So we took off the last bit of 2009, and the first bit of 2010, and after coming back to it, we realise we still have nothing in particular to say. That, however, has never stopped us before, so we look forward to another year of fun and games on the world scene, as the 2007 Depression rolls on. Since 2010 is still figuring out which way is up, we thought we'd offer some ideas as to how the year is going to look.
Previously, we called 2009 the Year of the Whinger; boy, were we ever right (insert back-patting here). The banks whinged, and got money; the health insurance companies whinged, and will probably get money; the auto manufacturers whinged, and got money; the home-builders whinged, and got money. Come to think of it, the only people who whinged and were ignored was the Citizenry, of the various countries which forked over said money, who really didn't want all the aforementioned whingers to get all that money. Oh well, they don't know what's best for them, now do they? Don't they know that they need autos, and health insurance, and banks, and home-builders? Why, what would a modern economy look like without these centrepieces of industry? Perhaps they'll learn better.
At any rate, this year, 2010, is certainly shaping up to be quite the doozie, what with the U.S. Treasury removing - not raising, but eliminating - the cap on how much money can be poured into the haemorrhaging enterprises known as Fannie Mae and Freddie Mac. Additionally, justice has been thrust to the side, with a U.S. judge throwing out a murder case against Blackwater agents (i.e. U.S. mercenaries), because the Government prosecutors botched, perhaps purposefully, the case. And the U.S. Transportation Security Administration is hounding a pair of bloggers who published the details of supposedly super-secret security directives. Say that last part ten times as fast.
But what will 2010 be, you ask, dear Reader? Well, we're getting to that. 2009 saw corporate powers across the globe - but perhaps most spectacularly in the United States - with their collective hands out, begging to be kept from going under. At the same time, we see that being the point where those same corporate powers have cemented their control over the Governments which gave them the money, to the detriment of the Citizenry to which a Government is supposedly responsible. This year, we see the fallout of that move start to make itself evident.
Simply put, the moves, for instance, by Goldman Sachs in the U.S., are of such a patently, and odiously, self-serving nature, it doesn't take a genius to figure out the Citizenry has gotten screwed so that Lloyd Blankfein can keep his $43 million a year for doing God's work - oh, we wish we had thought of that one! At the same time, we have a sneaking suspicion that the world markets will take their next big nosedive toward their final destination, which is a 90% drop or so from the peak.
Do you hear what we hear? Yes, the gnashing of teeth: those who got bailouts will grumble they did not get enough bailout; those who will pay for all the bailouts will grumble about how there is already too much slop in the trough. Both sides will be gnashing, and foaming at the mouth; take a look at the latest bailout of GMAC, as an example of what we're talking about. There will be many, many more bailouts, and we would like to be on record as saying this is the year the FDIC will need a direct bailout to keep operating. Ted Butler, we hear, recently stated that 2010 is the year when JP Morgan Chase closes its heart-stoppingly humungous silver and gold short positions; we'd like to put ol' JP on that list of bailouts-waiting-to-happen, too.
Simply put, this will not be a pretty affair, and might indeed result in the civil unrest which James Kunstler and Gerald Celente have been ranting about for about a year already. It could certainly result in the loss of legitimacy of the most bailout-happy Governments, as their respective Citizenry will see continued, extremely unpopular, bailout-age as a sign those Governments are no longer responsible. History has shown that, when Governments no longer seem responsible, they tend to become quite despotic and oppressive, to keep an increasingly restive population under control.
So, we posit two trends: the teeth gnashing on the part of corporate interests, screaming for another series of big bailouts, to ensure their primacy in a depressionary economy; and the teeth gnashing on the part of Citizens, riling against both the previous bailouts, and new bailouts being forced down their throats. Governments will respond to these two, conflicting demands by funnelling vast amounts of money, either directly or indirectly, to their corporate masters; whist simultaneously increasing the bread and circuses for the masses to keep them placated and obedient.
There you have it, then, dear Reader: 2010 is the Year of the Teeth Gnashers. The two different poles of the gnashers - i.e. the Citizenry and the corporate elite - will attempt to pull on Governments to be aligned more strongly with one, against the other. Unfortunately for the Citizenry of the world, they have already lost this fight, probably a long time ago; the corporate interests have the field, as it were. If those interests are smart, which they might or might not be, they will recognise the need to maintain the illusion that Governments are still responsible to the Citizenry, and make token gestures of hollow sacrifice. This, coupled with a sharp uptick in bread and circuses, will likely be enough to keep the Citizenry of the world in check, and docile.
We would like to make it clear, though, that we don't quite see massive civil unrest, a la James Kunstler or Gerald Celente, happening this year. This is not to say the possibility isn't there, of course - the 18th Century French aristocracy assumed the rabble would simply take their lumps, as it were, but those same aristocrats all had their heads chopped off during the Revolution. However, we feel that Governments will be able to maintain the illusion of responsibility to their respective Citizenry through most, if not all, of this year. Next year, 2011, we think all bets are off; we could see that being the year when even major OECD Governments start to loose their aura of faux responsibility.
However, if civil unrest does occur this year, it will likely be in those countries where the Citizenry has a long and noble tradition of taking to the streets. France, Greece, and Italy, for example, are the most likely, in our mind, to see some form of uprising, along with Spain and Portugal. The United Kingdom is a lesser possibility, along with the rest of the core counties of Europa (i.e. Germany, et cetera); Canada, Australia, Russia, and Brasil are not likely to see revolts, as those populations are either relatively docile, or well-policed. The United States, as the most docile and beaten-down country on the planet, will almost certainly not see anything resembling unrest. China, though, is the wild-card, in our mind: it will either have no problems whatsoever, thanks to the famous heavy hand of Communism, or it will completely blow to pieces, taking any mirage of a recovery down with it.
We end with a little tune, sung to Old MacDonald Had a Farm:
Ol' Lloyd Blankfein had a trough,
E - I - E - I - N!
And in that trough he poured some slop,
E - I - E - I - N!
And some slop! slop! here, and an oink! oink! there,
Here some slop, there an oink,
Here some slop, there an oink!
Ol' Lloyd Blankfein had a trough,
E - I - E - I - N!
Ol' Lloyd Blankfein did God's work,
E - I - E - I - N!
...et cetera...
Showing posts with label china. Show all posts
Showing posts with label china. Show all posts
Wednesday, January 6, 2010
Saturday, November 7, 2009
FDIC Bank Failure Report
This week, the Federal Deposit Insurance Corporation closed five banks: United Security Bank, of Sparta, GA; Home Federal Savings Bank, of Detroit, MI; Prosperan Bank, of Oakdale, MN; Gateway Bank of St. Louis, of St. Louis, MO; and United Commercial Bank, of San Francisco, CA. The total assets of the closed banks were $11,599,100,000, and total deposits were approximately $7,866,300,000. The cost to the FDIC is estimated at $1,532,700,000.
According to our methodology, the recoverable value of the banks was $6,333,600,000, or only 54.60% of the declared asset value. This makes this week's closures distinctly below the cumulative recoverability since December of 2007, which stands at 57.73% (down from last week's 57.81%).
Cumulative cost-to-FDIC so far in the Depression was brought to $50,490,500,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $511,961,580,000, and total FDIC-insured deposits to $346,067,320,000. The recoverable value of all failed banks was only $295,576,820,000 (57.73% of the declared value).
***
The situation with United Commercial Bank (UCB) is an interesting one, as it marks a degree of cooperation previously unseen in the banking world. UCB, UCB of Hong Kong, and UCB-China in Shanghai were all closed by the FDIC's actions, in cooperation with the Hong Kong government and the China Banking Regulatory Commission. Although it's a moment to wave the non-existent flag of international fellowship and all that, we would like to point out just how bad this looks to us.
The FDIC's actions show just how interconnected the financial systems of the World are, and how terribly difficult it is to find any sort of separation across national borders; this will make sorting failed banks like UCB very difficult, especially if non-US agencies are not quite as cooperative as they were this time. In addition, it's all well and good, as far as the average U.S. Citizen is concerned, that the FDIC took over banks in China; what happens if and when China starts taking over banks in the United States?
But leaving that aside, we have a loose prediction for the general trend of future, weekly FDIC closures: they will likely consist of a handful of minor community banks, and one large-ish bank. This week's format is a good example of what we're walking about, as the banks other than UCB were quite small indeed. Since we are fully convinced the FDIC is effectively out of money, this would suggest that the banks which the FDIC manages to scrape up the cash to close are the worst imaginable banks in the United States... leaving aside such cesspools as Citibank, Wells Fargo, Bank of America, JPMorgan Chase, et al.
***
On the basis of the ratio of bank closures to population (i.e. simply the number of failures in each State, with no account of assets or deposits), the ten most afflicted States are listed here. Only those States which have two or more closures are considered.
1. Georgia
2. Nevada
3. Illinois
4. Minnesota
5. Utah
6. Kansas
7. Missouri (up from #8)
8. Oregon (down from #7)
9. Arizona
10. Colorado
The recoverable value represents how much of declared assets are worth by our estimate on the open market. The following are the ten States with the lowest recoverable value; only those States which have had two or more closures are considered in this analysis.
1. Florida (32.44%)
2. California (42.37%, up from 40.11%)
3. Colorado (42.76%)
4. Michigan (43.18%, up from 43.07%)
5. Nevada (50.13%)
6. Georgia (53.79%, up from 53.74%)
7. Utah (55.39%)
8. Arizona (56.08%)
9. Washington (56.18%)
10. North Carolina (56.7%)
***
We're very pleased with how these two lists have shaped up; the movement from week to week is becoming very slight, so we're pretty confident this gives a relatively accurate idea of how badly off these various States and the banks within them are. Of course, our analysis only reflects those States which have had over two bank failures, so that leaves a good portion of the Union (and its... extensions) not reflected in our report.
Nevertheless, these five States - Georgia, Utah, Arizona, Nevada, and Colorado, in no particular order - are likely to be among the worst-off, as they are represented in both the preceeding lists. We really can't say which of those is the king of the dung heap, as it were, because we still haven't figured out how to compare apples and oranges.
According to our methodology, the recoverable value of the banks was $6,333,600,000, or only 54.60% of the declared asset value. This makes this week's closures distinctly below the cumulative recoverability since December of 2007, which stands at 57.73% (down from last week's 57.81%).
Cumulative cost-to-FDIC so far in the Depression was brought to $50,490,500,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $511,961,580,000, and total FDIC-insured deposits to $346,067,320,000. The recoverable value of all failed banks was only $295,576,820,000 (57.73% of the declared value).
***
The situation with United Commercial Bank (UCB) is an interesting one, as it marks a degree of cooperation previously unseen in the banking world. UCB, UCB of Hong Kong, and UCB-China in Shanghai were all closed by the FDIC's actions, in cooperation with the Hong Kong government and the China Banking Regulatory Commission. Although it's a moment to wave the non-existent flag of international fellowship and all that, we would like to point out just how bad this looks to us.
The FDIC's actions show just how interconnected the financial systems of the World are, and how terribly difficult it is to find any sort of separation across national borders; this will make sorting failed banks like UCB very difficult, especially if non-US agencies are not quite as cooperative as they were this time. In addition, it's all well and good, as far as the average U.S. Citizen is concerned, that the FDIC took over banks in China; what happens if and when China starts taking over banks in the United States?
But leaving that aside, we have a loose prediction for the general trend of future, weekly FDIC closures: they will likely consist of a handful of minor community banks, and one large-ish bank. This week's format is a good example of what we're walking about, as the banks other than UCB were quite small indeed. Since we are fully convinced the FDIC is effectively out of money, this would suggest that the banks which the FDIC manages to scrape up the cash to close are the worst imaginable banks in the United States... leaving aside such cesspools as Citibank, Wells Fargo, Bank of America, JPMorgan Chase, et al.
***
On the basis of the ratio of bank closures to population (i.e. simply the number of failures in each State, with no account of assets or deposits), the ten most afflicted States are listed here. Only those States which have two or more closures are considered.
1. Georgia
2. Nevada
3. Illinois
4. Minnesota
5. Utah
6. Kansas
7. Missouri (up from #8)
8. Oregon (down from #7)
9. Arizona
10. Colorado
The recoverable value represents how much of declared assets are worth by our estimate on the open market. The following are the ten States with the lowest recoverable value; only those States which have had two or more closures are considered in this analysis.
1. Florida (32.44%)
2. California (42.37%, up from 40.11%)
3. Colorado (42.76%)
4. Michigan (43.18%, up from 43.07%)
5. Nevada (50.13%)
6. Georgia (53.79%, up from 53.74%)
7. Utah (55.39%)
8. Arizona (56.08%)
9. Washington (56.18%)
10. North Carolina (56.7%)
***
We're very pleased with how these two lists have shaped up; the movement from week to week is becoming very slight, so we're pretty confident this gives a relatively accurate idea of how badly off these various States and the banks within them are. Of course, our analysis only reflects those States which have had over two bank failures, so that leaves a good portion of the Union (and its... extensions) not reflected in our report.
Nevertheless, these five States - Georgia, Utah, Arizona, Nevada, and Colorado, in no particular order - are likely to be among the worst-off, as they are represented in both the preceeding lists. We really can't say which of those is the king of the dung heap, as it were, because we still haven't figured out how to compare apples and oranges.
Thursday, July 9, 2009
The Great Fall of China
We have always felt that China's strengths are greatly overstated. It always seemed to us that glowing reviews of the PRC were editing out many inconvenient details about the nature of China, thereby making investment in China - financial or otherwise - seem like a good, though risky, venture. As the leading industrialising power in the world, the PRC garnered quite a bit of clout, especially as its economy grew at a pace which seemed to defy all natural limits. The nation produced more cheap plastic crap than the biggest spendthrifts in the world - Americans - could possibly absorb.
In the past we came up with a short list of reason why we felt China was doomed to collapse somewhere along the line: a severe disproportion of male to female citizens; no strong tradition of common law; and a totalitarian Communist government. These three things, we felt, are any one of them sufficiently problematic to deal a serious blow to the PRC.
And then the 2007 Depression happened, and the game changed completely. Communism is, in practice, a cannibalistic system: it requires constant inputs of new resources - both raw and financial - in order to keep the State-run enterprises from going belly up. This wasn't such a concern in a growing world economy, because there was always more resources to throw at bloated and inefficient industries. But now, the world economy is shrinking thanks to the Depression; the pain of which will be vastly increased by Peak Just-About-Everything.
Other factors are lining up to suggest a serious blow to China. For instance, the World Bank has predicted that Foreign Direct Investment in China is going to drop by 20% this year. Although that will not create a concurrent 20% drop in China's economy, it will help to bring down 'growth' to some degree. If 'growth' is too low, the PRC will not be able to give jobs to its vast population, and they will be very angry about that.
Additionally, we read that vicious riots have broken out in the capital city of Xinjiang, apparently brought on by ethnic tensions. This, we posit, is going to become evermore common in China in the months and years ahead. Simply put, the PRC has ravaged China in the hope of generating those stellar economic growth numbers, and now they will no longer be able to make good on their promises. The one-billion-plus Chinese are not going to be happy, especially as they find the nation's export sector is in shambles.
We also learn that the GDP of China has been overstated by about 40%; it is only a $6 trillion dollar economy. That's a serious bite out of the PRC's ability to keep its population in check via jobs and pay cheques. Even the Indian Defence Review is making noises about China's impending difficulties.
In conclusion, we have to wonder how not only China's own population expects the PRC to make good on its promises of growth and prosperity, but why much of the rest of the world is hoping that China will haul them out of recession. China has, at least by our reading, become a cornerstone to 'recovery,' a cornerstone which we think is both faulty and due to fail in less time than one might think. When China does fall, as we believe it will, all talk of recovery will end, and the world will be forced to realise that the situation in the 2007 Depression is very dire indeed.
In the past we came up with a short list of reason why we felt China was doomed to collapse somewhere along the line: a severe disproportion of male to female citizens; no strong tradition of common law; and a totalitarian Communist government. These three things, we felt, are any one of them sufficiently problematic to deal a serious blow to the PRC.
And then the 2007 Depression happened, and the game changed completely. Communism is, in practice, a cannibalistic system: it requires constant inputs of new resources - both raw and financial - in order to keep the State-run enterprises from going belly up. This wasn't such a concern in a growing world economy, because there was always more resources to throw at bloated and inefficient industries. But now, the world economy is shrinking thanks to the Depression; the pain of which will be vastly increased by Peak Just-About-Everything.
Other factors are lining up to suggest a serious blow to China. For instance, the World Bank has predicted that Foreign Direct Investment in China is going to drop by 20% this year. Although that will not create a concurrent 20% drop in China's economy, it will help to bring down 'growth' to some degree. If 'growth' is too low, the PRC will not be able to give jobs to its vast population, and they will be very angry about that.
Additionally, we read that vicious riots have broken out in the capital city of Xinjiang, apparently brought on by ethnic tensions. This, we posit, is going to become evermore common in China in the months and years ahead. Simply put, the PRC has ravaged China in the hope of generating those stellar economic growth numbers, and now they will no longer be able to make good on their promises. The one-billion-plus Chinese are not going to be happy, especially as they find the nation's export sector is in shambles.
We also learn that the GDP of China has been overstated by about 40%; it is only a $6 trillion dollar economy. That's a serious bite out of the PRC's ability to keep its population in check via jobs and pay cheques. Even the Indian Defence Review is making noises about China's impending difficulties.
In conclusion, we have to wonder how not only China's own population expects the PRC to make good on its promises of growth and prosperity, but why much of the rest of the world is hoping that China will haul them out of recession. China has, at least by our reading, become a cornerstone to 'recovery,' a cornerstone which we think is both faulty and due to fail in less time than one might think. When China does fall, as we believe it will, all talk of recovery will end, and the world will be forced to realise that the situation in the 2007 Depression is very dire indeed.
Tuesday, June 16, 2009
The Changing Face of Economic Power
It is our ongoing opinion that the financial hegemony of the United States Government is firmly on the wane. Between two costly and unwinable wars, massive bailouts, and grossly distended off-balance-sheet liabilities, we don't see anything other than a collapse of the U.S. Dollar at some point in the future. We can't say when, though... we are only certain that such a collapse will happen.
An interesting sign of the change in monetary power is the news that Brazil, Russia, India, and China (known as the BRIC) are holding their first-ever economic summit together. According to this article, the BRIC group together represents around 15% of the world's economy, and hold approximately 40% of the world's currency reserves. Such numbers make the BRIC group, if the member nations can act in concert, an economic force to be reckoned with.
Considering that the BRIC group is apparently weathering the Depression better than most nations - at least so far - that suggests the group will become a larger force in deciding the landscape of the world's economy. Specifically, we suspect the group will be taking a long, hard look at the U.S. Dollar's hegemony, and whether or not those little pieces of paper will have any value as a reserve currency for the future.
Frankly, we suspect not. The United States is going down a fiscal and monetary path blazed by Japan and Zimbabwe, among others. However, the meltdown of Zimbabwe and the constant doldrums of Japan weren't such a big problem, as those nations did not enjoy having the world's major reserve currency. The United States, on the other hand, does. Whether it goes the way of Japan or of Zimbabwe, will make it extremely painful for any nation to hold Dollars as a currency reserve.
It may take awhile for the collapse of the U.S. Dollar to sink into the collective minds of the BRIC group, as well as the European nations. But we expect that, sooner or later, it will; that will signal the end of the United States' credit line from the BRIC group, as well as the eventual collapse of the Federal Government's ability to grossly deficit-spend like mad.
When Governments fail, the currency need not. However, when a currency fails, the Government which issues said currency does fail. In the short term, we really can't say what will happen to the Dollar, nor of its status as reserve currency. Perhaps the world economy likes the abuse, and will therefore keep the Dollar around for awhile longer... or perhaps not. Whatever the case, though, we suspect the U.S. Dollar has a long-standing date with repudiation. The only question, in our mind, is when.
An interesting sign of the change in monetary power is the news that Brazil, Russia, India, and China (known as the BRIC) are holding their first-ever economic summit together. According to this article, the BRIC group together represents around 15% of the world's economy, and hold approximately 40% of the world's currency reserves. Such numbers make the BRIC group, if the member nations can act in concert, an economic force to be reckoned with.
Considering that the BRIC group is apparently weathering the Depression better than most nations - at least so far - that suggests the group will become a larger force in deciding the landscape of the world's economy. Specifically, we suspect the group will be taking a long, hard look at the U.S. Dollar's hegemony, and whether or not those little pieces of paper will have any value as a reserve currency for the future.
Frankly, we suspect not. The United States is going down a fiscal and monetary path blazed by Japan and Zimbabwe, among others. However, the meltdown of Zimbabwe and the constant doldrums of Japan weren't such a big problem, as those nations did not enjoy having the world's major reserve currency. The United States, on the other hand, does. Whether it goes the way of Japan or of Zimbabwe, will make it extremely painful for any nation to hold Dollars as a currency reserve.
It may take awhile for the collapse of the U.S. Dollar to sink into the collective minds of the BRIC group, as well as the European nations. But we expect that, sooner or later, it will; that will signal the end of the United States' credit line from the BRIC group, as well as the eventual collapse of the Federal Government's ability to grossly deficit-spend like mad.
When Governments fail, the currency need not. However, when a currency fails, the Government which issues said currency does fail. In the short term, we really can't say what will happen to the Dollar, nor of its status as reserve currency. Perhaps the world economy likes the abuse, and will therefore keep the Dollar around for awhile longer... or perhaps not. Whatever the case, though, we suspect the U.S. Dollar has a long-standing date with repudiation. The only question, in our mind, is when.
Tuesday, June 9, 2009
Electricity Use Declines
This report from Communist China: Electric consumption is down 4% from last year. How the economy overall can be reported to show growth in the face of falling electricity use is perplexing. This simplest explanation is that the communist government is merely making up GDP numbers that make the government look good even while the country's economy is crashing.
Fabricated statistics in China is nothing new. It is one of the hallmarks of a failing political and economic system - in this case, the curious hybrid of communist totalitarianism with a capitalistic flair. Somewhat more reliable statistics can be found in OECD countries, but a fair amount of massaging goes on there as well.
In the USA, electric generation is down (as of February) 7.3% year over year, according to the Energy Information Administration. As it was not a mild winter, the drop can be logically associated with decreased need in industry.
We will be attempting to post further honest measures of the economic situation in the future. However, with the problem of faulty - or even make-believe - statistics, not to mention constant misinterpretation, the quest for quality information is difficult at best.
Fabricated statistics in China is nothing new. It is one of the hallmarks of a failing political and economic system - in this case, the curious hybrid of communist totalitarianism with a capitalistic flair. Somewhat more reliable statistics can be found in OECD countries, but a fair amount of massaging goes on there as well.
In the USA, electric generation is down (as of February) 7.3% year over year, according to the Energy Information Administration. As it was not a mild winter, the drop can be logically associated with decreased need in industry.
We will be attempting to post further honest measures of the economic situation in the future. However, with the problem of faulty - or even make-believe - statistics, not to mention constant misinterpretation, the quest for quality information is difficult at best.
Tuesday, June 2, 2009
This Week's Herbert Hoover Award
Today, we will give the Herbert Hoover Award to the individual most obviously lying through their teeth. Without further ado, onto this week's winner! Presenting (drum roll):
Recently in China, Secretary Geithner had the gall to inform the students of Peking University that he "believe[s] in a strong dollar," and that "Chinese [dollar-denominated] financial assets are very safe." Apparently the Secretary hasn't been informed that the term "strong dollar" is now a punch-line. Additionally, reviewing the excellent graphs of John William's Shadow Stats, we notice several disturbing things.
First is the value of the U.S. Dollar: it appears to be taking another little dip. We would like to draw your attention to the last high in the power of the Dollar, as it was in 2002 or so. The recent 'strength' of the U.S. Dollar only reached the purchasing power of 2006 Dollars... nothing to write home about.
Secondly, and this is the more damning graph, is the money supply; more precisely the M1 money supply (i.e. coin, paper money, and the deposits in chequeing accounts). As a general rule of thumb, increases in M1 usually correlate with inflation. So, if M1 is increasing at 16% or so, and the trend continues, one can reasonably expect inflation to be cooking along at a respectable 16% or so. We do hope the Chinese will do more than just laugh at the Treasury Secretary's bold-faced lie... perhaps they might use all their dollars to buy industrial and precious metals?
Congratulations, Mr. Secretary. Your trophy will be on your desk by Friday.
Runner-up in for the Award this week was Vice-President Joseph Biden, for stating the painfully obvious. "We know some of this money is going to be wasted," he said recently, referring to the Federal Government's bailout plan. Thank you, Mr. Vice-President, we already figured that one out.
As runner-up, Mr. Biden will receive a red origami crane.
U.S. Secretary of Treasury Timothy Geithner
Recently in China, Secretary Geithner had the gall to inform the students of Peking University that he "believe[s] in a strong dollar," and that "Chinese [dollar-denominated] financial assets are very safe." Apparently the Secretary hasn't been informed that the term "strong dollar" is now a punch-line. Additionally, reviewing the excellent graphs of John William's Shadow Stats, we notice several disturbing things.
First is the value of the U.S. Dollar: it appears to be taking another little dip. We would like to draw your attention to the last high in the power of the Dollar, as it was in 2002 or so. The recent 'strength' of the U.S. Dollar only reached the purchasing power of 2006 Dollars... nothing to write home about.
Secondly, and this is the more damning graph, is the money supply; more precisely the M1 money supply (i.e. coin, paper money, and the deposits in chequeing accounts). As a general rule of thumb, increases in M1 usually correlate with inflation. So, if M1 is increasing at 16% or so, and the trend continues, one can reasonably expect inflation to be cooking along at a respectable 16% or so. We do hope the Chinese will do more than just laugh at the Treasury Secretary's bold-faced lie... perhaps they might use all their dollars to buy industrial and precious metals?
Congratulations, Mr. Secretary. Your trophy will be on your desk by Friday.
***
Runner-up in for the Award this week was Vice-President Joseph Biden, for stating the painfully obvious. "We know some of this money is going to be wasted," he said recently, referring to the Federal Government's bailout plan. Thank you, Mr. Vice-President, we already figured that one out.
As runner-up, Mr. Biden will receive a red origami crane.
Thursday, February 19, 2009
The Era of Peak Scam
It seems that not a day goes by we don't read about some juicy new financial scandal. The latest is the embezzlement of billions from funds earmarked to help 'rebuild' Iraq. The total cost to the American Citizenry may never be known, but as the article from The Independent notes, it's probably bigger than Bernard Madoff's $50 billion Ponzi scheme.
As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.
With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.
Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.
As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.
With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.
Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.
Wednesday, December 17, 2008
Where's the Bottom?
It is now pretty much universally acknowledged that the world's economy is in decline. Even a leader of the stature of Canada's Prime Minister without a Parliament, Mr. Harper, concedes a depression might be possible (source).
Thus, collectively society begins to leave the denial phase and move towards anger. One can expect to see more riots as in Greece and China; more factory occupations as in the U.S. and China; vendettas against banksters such as Mr. Madoff; and who knows what else.
After anger comes bargaining, depression, and finally acceptance. Whether this takes months or years remains to be seen. Even when everyone accepts the fact of the 2007 Depression, it doesn't mean that the economy has hit bottom.
The bottom will be found when failed and failing enterprises and institutions cease to be a drag on society's resources. At that point resources can be applied to meeting people's needs, and the economy can begin resuming more or less healthy functioning.
Generalities aside, what will the bottom look like? Probably half or more of the population will not be working full time, but getting by with a combination of self-employment, odd-jobs, informal work (much of it for barter), and so on. Large numbers will be jobless, homeless, and otherwise restive. There will likely be many disruptions to important services such as utilities, government, retail and banking. There may be many grand gestures by governments to turn things around, but likely they will be mostly for show.
What will turn things around is when people draw on their inner resources to become entrepreneurial - to spot opportunities to meet people's needs, learn new skills, and make new connections. New and surviving institutions will of necessity be extremely frugal and resourceful.
This is a very long way from where society is now. All the way down, people will be clamoring for bailouts, job programs, loans, and whatever else they imagine will remove from them the burden of responsibility to create their own means of living. You, Reader, would be wise to become entrepreneurial or align yourselves with such persons, if you are not already. Affiliation with dying enterprises and institutions may be maintained, but only if you are building up self-reliance on the side.
Thus, collectively society begins to leave the denial phase and move towards anger. One can expect to see more riots as in Greece and China; more factory occupations as in the U.S. and China; vendettas against banksters such as Mr. Madoff; and who knows what else.
After anger comes bargaining, depression, and finally acceptance. Whether this takes months or years remains to be seen. Even when everyone accepts the fact of the 2007 Depression, it doesn't mean that the economy has hit bottom.
The bottom will be found when failed and failing enterprises and institutions cease to be a drag on society's resources. At that point resources can be applied to meeting people's needs, and the economy can begin resuming more or less healthy functioning.
Generalities aside, what will the bottom look like? Probably half or more of the population will not be working full time, but getting by with a combination of self-employment, odd-jobs, informal work (much of it for barter), and so on. Large numbers will be jobless, homeless, and otherwise restive. There will likely be many disruptions to important services such as utilities, government, retail and banking. There may be many grand gestures by governments to turn things around, but likely they will be mostly for show.
What will turn things around is when people draw on their inner resources to become entrepreneurial - to spot opportunities to meet people's needs, learn new skills, and make new connections. New and surviving institutions will of necessity be extremely frugal and resourceful.
This is a very long way from where society is now. All the way down, people will be clamoring for bailouts, job programs, loans, and whatever else they imagine will remove from them the burden of responsibility to create their own means of living. You, Reader, would be wise to become entrepreneurial or align yourselves with such persons, if you are not already. Affiliation with dying enterprises and institutions may be maintained, but only if you are building up self-reliance on the side.
Sunday, November 30, 2008
The Risk Bubble
As one may have noticed, many of the strange financial instruments blowing up world-wide deal with risk. The sheer complexity of these instruments makes understanding them completely almost impossible, but a few generalisations can be made. Typically, these exotics disassociate the risk usually connected with a certain investment, packaging them into a 'security' and selling them off as an investment in their own right.
The how and why these instruments are blowing up is not particularly important, merely that the nuclear mushroom clouds are appearing across the world. It is our opinion that these exploding instruments are indicative of a major shift in the world's economy. Namely, a shift in how investment risk is managed.
For (a somewhat oversimplified) example, to ship cheap plastic crap from China, a manufacturing company will hire a freighter from a shipping company, since the manufacturing company does not own any shipping. The shipping company, at the same time, doesn't own the ships it rents out! It leases the ships from yet another company, which only owns commercial freighters and doesn't actually operate them.
This circuitous system is, at its simplest, merely a way the manufacturing company can avoid the risks associated with owning freighters. The risk of ship ownership is held by one company, the operating risk another. This particular intermediation is already breaking down: shipping companies are losing access to credit to finance their cargoes, and having difficulty making their lease payments to the actual owners of the ships proper. At the same time, the ship owners are having trouble making their financing payments...
It is our observation that one of the effects of the 2008 Depression is the collapsing of risk. This can be seen in the shipping example, as well as exotic investment vehicles. We posit a bubble of risk intermediation is popping. The symptoms of this bubble should become more apparent in the coming months, as the companies which depend on sloughing off their risk feel the squeeze; and in the coming years, as organisations who took on the risk of others cannot meet their obligations.
On the positive side, we feel there will be opportunity in the disintermediation of risk. Having intermediated risk is similar to credit leverage, and if one can avoid it at all costs, one likely has a higher chance of economic survival in the 2008 Depression.
In an extreme example, this is why holding one's money in one's mattress may be far better than leaving it on deposit in a bank. If a true bank run develops (i.e. every bank has its own run), cash and deposits will be rationed-by-queue. One only needs to look at Zimbabwe today to see how bad that sort of thing can get. People in Zimbabwe right now are queuing up at banks every day to withdraw the equivalent of 25 cents U.S., the maximum withdraw allowed by law. One shouldn't think it will never happen in the United States, or in other developed countries.
The how and why these instruments are blowing up is not particularly important, merely that the nuclear mushroom clouds are appearing across the world. It is our opinion that these exploding instruments are indicative of a major shift in the world's economy. Namely, a shift in how investment risk is managed.
For (a somewhat oversimplified) example, to ship cheap plastic crap from China, a manufacturing company will hire a freighter from a shipping company, since the manufacturing company does not own any shipping. The shipping company, at the same time, doesn't own the ships it rents out! It leases the ships from yet another company, which only owns commercial freighters and doesn't actually operate them.
This circuitous system is, at its simplest, merely a way the manufacturing company can avoid the risks associated with owning freighters. The risk of ship ownership is held by one company, the operating risk another. This particular intermediation is already breaking down: shipping companies are losing access to credit to finance their cargoes, and having difficulty making their lease payments to the actual owners of the ships proper. At the same time, the ship owners are having trouble making their financing payments...
It is our observation that one of the effects of the 2008 Depression is the collapsing of risk. This can be seen in the shipping example, as well as exotic investment vehicles. We posit a bubble of risk intermediation is popping. The symptoms of this bubble should become more apparent in the coming months, as the companies which depend on sloughing off their risk feel the squeeze; and in the coming years, as organisations who took on the risk of others cannot meet their obligations.
On the positive side, we feel there will be opportunity in the disintermediation of risk. Having intermediated risk is similar to credit leverage, and if one can avoid it at all costs, one likely has a higher chance of economic survival in the 2008 Depression.
In an extreme example, this is why holding one's money in one's mattress may be far better than leaving it on deposit in a bank. If a true bank run develops (i.e. every bank has its own run), cash and deposits will be rationed-by-queue. One only needs to look at Zimbabwe today to see how bad that sort of thing can get. People in Zimbabwe right now are queuing up at banks every day to withdraw the equivalent of 25 cents U.S., the maximum withdraw allowed by law. One shouldn't think it will never happen in the United States, or in other developed countries.
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