clue, they call it similiar.

Romer Paper, "Lessons from the Great Depression for Economic Recovery in 2009 

Thier solution, tax us and our kids and our kid's kids to death for a baked plan that attempts to cure symptons not the underlying insolvency issue. 

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Damnthematrix
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Re: Daily Digest - March 9

Dmitry Orlov has just been interviewed on National Radio tonight......  EXCELLENT!  Australia migh actually get clued up soon!

Mike 

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Re: Daily Digest - March 9

pir8don, great Orlov youtube video!  Thanks for sharing the link.   It sure is like taking a big bite of the reality cookie when you listen to him!

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