Perspectives on the global economic meltdown- (Nov 28 2010)

ldev · Post by **ldev** » 06 Mar 2011 22:20

Arjun wrote:Fyi, the money the US government (and therefore taxpayers) has made and lost through TARP on different sectors is publicly available, and anybody can google this up.

The latest on TARP P&L is as follows:

1) Bailout of banks: estimated profit of $ 20 Bn to government
2) Bailout of GM, Chrysler : estimated loss of $ 19 Bn
3) Bailout of AIG: estimated loss of $14 Bn
4) Fannie Mae & Freddie Mac : estimated loss of $70 Bn

What do we have here ? - the banks pulled in a profit for taxpayers & the big losers were the auto industry (a mainstay of your 'productive' economy), an insurance firm, and government-owned mortgage guarantee firms (the primary villians who caused the catastrophe in the first place).

For a truer picture look at the Federal Reserve Balance Sheet as of March 2, 2011 and compare it with the Federal Balance Sheet as of Dec 26, 2007 i.e. before the Federal Reserve began its large scale asset purchase programs.

For a further truer picture... to the numbers above.... add changes to broad money supply M3 for the US dollar, a figure which you cannot get anywhere anymore. When and if the Federal Reserve unwinds its positions and if it suffers a capital loss on its unwinding, add that loss to the total. The loss via inflation to all globally denominated assets and commodities in USD via the increases in M3 should also be added. People talk about privatizing profits and socializing losses. What M3 increases do is privatize US national profits and globalize savings losses.

svinayak · Post by **svinayak** » 07 Mar 2011 00:30

http://www.zerohedge.com/article/coming ... -revisited

We will bottom WHEN:

CNBC and Bloomberg start firing anchors and cutting their coverage time by hours, not minutes.

Maria Bartiromo and Jim Cramer start telling investors to short the market with all they’ve got.

Questions like “do you think we’re heading for a recovery” result in the questioner getting punched in the face or ignored like a loony tune.

People HATE stocks and stock ownership has plummeted back to one in ten Americans (the pre-401(k) levels).

Investing is no longer a hobby and people fight tooth and nail to retain their nest egg (honestly what the hell is “play” or “speculative” money?)

The number of mutual funds has fallen by at least half (why are we paying fees for people who can’t beat the market?).

People no longer want to get an MBA to become a broker or a financial advisor.

Our economy is based on “making something,” not “offering advice.”

Books about Warren Buffett no longer comprise an entire publishing industry (seriously, Amazon lists 5,000+ books on him).

The Richest 500 people in the world are no longer all billionaires (never happened before in history… how’s that for concentration of wealth?)

Then… we will have probably hit bottom.

devesh · Post by **devesh** » 07 Mar 2011 00:44

Arjun:

there is an example of a private bank acting like a clearing house. a non-profit govt organization can follow that example. i am speaking of the Suffolk Bank of Boston, which operated from 1818 to 1858.

http://en.wikipedia.org/wiki/Suffolk_Bank

read Murray Rothbard's Austrian view on the suffolk bank, and there are many facts that are surprising. in the panic of 1837, New England banks which had a tie-up with Suffolk avoided most of the panic and came out unscathed. and Boston area, where most banks were part of the Suffolk system, had the least number of bank failures during the panic as a % of total banks.

svinayak · Post by **svinayak** » 07 Mar 2011 02:02

The seeds of today’s crisis were first sown in 1971 when the US formally opened up trade with China.
No, they weren't. They were planted earlier than that. They were planted in the 50's and 60's, when the Western world allowed Japan to forge a new development paradigm that came to be known as the Asian Model. That model is built around a handful of sub rosa subsidies to the business sector from the workers/comsumers, including things like cheap currency, low interest rates, suppressed wages/consumption, and import barriers (sometimes by overt policy, sometimes informally).

Whole sectors of American industry were already shadows of themselves long before China entered the scene (and even before the usual boogieman Reagan took office); for instance textiles and clothing, steel, and even non-computer consumer electronics were already back on their heels by the beginning of the 1980's.

The US government began bartering away our blue collar industries back in the 1950's; trading away US workers' jobs in order to help speed post-WWII redevelopment, first in Europe and then Japan, in part to help those left devastated by the war, in part to cement friendships old and new, and in part to help those nations fight off internal communist elements by quickening job growth. The fact that manufacturing employment reached its peak back in 1953 at 33% of US workers illustrates this.

One of the major roots of the problem was the decision to allow Japan to get away with its beggar-thy-neighbor model of development built on international wage arbitrage, currency manipulation, and product dumping. This set the stage for China to follow that same path decades later. The credit explosion since the 70's was just a reaction to that first decision; the-powers-that-be had too much invested (reputation wise) in the earlier decision to re-open that issue when its ill effects became apparent, so they took the path of least resistance -- cut loose the old industrial base and shoved us into the new finance/services/retail based economy. And quite frankly, they much prefer the US-as-office-park model... it is their bailiwick after all. Just like Schumpeter said they would way back in the 40's.

The American economy will continue remaining a giant ponzi scheme until the failed banks are forced to liquidate. Otherwise, these failed banks will continue their practices of capital dislocation and bubble forming, at any cost (to us, the taxpayers).

Wall Street monopolistic, essentially rogue financial entities have destroyed the fabric of our society and broke our laws, making a mockery of fiscal prudence, ethics and justice. Even our very government is controlled and manipulated (by being an interdependent collosal trap) by this highly illegal banctel, where bank executive officers "retire" or transition into various government regulatory and controllership positions, futher aiding and abetting the ongoing fraud. And when the overleverages casino style betting and back-hedging finally tipples over and out of control, the losses are effectively socialized, while the injured parties are thrown out on the street.

By having repealed the essential laws and regulations beforehand banks had stepped up the level of their offense to premeditated obstruction of justice and outright conspiracy to wire fraud. Citibank - Travelers “merger” and “Glass-Steagall shattering” alone had cost us the taxpayers $2-3 Trillions in real asset losses. Hedging, backroom betting, trading fraudulently rated derivatives, all to be eventually back-stopped by the Nation’s books, while remaining off their own is an affront to feducuary trust, a mockery of fiscal prudence and ethics.

VikramS · Post by **VikramS** » 07 Mar 2011 03:09

Neshant:

The reason I am not commenting on your new invention hypothesis is that I do not believe you need a revolutionary new inventions for total economic output and prosperity to increase. I have given you multiple example so how evolutionary changes in technology along with the growth in the user base of these technologies can continue to increase the impact of existing technology on increasing productivity.

On the other hand, while you dismiss the role of evolutionary changes, you have yet to justify why a revolutionary new technology is necessary for the US economy to recover. Perhaps if you paid some attention to the mechanism on how a new revolutionary technology leads to new jobs/productivity, you would not be so derisive of the impact of evolutionary changes.

Where does the money for people to productize the new technology and the people to use the new technology come from? You answer that question first, and then we can talk.

BTW the Germans are probably the best example of what you call productive economy. BASF the premier German Chemical firm has the following tag-line
""At BASF, we don't make a lot of the products you buy. We make a lot of the products you buy better."" Ignore evolutionary changes at your own peril.
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I sense some sour grape in your rants. While the SPX has gone up 2X in since the lows, there are many sectors which are up 4-5x. While precious metals have done well, their gains are not as spectacular. Perhaps ranting about how it is a ponzi scheme, and collapse of the system is your way of coming to grips with your decisions.

There is no doubt that the potential for a major disruption in the global system is very likely. There can be variety of reasons for that. But in this environment when the market reprices itself astonishingly fast, investing ONLY for the day the sky will fall is not advisable. Plan for it but do not get obsessed with it.
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BTW there were a lot of people who called the housing bubble. The challenge was getting the timing right.

VikramS · Post by **VikramS** » 07 Mar 2011 03:25

ldev wrote:
For a truer picture look at the Federal Reserve Balance Sheet as of March 2, 2011 and compare it with the Federal Balance Sheet as of Dec 26, 2007 i.e. before the Federal Reserve began its large scale asset purchase programs.

For a further truer picture... to the numbers above.... add changes to broad money supply M3 for the US dollar, a figure which you cannot get anywhere anymore. When and if the Federal Reserve unwinds its positions and if it suffers a capital loss on its unwinding, add that loss to the total. The loss via inflation to all globally denominated assets and commodities in USD via the increases in M3 should also be added. People talk about privatizing profits and socializing losses. What M3 increases do is privatize US national profits and globalize savings losses.

That the issue is global is often lost in the rhetoric. If the US is running a ponzi scheme so is China. As I wrote earlier in the thread, the interest rates in China are significantly lower than inflation. Chinese bond auctions have failed multiple times in the past few years. There seems to be a rush to buy precious metals in China, among the savers simply because paper is not returning much less than inflation.

In the US the contribution of commodity costs to the overall cost equation is significantly smaller compared to the rest of the world. If the US is going to be affected by commodity inflation, so will be the rest of the world, especially China.

The one aspect the Fed has to keep in mind that it may not be prudent to ignore commodity inflation as it could do before. Commodity prices have historically volatile but unlike the past there is a secular change in the demand base thanks to the growth of the emerging economies. The rise in prices is likely to be more permanent than in the past.

Neshant · Post by **Neshant** » 07 Mar 2011 06:15

Arjun wrote:1) Bailout of banks: estimated profit of $ 20 Bn to government
What do we have here ? - the banks pulled in a profit for taxpayers

My man you are wasting your time confusing yourself with bogus financing & high rolling logic. All the money banks are making now is coming from ripping off the taxpayer period. Common sense will tell you that commercial banks are loaded to the gills with bad mortgages and leveraged up on top of that! Real estate prices have kept going down even with all the money printing. So there is no profit but in fact a sh&tload of losses that will be charged to the taxpayer.

"Borrowing" from the govt at 0% and buying govt treasuries at 3-4% is NOTHING more than a ripoff of the taxpayer (free money). Its as if I were running a loss making grocery store by day and burglarizing the neighbourhood by night and claiming I'm making a profit.

Another source of the so called profits are banks gambling in the stock market casino with that money while their chief representative the federal reserve continues printing money to rig the very same markets for their benefit - yet another ripoff of savers domestic & global alike. Meanwhile volume on the stock market keeps going down which tells you individuals are out of it and only banking crooks are playing around to milk it of as much taxpayer printed money as possible.

To conclude, the useless middleman industry's profits are not based on adding any value to the productive economy but rather ripping it off. Amen.

The technology alternative for connecting investors and savers has been long tried by several entrepreneurs

Electronic commerical exchanges already exist so I don't know what you are talking about. All that's needed is for it to be non-profit and run for the benefit of the people perhaps by the govt. No trillion dollar solution, no goldman sachs scammer need apply, its a simple exhange that's needed. The point here is for price discovery to take place and to connect savers to enterpreneurs once the switch to honest money is made. Meanwhile fiat scams, undue influence and the useless middleman industry will be history.

I'm coming round to the idea that the real stimulus the productive economy needs is to get rid of the useless middleman industry and that will unleash a load of funds which are currently being ripped off by this most useless sector of the economy.

Why is it necessary for the government to do this? Why not shareholders get together and file a case?

Share holders _HAVE_ filed a case. Govt is obstructing it because govt has been corrupted by the useless middleman industry. That's the exact example I gave with pension funds. Can you imagine the consequences of a ruling against the corrupt rating agencies and useless middleman industry that bribed them? Every domestic and foreign investor who lost money in 2008 will jump in to file a suit against these con men and that will be the end of that.

So in order to prevent that, justice needs to be subverted & denied to grandma who must now live on the street and eat dogfood while con men from the useless middleman industry sit pretty (and collect a taxpayer bonus to boot!).

If you are assigning blame, why not also discuss which set of animals bears the greatest burden for the recession of '09 -09 : is it the investment banks, the rating agencies, the GSEs, the mortgage originaters, the politicians who wanted to advance home ownership as a basic American right, the economists who didn't see this coming, or the Fed??

What do you think I have been railing against for dozens and dozens of messages? It was I who coined the term "USELESS MIDDLEMAN INDUSTRY" and ALL of the above forms a part of it. I've been knocking sense into so many financing guys here for so long, my knuckles are sore.

I've also pointed out the solution. The only way to get rid of the useless middleman industry is to start at the source of the corruption which is the issuance of bad money. It is from bad money that all these evils flow. That is at the very root of it all and that's where the change needs to take place.

Arjun · Post by **Arjun** » 07 Mar 2011 09:45

Neshant, I would like to boil down the discussion to three observations / issues that I believe are the most key-

1) You are possibly within your rights to call the entire Financial system a Ponzi scheme - but as Vikram pointed out, firstly please stop restricting this to the US alone. You are questioning the basis of the global financial order at this stage - the same financial order that all countries around the world (including the future superpowers - India, China, Brazil et al) have as the basis for their economies. So this is not a US-specific issue by any means.

2) I think you have an extremely naive view of the alternatives that are out there....Many many folks have studied as well as tried as entrepreneurs to see if an alternate system could be developed and the answer is that there is none. The technology solutions that you talk about are extremely niche and will in no way work as replacements for the entire financial system. The system of investment banks, commercial banks, rating agencies, exchanges, buys-side funds etc all working as intermediaries in the movement of capital from savers to investors - is the best system there can be - and there is NO better alternative out there. Happy to expand on this point in subsequent posts, since this really goes to the crux of the whole debate.

3) Accountability and fixing blame for when things go wrong in the economy. This is an interesting point. Can one really go after the Fed for accountability on the sub-prime collapse? Fraud or gross negligence requires one to prove that either (a) certain defined processes were not followed or (b) certain expertise which is generally accepted as going along with the trade was not displayed by the concerned team / individual. An example of the latter in medical practice would be to sue a doctor if he prescribed a certain medicine for a symptom when the generally accepted norm would have been to prescribe something altogether different. But this only works for deterministic fields - in the case of economics there is no deterministic answer, there are different schools of economists having different ideas for running the economy. So, the only alternative is to see if certain processes were not followed -ie should the Fed have informed Congress about aspects of its program and sought approval, and was this not followed?

Personally this would be interest for me - in that if economists, the Fed etc can be sued then we should go after the holy grail - have the ability to sue politicians for their actions !! File a case in the courts against Manmohan for Sharm-el Sheikh, against Nehru for allowing Kashmir to go to the UN etc, against Bush for Iraq... Can this kind of accountability be ever possible - it would be interesting to speculate, but I would not hold my breath on the Fed being held accountable very soon.

On the same issue - the Fed can very well argue that the same policies that resulted in the sub-prime collapse of '08-'09 had resulted in the boom of '03 - '07. So the question is, what parameters can you point to so as to quantify where Americans are today in terms of their financial well-being, as compared to 2002 or earlier? That would also be an interesting issue to address.

Hari Seldon · Post by **Hari Seldon** » 07 Mar 2011 10:03

Arjun,

Good points but as usual, many nitpicks from argumentative Yindians only.

1) You are possibly within your rights to call the entire Financial system a Ponzi scheme - but as Vikram pointed out, firstly please stop restricting this to the US alone. You are questioning the basis of the global financial order at this stage - the same financial order that all countries around the world (including the future superpowers - India, China, Brazil et al) have as the basis for their economies. So this is not a US-specific issue by any means.

Good point - the whole world is a ponzi scheme. Yay.

But saar, in the long run, we are all dead only. So ultimately, when the sun goes red dwarf and all, GDP growth will cease to matter, perhaps.

Point about ponzi scheming is unsustainability in the short-to-medium term. See, as long as SS type of ponzis will remains nominally solvent till, what, 2040 or something, it's way too far away for the generation in power (the 45-60 age group?) to care about deeply right now. Similarly, as long as the global financial scam-o-ramas could continue to find new suckers, to quote from sri neshant's elegant but repetitive rhetoric, nobody really cared only. Trouble now is, the fancy assumptions, spreadshit models and solutioneering that underlied (over-lied?) the ponzi is looking, slightly shaky only. Gawd forbid, the ponzi unravel on the watch of the scammers now, no?

However, I will admit that such unraveling is far less likely than the likes of sri neshant seem confident about. Too much is riding on keeping the facade going a wee bit longer, year after year. Sure, things happen that nobody wants should happen - like WW1 that none of the major powers then wanted to fight but which broke out anyway, but the elitemen running things are, hopefully, a tad wiser now. Or so we should hope.

2) I think you have an extremely naive view of the alternatives that are out there....Many many folks have studied as well as tried as entrepreneurs to see if an alternate system could be developed and the answer is that there is none. The technology solutions that you talk about are extremely niche and will in no way work as replacements for the entire financial system. The system of investment banks, commercial banks, rating agencies, exchanges, buys-side funds etc all working as intermediaries in the movement of capital from savers to investors - is the best system there can be - and there is NO better alternative out there. Happy to expand on this point in subsequent posts, since this really goes to the crux of the whole debate.

There is no alternative because the existing system, tottering though it may be, is still not broken down completely and it actively prevents the rise of challengers.

When and If things do go to the dogs completely, alternatives will emerge, rest assured.The alternatives needn't and likely won't be pretty but they will be there. In Russia, am told, after the great yeltsin-ian collapse of economic normality, people went back to barter to navigate the chaos the emerged. Necessity==innovation's mamma mia and all that.

Again, this is an unlikely scenario and I wouldn't lose sleep over it. Wouldn't be haughty-type dismissive either, lemme rush to admit before sri neshant jumps on me.

3) Accountability and fixing blame for when things go wrong in the economy. This is an interesting point. Can one really go after the Fed for accountability on the sub-prime collapse? Fraud or gross negligence requires one to prove that either (a) certain defined processes were not followed or (b) certain expertise which is generally accepted as going along with the trade was not displayed by the concerned team / individual. An example of the latter in medical practice would be to sue a doctor if he prescribed a certain medicine for a symptom when the generally accepted norm would have been to prescribe something altogether different. But this only works for deterministic fields - in the case of economics there is no deterministic answer, there are different schools of economists having different ideas for running the economy. So, the only alternative is to see if certain processes were not followed -ie should the Fed have informed Congress about aspects of its program and sought approval, and was this not followed?

Well, how about transparency first? Accountability can come later, am sure. How about sue-ing acts of commission - like rating agency fraud, like foreclosure fraud, like rampant securities fraud, like .... etc etc first, eh? Would be interesting to see how many of the masters of the universe (fin elitemen) turn approvers under a pecora style grilling and spill the beans on (deliberate?) acts of omission as well (by the regulators and the mother of regulators - the Fed). No? I know, I know, am all dreaming and all that only. Such will never happen. Only. But still,m the day we have given up dreaming of right things, we have given in to darkness, non-imagination and despair only.

Jai ho, JMTPs have a nice day and all that.

Arjun · Post by **Arjun** » 07 Mar 2011 11:19

Hari Seldon wrote:Point about ponzi scheming is unsustainability in the short-to-medium term. See, as long as SS type of ponzis will remains nominally solvent till, what, 2040 or something, it's way too far away for the generation in power (the 45-60 age group?) to care about deeply right now. Similarly, as long as the global financial scam-o-ramas could continue to find new suckers, to quote from sri neshant's elegant but repetitive rhetoric, nobody really cared only. Trouble now is, the fancy assumptions, spreadshit models and solutioneering that underlied (over-lied?) the ponzi is looking, slightly shaky only. Gawd forbid, the ponzi unravel on the watch of the scammers now, no?

If Social Security is unsustainable due to demographic changes - it will have to be renegotiated at some point. Similar to filing for bankruptcy - which is a normal part of the financial system allowing the firm / economy breathing space to set things right. All part of the normal financial process - why is it that the global financial order is seriously wrong now that a developed economy is in a spot of trouble but not when developing countrys were earlier ?? From India's perspective - India is better managed economically and is right in lecturing the Americans on sticking to the pains that go along with being prudent but UNDER the current financial order.

I am highly supportive of regulation that is required to refine the current system - but it seems to me the more the focus is on mythical 'alternate' financial systems, the less the practical value of the discussion.

There is no alternative because the existing system, tottering though it may be, is still not broken down completely and it actively prevents the rise of challengers.

When and If things do go to the dogs completely, alternatives will emerge, rest assured.The alternatives needn't and likely won't be pretty but they will be there. In Russia, am told, after the great yeltsin-ian collapse of economic normality, people went back to barter to navigate the chaos the emerged. Necessity==innovation's mamma mia and all that.

Why wait for a collapse? I am all for a free market - which means one should have the ability to check out competing systems and determine which is better. I would support carving out a country in some island - and given entirely to all those who want an alternate 'barter' system or 'gold system' or whatever. Once Neshant and others prove their system out there - maybe the rest of us would want to adopt the system, OR emigrate to Neshant's island !!

Well, how about transparency first?

All for it !! Something like RTI should be in place regarding the Fed's decisions...on the other hand, in cases where open market operations would be affected by the market knowing things in advance - the Fed should certainly be given leeway.

VikramS · Post by **VikramS** » 07 Mar 2011 13:24

When talking about the US issues like SS, Pension plans, do realize that these are domestic obligations. Unlike the Fannie/Freddie which were held by foreigners, there are no foreigners who are going to be affected by a breach of contract. Ghar ki baat hain.

Because it is domestic, sooner or later it will have to be resolved. There will be a lot of rhetoric and a lot of arm-twisting but eventually the public employee unions will be forced to come to the table. I feel it is going to be a combination of multiple things:

Cuts in benefits
=> Raising minimum eligibility age
=> Cutting down amount of aid
=> Linking aid to need etc.
=> Cutting down on fraud and other misuse

Efficient delivery of Medicare benefits
=> Move towards government controlled health care delivery
=> Restrictions on the money spent on end of life benefits
=> Greater acceptance of lower cost alternatives (health executives in lower cost countries have a great opportunity at their hand...)

The interesting thing about all these projections is that compound. Cut down the expenditure by 5% and raise the inputs by 2% and you reduce the run rate significantly (the number are just an example).

Also do realize that compared to W. European countries which offer similar social nets, the tax rates in the US are still low. I doubt there is a rush to raise taxes right now, but they will eventually increase. Every situation is unique and every country is different. But the US is quite unique in the transparency, willingness to make changes and accept losses, the flexibility in putting together newer setups.

shyam · Post by **shyam** » 07 Mar 2011 13:26

Arjun wrote:I am highly supportive of regulation that is required to refine the current system.

Before demanding more regulations, demand prosecution of all those who violated existing regulations and laws. Then talk about additional regulations needed. More regulations without teeth for enforcement only creates more Frankensteins. It harms genuine people and not violators.

shyam · Post by **shyam** » 07 Mar 2011 13:30

Voter betrayal: FG/Labour to ditch pledges on economy

The Fine Gael/Labour coalition Government is to implement in detail the outgoing Government's four-year austerity plan as approved by the EU-IMF, the Sunday Independent can reveal.

In what will amount to the most barefaced breach of election promises ever perpetrated by an incoming Government, the coalition partners' programme for government will cause uproar when it is published today.

Bankers - 2
Irish people - 0

Democracy creates faceless dictators (c).

Hari Seldon · Post by **Hari Seldon** » 07 Mar 2011 18:00

VikramS wrote:When talking about the US issues like SS, Pension plans, do realize that these are domestic obligations. Unlike the Fannie/Freddie which were held by foreigners, there are no foreigners who are going to be affected by a breach of contract. Ghar ki baat hain.

Because it is domestic, sooner or later it will have to be resolved. There will be a lot of rhetoric and a lot of arm-twisting but eventually the public employee unions will be forced to come to the table.

Good points. So the gubmint, the regulators, the punditocracy, Acadhimmia and who not lead people up the garden path right to the cliff-edge before 'admitting' that they were wrong about the promised pension, healthcare and basic security in the ripe old age of the sheeple only. Precisely when the sheeple who will now get thrown under the bus will have nothing and had saved nothing believing said promises. What they had in 401(k)s is eaten anyway. What they had in FDs and savings is eaten by inflation. It won't be pretty.

But what to do, what can't be repaid won't be repaid now, will it? The concern is 'poverty' of the turd world variety might actually revisit the TFTA world in the not-so-distant future. And the TFTA world isn't terribly well-prepared to deal with it, perhaps.

The interesting thing about all these projections is that compound. Cut down the expenditure by 5% and raise the inputs by 2% and you reduce the run rate significantly (the number are just an example).

Very good point. And I would certainly like to see unkil cut down on wasteful military expenditure, propping up TSP, fomenting unrest on distant shores etc etc. About time and all that.

Also do realize that compared to W. European countries which offer similar social nets, the tax rates in the US are still low. I doubt there is a rush to raise taxes right now, but they will eventually increase. Every situation is unique and every country is different. But the US is quite unique in the transparency, willingness to make changes and accept losses, the flexibility in putting together newer setups.

Yup, when unkil becomes like oirope, its military reach and projection too will become more like oirope's, perhaps. We will see. Unkil will become a more 'normal' country perhaps. Time will tell, let us see.

Hari Seldon · Post by **Hari Seldon** » 07 Mar 2011 18:14

^^^ Shyam,

yes, I saw that piece about the Irish gubmint giving in to the banksters. Abject surrender only.

Iceland stands famously alone in giving the banksters the finger so far. That too after hajaar fight and even their gubmint tried its best to buckle and wiggle as well.

IOW, all this will get worse, possibly much worse, before it starts to get better.

As usual, nothing we can do but wait, watch and hope the mango peoples don't suffer too much in the interim before sanity is restored.

devesh · Post by **devesh** » 07 Mar 2011 20:32

the question isn't just about sanity anymore. the banksters are moving openly without any fear at all. the way Irish govt has backpedaled is confirmation that banking mob basically owns the politics of countries.

Theo_Fidel · Post by **Theo_Fidel** » 07 Mar 2011 21:55

WRT to the Irish the bankers have already got their money.

The EU is the one holding the notes now. It is the EU states that are getting screwed when they bought this worthless debt for full value.

VikramS · Post by **VikramS** » 08 Mar 2011 00:38

The Irish capitulation is a bit disheartening...

The talks of QE3 have started.

PMs should now have a solid bid though they are late in their cycle so could see some sharp corrections.

For those interested in fast trading the multiple of $5 levels on AGQ are good buy/sell points. If the stock market corrects, which it increasingly looks like it will, then the PMs also might follow down a bit (margin issues).

Neshant · Post by **Neshant** » 08 Mar 2011 07:13

You are possibly within your rights to call the entire Financial system a Ponzi scheme - but as Vikram pointed out, firstly please stop restricting this to the US alone.

Can’t really comment on India since I’ve not studied it in depth.

My impression is that the RBI is (for now) under the control of the central govt and as far as I can tell, has not been hijacked by a bunch of private banking goons who are running it like their fifedome. Its genuine intent (it would appear) is to act in the interest of the nation unlike the federal reserve.

However, whenever there’s a structure where one ‘wise man’ sits at the top dictating interest rates and money printing, I just know it will eventually end in a mess. The RBI chairman might have made all the right moves now but its only a matter of time before he does a Ben Bernanke on the country with disasterous consequences. The market should dictate interest rates at all times, not some wise guy at the top. This is the lesson of 2008.

The technology solutions that you talk about are extremely niche and will in no way work as replacements for the entire financial system. The system of investment banks, commercial banks, rating agencies, exchanges, buys-side funds etc all working as intermediaries in the movement of capital from savers to investors

You’ve been taken by useless middleman industry terminology which tries to complicate things to insert itself between saver and entrepreneur and extract fees. Economics by its very nature is straight forward and easy to understand. Anytime you hear jive talk coming from a banking con man, just erase from your mind.

All that’s needed is a) honest money and b) to connect saver to entrepreneur. Actually all that’s needed is (a). The market figures out b on its own.

I find it ridiculous that you mention rating agencies when one of the biggest financial frauds involving tens of trillions of dollars has been as a result of fraud by rating agencies stamping junk as AAA. If there’s one thing that’s not needed, its definitely rating agencies - certainly not any law mandating the use of their worthless ratings. These days you sooner read in the newspaper of problems or improvement before a rating agency clues in.

is the best system there can be - and there is NO better alternative out there.

Surely you are not so far gone that you believe enrolling yourself in a ponzi scheme is the best course of action. Of course there is an alternative to ponzi schemes. Even caveman could come up with a simple system of barter which left him with something as opposed to nothing at the end of the day.

Honest money is the alternative. Defending a ponzi scheme is what does not work.

Fraud or gross negligence requires one to prove that either (a) certain defined processes were not followed or (b) certain expertise which is generally accepted as going along with the trade was not displayed by the concerned team / individual.

Since no expertise is needed to be a wise oracle at the top, I’d agree. However that raises the question, why is a wise oracle sitting at the top fiddling around with trillions of dollars that people have spent their entire lives working for ? Where did this concept of an incompetent bozo sitting at the top with no accountability come from? Perhaps we could replace Ben Bernanke with an ape and give the ape 2 buttons to push : a) print money b) fiddle with interest rates. He'd be doing quantitative easing out both ends. That would work just as well.

But this only works for deterministic fields - in the case of economics there is no deterministic answer

It surely is the best job in the world where one can screw up, destroy the livelyhoods of tens of millions and claim there is no right or wrong answer. If only I could get a job like that.

Except the market has a deterministic answer.

If someone with no job and no savings arrives at your doorstep asking for a loan to buy a house, I’m pretty sure your answer will be deterministic. To claim there isn't a right or wrong answer is to claim there's a 50-50 odds of you handing him your life savings.

However his odds improve significantly if you are gambling with your neighbour's life savings with no negative consequence to yourself should you lose the money. Complication is introduced by the useless middleman industry as a means of obscuring the fraud of ripping off other people’s money and gambling with it. The root of this as I pointed out is bad money which allows a crook to separate a person from the fruits of his labor. That is the objective of fiat money, central banking and the useless middleman industry. The role is purely parasitic - that much is deterministic!

devesh · Post by **devesh** » 08 Mar 2011 07:49

http://www.thestatecolumn.com/state_pol ... al-tender/

Gold standard in Utah? House stamps gold, silver as legal tender

It seems the Utah state House is taking the advice of Texas U.S. Rep. Ron Paul, officially stamping gold and silver as legal tender.

The Utah House on Friday voted 47-26 to pass HB317 by Utah state Rep. Brad Galvez, R-West Haven, and sent it to the Senate. The measure would recognize as legal tender gold and silver coins issued by the federal government.

The measure would also allow the state of Utah to form a commission with the sole intent of examining whether Utah should consider an alternative form of legal tender, possibly gold or silver.

“This is a step in preparedness, a step in security,” Mr. Galvez said, “that allows us to be able to help hold up our economy as the dollar continues to shrink.”

The move comes as proponents of the gold standard continue to speak out. Texas Rep. Ron Paul is among the most vocal of the group calling for a return to a pegging of the dollar to the price of gold.

well well well.....eh....aren't the Tea Party fanatics supposed to be Nazis....they really have something useful to contribute!!! as long as they don't get co-opted by the neocons, they could bring some real change in US.

besides the politics, this is momentous news, imo. a US state now recognizes gold and silver coins minted by GoUS as legal tender, acceptable in all transactions between the state and its citizens.

gold and silver hard money is making its return in the US. it remains to be seen if Obama decides that he needs to open up a new front in the Justice Department against the crazy "states' rights nazis." i would not put it past him. the banking mob would not appreciate it if alternates to the Federal Reserve notes become mainstream.

Neshant · Post by **Neshant** » 08 Mar 2011 10:42

devesh wrote:besides the politics, this is momentous news, imo. a US state now recognizes gold and silver coins minted by GoUS as legal tender, acceptable in all transactions between the state and its citizens.
.

Not so fast. I believe it has to be approved by the senate before it becomes law. That's where it will be shot down.

Its a clever idea however by Ron Paul to bypass the federal reserve's monopoly. Currently if you bought physical gold and sold it for a profit, you'd have to pay tax on the capital gains. Really its not capital that you gained but rather value that the dollar LOST due to inflation (money printing). So basically you get taxed twice, one through the inflation racket another through the capital gains taxation racket. By making gold legal tender, it eliminates the capital gains tax and since nobody can print gold, the inflation tax vanishes as well.

But like I said, it will be shot down in the senate (i'm expecting that to happen).

Last year, Ron Paul's bill to audit the federal reserve was backed by a vast majority of senators (when the public was watching). But 145 of those senators quietly changed sides and voted against it (when the public was not watching). The bill which had over 300 senators backing initially it was defeated! Its a frightning example of how powerful the banks have become in gaming the system to their liking and how politicians pull wool over the eyes of the vast number of ignorant people out there.

So I don't have much hope for this bill. I expect the bill will be defeated in the senate (no doubt after many senators do some grand standing about backing the bill and then voting against it at the last minute).

However when it does get voted down, it will demonstrate one thing - that banking goons intend to keep people trapped in the fiat scam and they really do fear gold. That in itself will be progress.

devesh · Post by **devesh** » 08 Mar 2011 10:56

it was voted for in the Utah House by a 47-26 margin. there seems to be a lot of support. also remember this is not US Senate. it is Utah Senate. and Utah isn't a East/West coast haven but a Plains state with much less influence by banksters and more conservative. i think it will pass. but you're right, the Irish example is all too fresh to take the passage of this bill for granted.

Hari Seldon · Post by **Hari Seldon** » 08 Mar 2011 11:12

Neshant,

Last year, Ron Paul's bill to audit the federal reserve was backed by a vast majority of senators (when the public was watching). But 145 of those senators quietly changed sides and voted against it (when the public was not watching). The bill which had over 300 senators backing initially it was defeated!

IIRC, the US senate has a strength of 100 only. Are you referring to the US congress instead? Ron is a House member besides, not a senator.

Its a frightning example of how powerful the banks have become in gaming the system to their liking and how politicians pull wool over the eyes of the vast number of ignorant people out there.

Too true only. Like they say, 'he who pays the piper calls the tune'. The notion that it is the taxpayer who is paying for it all and hence should be calling the tune has all but disappeared only.

Neshant · Post by **Neshant** » 08 Mar 2011 11:31

Yes sorry, HR 1207, the bill to audit the Federal Reserve got sent to the senate with 320 with 20 co-sponsors in the US Congress.

It got shot down in the US Senate.

---

For the past 30 years, Congressman Ron Paul has worked tirelessly to bring much-needed transparency and accountability to the secretive bank. And in 2009 and 2010 his unfaltering dedication showed astonishing results: HR 1207, the bill to audit the Federal Reserve, swept the country and made the central bankers shudder at their desks. The bill passed as an amendment both in the House Financial Services Committee and in the House itself.

But the usurpers of America’s future didn’t take it lying down. They weren’t about to allow their secrets to be exposed and their magic money machine to be put under close scrutiny. They worked frantically behind the scenes to quietly derail all efforts to open up the Federal Reserve to an independent audit.

A handful of Fed-loving U.S. senators led by Chris Dodd rewrote the Senate version of the Financial Reform Bill to strip out Ron Paul’s Audit the Fed amendment and actually expand the Fed’s power over banks, lending and money. As Alan Grayson pointed out here, and Ron Paul commented on here, the Dodd bill completely eliminated legislation to audit the Federal Reserve, which already passed in the House.

Sen. Bernie Sanders (I-Vt.) introduced an amendment on the floor effectively adding the Grayson-Paul language to the Senate bill, but later changed his amendment under pressure by the Federal Reserve and the Obama administration. The altered Sanders amendment passed the Senate on May 11, 2010 by a unanimous 96-0 vote.

Sen. Vitter reintroduced an amendment with the original Audit the Fed language. The Senate rejected the amendment on May 11, 2010 by a 37-62 vote.

The House and Senate went to the conference committee which attempted to reconcile the differences between the two bills (and their amendments). Unfortunately, Ron Paul’s tough language ended up not being included in the final bill.

On June 30, 2010, the GOP introduced Ron Paul’s Audit the Fed bill as a motion to recommit, which was the last chance to alter the financial regulation bill. Audit the Fed failed by a vote of 229-198. All Republicans voted in favor of the measure with 23 Democrats crossing the aisle to vote with Republicans. 114 co-sponsors of HR 1207, all Democrats, jumped ship and voted against Audit the Fed.

http://www.ronpaul.com/congress/legisla ... e-hr-1207/

Neshant · Post by **Neshant** » 08 Mar 2011 13:02

VikramS wrote:I have given you multiple example so how evolutionary changes in technology along with the growth in the user base of these technologies can continue to increase the impact of existing technology on increasing productivity.

As I have stated, there has not been a single productive industry that has generated well paying jobs on a mass scale since 2000. All the job growth has been bogus. The same song & dance used to justify the rise of the stock market from 2002 to 2008 (which turned out to be fake) is now once again being recycled.

Something new is needed and urgently as merely printing money to push up the stock market is no substitute for real growth anymore than running up debt & house flipping was. Unproductive use of wealth will result in severe damage to the standard of living as we will see shortly.

VikramS wrote: Perhaps if you paid some attention to the mechanism on how a new revolutionary technology leads to new jobs/productivity, you would not be so derisive of the impact of evolutionary changes.

If there was any productive growth due to evolutionary change, we would have seen it from 2002 to 2008. Where was it and where were the jobs it created? Surely it did it only show up after 2008 mysteriously - and where are the jobs since then anyway if you believe the stock market isn't being rigged?

Where does the money for people to productize the new technology and the people to use the new technology come from? You answer that question first, and then we can talk.

I can tell you in one simple sentence where it comes from :

"The money comes from savings."

Savings of the productive economy is where all investment capital in an economy is ultimately derived from. Even when money is borrowed from overseas, its lent with the understanding that repayment will be made from future savings - a mortgage on the future of the productive if you will. Anything that is destroying savings be it printing (which is watering down savings) or scamming (which is ripping off savings) is thus destroying investment capital.

Now in a simple sentence, give me your version of where it comes from without any fancy terminology that aims to baffle & confuse.

While the SPX has gone up 2X in since the lows, there are many sectors which are up 4-5x.

It could have gone up 100X. What does it prove if what's pushing it up is merely money printing and running up debt - which is a ripoff of the productive economy. Eventually all the 'growth' will prove to be as bogus as the growth from 2002 to 2008.

If your point is that playing the stock market can bring profits despite any real growth, I have no doubts. If you point is there's real growth powering the economy, you are off your rockers.

BTW there were a lot of people who called the housing bubble. The challenge was getting the timing right.

Obviously one of them was not Bernanke who's currently fiddling around with trillions of dollars after destroying the said amount.

devesh · Post by **devesh** » 08 Mar 2011 22:15

land, labor, capital are the basis on which economies stand. a country can have good land and labor. but if capital formation process is grossly distorted or manipulated, the former two will fail in creating growth. the basis of capital formation is savings. save today. invest tomorrow. that is the basis of good economies and especially of capitalism. when the capital formation aspect of an economy is not functioning well, the overall prospects for the country are not good. modern America is an example of this. Capital has been destroyed b/c there is no saving to invest, so they have to borrow, and the even borrowed money is not handled well b/c the managers of said money have become criminal enterprises.

Hari Seldon · Post by **Hari Seldon** » 09 Mar 2011 05:03

TAE tweets for today.
http://twitter.com/#!/AutomaticEarth

“The concept of being too important to fail should have no place in a market economy.” Mervyn King, Governor of the Bank of England.

UK Retail chiefs warn Treasury over wave of shop closures http://t.co/mmlc5VM Feel that margin squeeze!

Britain at risk of another financial crisis, Bank of England chief warns http://t.co/3eDQHX7 Candid views.

UK High street sales weakest for almost two years http://t.co/4zEI2FO Discretionary spending down sharply

Yawn. As long as gubmint and pliable media don;t take cognizance of trouble, there's no trouble only.

Food production will have to climb by 70 percent between 2010 and 2050 as the population expands & eats more meat http://t.co/W8yoO5k

And if it doesn't, adjustments will have to happen - like ever more people eating ever less meat, say. Anycase, the burden of 'em adjustments shall fall disproportionately on 'em little people foremost only.

Gallup Finds US Unemployment Hitting 10.3% in February. Underemployment surges to 19.9% in February http://t.co/CwHXdQw

Well, BLS shows unemp at <9% and falling only. Who would ya believe - the nice gubmint agency or your lying eyes?!?

Report: #Saudi Facebook activist planning March 11 protest shot dead http://t.co/9SOAQcJ

Saudis mobilise thousands of troops to quell growing revolt -- The Independent http://ind.pn/fxaWh3

Signaling games in full flow. Like that bollywood song goes "jo dar gaya, woh mar gaya." And KSA is far from intimidated, IMHO. No-nonsense action like this is what PRC relies upon to keep CPC in permanent power only. And I don't see how this vicious cycle can be broken only.

Rogoff Says Debt Restructuring `Inevitable' in Greece, Ireland http://t.co/9FWmFwE Portugal will need a bank bailout in weeks

Well that was quick! Irish Voter betrayal: FG/Labour to ditch pledges on economy http://t.co/coyesE6

Portugal 10 year at record 7.63pc http://t.co/oGK8wY4 The clock is ticking on Portugal, only a question of time.

Yup, both Greek and portugese bond yields are at lifetime highs. Who knows what hides round the next corner, eh?

Game changer? EU parliament approves 0.05pc tax on all financial transactions http://t.co/OIoTw2q Could raise €200 Bn annually

Now this is interesting but, alas, like too many well-meaning initiatives in the past, I expect this to be quielty killed somewhere on the long road to actual implementation.

Heavy D&G doses here:

The 2008 crash isn’t over, only covered up http://t.co/x6cwbre Paul B Farrell's blunt assessment.

Might as well call the Bernank, Chairnobyl. Sooner or later the global economy will have its core qualitatively meltdown.

The FED's policies are akin to a perpetual (debt) motion machine. Impossible from a thermodynamics point of view but that won't stop them.

The only policy that will make the world realise the futility of 'growth' as a concept is when economics meets entropy.

Banks should be the servants of industry http://t.co/HdV30P9 Not the bloody masters of society.

And so on and so forth.

Hari Seldon · Post by **Hari Seldon** » 09 Mar 2011 07:49

John Perkins, in the Prologue to Confessions of an Economic Hitman writes:

That is what we economic hitmen do best: we build a global empire. We are an elite group of men and women who utilize international financial organizations to foment conditions that make other nations subservient to the corporatocracy running our biggest corporations, our government, and our banks. Like our counterparts in the Mafia, EHMs provide favors. These take the form of loans to develop infrastructure -- electric generating plants, highways, ports, airports, or industrial parks. A condition of such loans is that engineering and construction companies from our own country must build all these projects. In essence, most of the money never leaves the United States; it is simply transferred from banking offices in Washington to engineering offices in New York, Houston, or San Francisco.

Despite the fact that the money is returned almost immediately to corporations that are members of the corporatocracy (the creator), the recipient country is required to pay it all back, principal plus interest. If an EHM is completely successful, the loans are so large that the debtor is forced to default on its payments after a few years. When this happens, then like the Mafia, we demand our pound of flesh. This often includes one or more of the following: control over United Nations votes, the installation of military bases, or access to precious resources such as oil or the Panama Canal. Of course, the debtor still owes us the money -- and another country is added to our global empire.

Reads like a ghost written thriller and all. But sadly, it ain't fiction or so evidence on the ground suggests....

Ashvin Pandurangi writes in TAE on the above:link

In the developed world, our "favors" came in the form of high-limit credit cards, zero-down mortgages and publicly-financed entitlements. Now, the powerful banks (through their puppet politicians) have come to our doorsteps, demanding their pound of flesh, which takes the form of subsidies for the extremely rich and austerity for everyone else. Perhaps the most vivid examples of this mafioso dynamic have taken place in Europe, where many EU members (Germany, France, Italy, Spain, Greece, etc.) and the UK have hoisted "harsh" austerity plans on their citizens.

The citizens of Ireland are currently facing an austerity plan worse than anyone else, as the ruling party agreed to tackle 40% of their proposed budget reduction (8% of GDP) in 2011 alone [6], but there has been very little popular dissent in response. Greece has experienced some extremely violent protests over the last year, but Athens is a far cry from Berlin or London. Students in the UK held a rowdy protest over tuition hikes at the end of last year, but so far none of the European protests/riots have influenced any significant changes in economic or political policies. [7]. Continued deterioration in global financial markets will lead to stronger and more frequent popular outbursts, and politicians may be forced to ease up on austerity measures as their respective elections draw near. These concessions could keep European populations relatively obedient and docile for another year or so, but they will ultimately be too few, offered way too late.

But that was Oirope. Such austerity BS won't fly and can't happen in aamchi America now, no? Well, don;t be overly sure.

In the U.S., President Obama's proposed budget for 2011, which was released two months after he extended the Bush tax cuts for the wealthiest Americans (projected to increase the federal deficit by almost $900B over two years [8]), would allegedly reduce the deficit by $1.1T over the next decade. This reduction would be achieved in part by cutting financial aid and heating energy subsidies to those Americans already living below the poverty line. While the politicians have not yet mustered the courage to touch Medicare and Social Security, their financial masters are already figuring out how to manipulate public perception for their benefit.

OK, now TAE is a doomy blog. I read it off and on and like that they're consistently more pessimistic than reality eventually ordains. Good. I'd rather have pleasant surprises than underprepared nasty ones.

Of course, one doesn't have to buy everything laid out there or anywhere else. Perspectives, I guess. As long as they don't get so weird as to confuse, are welcome.

VikramS · Post by **VikramS** » 09 Mar 2011 11:17

Neshant:

I do not understand why you make a link between a new industry creating jobs and impact of existing inventions on productivity. Growth (and the resulting savings) come from increased productivity and there are enough evolutionary changes happening to keep that cycle going.

I am glad you at least mention that the capital to nurture and adopt a new technology comes from savings. And these savings eventually come from increase in productivity.

If you are trying to claim that whatever growth the US had during the 2000s was primarily fueled by cheap money, I really have no disagreement with that. However the money was cheap for a reason: the global imbalance due to the mercantile Chinese policies. Interest rates were low because the Chinese were recycling their surplus dollars into the US bond market.

So while the US continued to bleed manufacturing jobs, its effects were compensated by low cost borrowing. That cycle is eventually going to reverse. QE is forcing the hand of those countries which run a huge surplus with the US but peg their currency to the dollar. You do not have to be told what the chart of gold looks like over the past 10 years.

Also do not underestimate the effect of 9/11 in encouraging cheap money policies. If the US economy, just recovering from a recession of the 2000 was sent back down, the issues would have been different. In some way the construction boom helped cushion the shock of the loss of the manufacturing base. But eventually those imbalances will have to be resolved.

For us as investors, what really is important to know is what the market is doing. Fundamental secular issues can lie dormant for years without surfacing. Of course when it hits, the pain can be really bad. But there is no guarantee when they will hit or that they will hit the US first. We have little to tell us whether the growth is "real" or not. All we can go by is the balance sheets of companies and the nominal profits they are generating, which look jolly good right now.

Even during the great crash of 2008, you could sell your stocks on the Monday after the weekend Lehman went down and bought bonds. You would have watched as the SPX fell from 1200s to 600s, while your bonds sky-rocketed. A better time to sell would of course have been when oil was at $145.

So while there is a reason to have an umbrella and insurance, live it while you can. D&G will never make you happy.

Arjun · Post by **Arjun** » 09 Mar 2011 13:10

Neshant wrote:That is the objective of fiat money, central banking and the useless middleman industry. The role is purely parasitic - that much is deterministic!

Fiat money, central banking - I can see to some extent where you are coming from, even if I don't necessarily agree with your views. Given that fiat money is your pet peeve, I can also see why you need to diss the central banking role in money supply and setting interest rates.

Where I see you completely going off the rails is in your last peeve - the financial sector !!! Nobody is questioning that tighter regulation may be required in the financial services world - but calling for the industry's elimination can only be called an extreme wacko / nut-job view.

1) Since you claim to be a free-markets proponent, which should put both of us on the same side of the table - do you seriously believe your personal opinion on finance, or my opinion on autos matters a whit - clearly it should be the market that decides on what is 'productive' and what is not 'productive'....if there exist folks who want to put their money in banks or borrow from one - they have decided that banks play a productive role. Same goes for the private company that calls on an i-banker to take it public, or the person who decides to take on life insurance so his family faces less risk, or the person who wants to put his money in the equity market but avoid stock-selection by going through a mutual fund, or the entrepreneur who wants capital and knocks on the door of the VC firm to fund him / her.

Or are you the kind of free-markets proponent (!!!) who wants the government to issue a 'fiat' banning these folks in need from utilizing the channels that can assist them???

2) Since you seem to have formed a primitive association that only 'deterministic' outcome fields are productive - I assume you want to ban politics ? ban economists ? ban managers, since they only provide 'non-productive' oversight and layers on top of the 'productive' engineers and workers that toil in their offices? Are you in the tech field by any chance? Are you a coder or a manager? If you are the latter, would you agree yours is a 'non productive' position?

3) Btw, life sciences and genetics also happens to be a non-deterministic field. All that a pharma firm coming out with a new drug has done is that it has tested the drug out on thousands of cases and determined that the drug would 'most likely' not have 'adverse consequences' for the majority of folks. How does that help the one person who dies because his was an extremely rare mix of symptoms that wasn't tested out adequately while conducting the trials? How is this any different from the finance guys who base their experience on the last 50 years of the markets and claim that there is a 1% probability of a major collapse - and yet the sub-prime collapse happened?

4) Lets assume the banking system were to disappear by 'fiat'. The top corporates would probably not be affected - the process of the best corporate risks 'disintermediating' the banks started several decades ago. There will be enough savers who will be willing to put in their money into the top corporate names through corporate bond offerings.

But what about the thousands of SME names across every country? Do you seriously believe that savers would research these company's financials and start lending directly to these SMEs?? That's a laughable notion !!! The whole SME economy is supported by the banks - and by removing this pillar you would be causing the collapse of the entire SME system (pretty much any firm that is not in the top 100 or so ).

devesh · Post by **devesh** » 09 Mar 2011 21:50

i have yet to understand why it's so hard for people to understand that the globalized finance of today is a huge ponzi scheme. it has been promoted as a great enlightened, "modern," development. but it is not. it is a brazen loot that is being perpetrated. the USD/Fed are the center of this scam. from there the disease spreads to other parts. PRC, EU, are all colleagues in this game. ultimately the globalist financiers and banksters will always win this game. the aam admi will always receive the shaft. that is how this system works. it is an anathema as far as the Indic Dharma is concerned. transferring resources to the powerful and ultra rich via a ponzi scheme was never the Indian way, and India should be careful not to fall into this trap.

RamaY · Post by **RamaY** » 09 Mar 2011 22:16

devesh wrote:i have yet to understand why it's so hard for people to understand that the globalized finance of today is a huge ponzi scheme.

IMHO, it is because these seekers study global finance thru the models/tools created for and by global finance. In such a world as long as GDP grows, percapita GDP grows pulling people out of poverty.

VikramS · Post by **VikramS** » 10 Mar 2011 05:37

devesh and RamaY:

Very few people in the world have the power to change the system. So railing against it is almost like railing against the sun on a hot day. As an investor you need to figure out what are the opportunities it creates and the risks it has and react to those; just like you wear a sun-screen and a hat on a hot day or do not look at the sun directly or enjoy its warmth during winter.

Another reason perhaps is that there are hardly any serious alternatives which survive deep scrutiny. All alternatives attack one or the other weakness of the current system while ignoring many other positives; and bring on their own weaknesses.

A lot of the talk about this system is because the housing boom and bust. Just stepping back a bit, if there were no government guarantee of mortgages via Fannie/Freddi would the system have gone bust? I doubt it. Private lending would have been much more strict AND losses would not have to be socialized simply because there was no implicit guarantee from the US government about the debt. So the investors (including the Chinese) would have lost billions on their mortgage bond holdings, instead of them counting on the US taxpayer to bail them out.

It all finally comes down to global trade imbalances and the inability of the USD to adjust to correct them because of currency pegs. Once they go, competitiveness of US industries will increase and some of the manufacturing base will return. This will be especially true if energy and transportation costs remain high. That will in turn help create a new equilibrium. The USD is likely to become much cheaper against the emerging economies, while it still might remain the king of the OECD. The Fed actions are primarily trying to limit the damage during the transition, and make the process smoother. Perhaps the system will still explode; who knows...

I do agree that India should be very selective about the kind of integration it allows and the risks it takes. India does not have a big need for integration and should manage without it till the imbalances clear up.

svinayak · Post by **svinayak** » 10 Mar 2011 05:54

VikramS wrote:
I do agree that India should be very selective about the kind of integration it allows and the risks it takes. India does not have a big need for integration and should manage without it till the imbalances clear up.

Indians should not join this pnzi scheme and make sure that other Indians should not join this
So railing against it even though is almost like railing against the sun on a hot day Indians by not joining it will bring the system down or make sure it does not enter India.

paramu · Post by **paramu** » 10 Mar 2011 07:02

For that Indians have to discuss the problems with the existing system so that everybody understands it, and the alternatives available. They need to realize that the sun they are using to tan is not real sun and the tan they are developing is actually a disease.

svinayak · Post by **svinayak** » 10 Mar 2011 08:57

http://www.marketwatch.com/video/asset/ ... 4C7D284722

Who Is Raj Rajaratnam?
March 8, 2011
Raj Rajaratnam, the Sri Lankan-born founder of the hedge fund Galleon, has become the focus of the most high-profile insider-trading case in a generation. The Wall Street Journal explains the history of the man at the top of an alleged tech-stock secrets food chain.

arnab · Post by **arnab** » 10 Mar 2011 09:10

Acharya wrote: Indians should not join this pnzi scheme and make sure that other Indians should not join this
So railing against it even though is almost like railing against the sun on a hot day Indians by not joining it will bring the system down or make sure it does not enter India.

Except that such a ponzi scheme already exists in India. Heard of a little thing called 'Public Accounts'? (It is one of the 3 accounts operated by GOI). This contains all the - National Savings Schemes, Postal Savings, Kisan vikas Patras, PPF etc in which the aam aadmi invests.

In 2010-11 the receipts into this account was Rs 527,000 crore (just in one year .The 'stock' of outstanding public money payable is of course much higher). The disbursements from this account (i.e. people who claim back their money with interest once they mature) was Rs 520,000 crore. This disbursement is approximately 65% of the total revenue received by GOI in a year.

How does GOI fund this? by 'hoping' that every year more people will put money into these small saving schemes than will take out. That is how the fund repays the money to the public with any shortfall met by GOI through borrowings from the market or by printing money

(we need our own Ron Paul).

Once our demographic shift begins with more old people than young, the game will end

somnath · Post by **somnath** » 10 Mar 2011 09:24

^^Arnab-ji,

Not quite a ponzi scheme...The amounts collected under various small savings schemes are lent out by the central govt to various state govts..As long as the state govt services the loan, the central govt can service the holders of the various "patras"...

EArlier, there was a bit of an accounting anomaly, as parts of the flows used to go into the Public Account while parts of the flows used to be into the Consolidated Fund of India...In 1999, they changed that by creating a National Small SAvings Fund within Public Accounts and integrating all cash flows within the fund..

http://finmin.nic.in/the_ministry/dept_ ... annex5.pdf

there was also an issue earlier of the "interest margin gap", ie, the difference in what is promised to the investor and what is charged by the Central govt to the state govt...I believe that amount is quite small now, and the gap is anyways provided for in the Budget every year - I think it should be there in the subsidies section...

We Indians are far too smart for these ponzi things....

We have avoided a pensions mess as well, well before the danger zone...

svinayak · Post by **svinayak** » 10 Mar 2011 09:26

http://www.huffingtonpost.com/michael-m ... 32006.html

Speech delivered at Wisconsin Capitol in Madison, March 5, 2011

America is not broke.

Contrary to what those in power would like you to believe so that you'll give up your pension, cut your wages, and settle for the life your great-grandparents had, America is not broke. Not by a long shot. The country is awash in wealth and cash. It's just that it's not in your hands. It has been transferred, in the greatest heist in history, from the workers and consumers to the banks and the portfolios of the uber-rich.

Today just 400 Americans have more wealth than half of all Americans combined.

Let me say that again. 400 obscenely rich people, most of whom benefited in some way from the multi-trillion dollar taxpayer "bailout" of 2008, now have more loot, stock and property than the assets of 155 million Americans combined. If you can't bring yourself to call that a financial coup d'état, then you are simply not being honest about what you know in your heart to be true.

arnab · Post by **arnab** » 10 Mar 2011 09:43

somnath wrote:^^Arnab-ji,

Not quite a ponzi scheme...The amounts collected under various small savings schemes are lent out by the central govt to various state govts..As long as the state govt services the loan, the central govt can service the holders of the various "patras"...

EArlier, there was a bit of an accounting anomaly, as parts of the flows used to go into the Public Account while parts of the flows used to be into the Consolidated Fund of India...In 1999, they changed that by creating a National Small SAvings Fund within Public Accounts and integrating all cash flows within the fund..

http://finmin.nic.in/the_ministry/dept_ ... annex5.pdf

there was also an issue earlier of the "interest margin gap", ie, the difference in what is promised to the investor and what is charged by the Central govt to the state govt...I believe that amount is quite small now, and the gap is anyways provided for in the Budget every year - I think it should be there in the subsidies section...

We Indians are far too smart for these ponzi things....

We have avoided a pensions mess as well, well before the danger zone...

Alas but even the State loans are guaranteed by the Central govt giving rise to a huge moral hazard issue. Even after all this if you look at the number of times the States have had to resort to Ways and Means Advances from the RBI just to maintain their cashflows - not really funny any more

The NSSF restructured the accounting issue but not the 'real' issue where with an aging population the disburements will always be higher than receipts. Or a sudden shock to the system where the population begins to doubt GOIs ability to repay the money or people realise the 'money illusion' that a 10% rate of return does not cover a 17% inflation - so maybe invest in riskier equities (and we are back to GFC)