Archive for the ‘Stock Market Crash Watch’ category

Chronicles Of Depression 2.0: #482: Keiser

December 29, 2008

Max Keiser: Predicting the collapse of Iceland

Aljazeera re-aired Max’s 2007 prediction of a collapse of the Icelandic economy.

While the program aired in August 2007, it was filmed in April 2007.

Watch for the scene in the Blue Lagoon in which Max predicts a global Depression to be caused when all these debts driven by low interest rates burst.

Emphasis added by me.

It wasn’t just debt — it was outright fraud. Isn’t that correct, Bernie Madoff, you bastard?

Things will get dramatically worse between now and Obama’s Inauguration.

You’ll have to find your Doom fixes elsewhere, however. I won’t be blogging after Wednesday.

Chronicles Of Depression 2.0: #480: FAIL!

December 20, 2008

Situation report: global economy, December 2008

What’s next?

Viewpoints about the crisis have coalesced into three camps.

1. The “normal global recession” camp. Just another cycle, US GDP down perhaps -3% peak to trough.

2. The “worst recession since the 1930’s” camp. A bad scene, but the world’s governments are now on the job. Fiscal and monetary policy will do the job, again. US GDP down 5% or so. See this example.

3. The “worse than worst” scenario. Government policy might not work — or it might work but only with long lags. Uncertainty rules; the outcome is unknowable.

I don’t give a damn what opinions have coalesced around as “possible” outcomes.

There is only one outcome: Utter collapse and misery for hundreds and hundreds of millions.

How many of you know the fraud is on a worldwide scale of a quadrillion dollars?

How many of you yet understand that fraud was the everyday way business was being done?

How many of you think we’ll be a placid population while undergoing massive starvation and panic?

Let me try to explain the situation in a manner I think everyone can understand.

Your Windows XP PC has been running for several hours. It’s really a unit a few years old, but that’s what you have to deal with. Firefox has been running because you’ve been on the Internet all that time.

With your limited CPU and RAM, every time a new browser tab is opened, you risk everything seizing up. It’s almost like Browser Roulette: Which tab will lead to a website with so much Flash and Javascript crap that it will totally freeze Firefox?

Our economic system is old. Every new fraud has been a new browser tab. The system has frozen. It is going to crash.

Now, when you reach that point with your PC, what do you do? Do you just take the PC and throw it away? Of course not.

With XP and Firefox there are two choices:

1) Bring up Task Manager and kill the Firefox application. But that doesn’t necessarily free up fragmented RAM, so things could still run slow when Firefox is launched again.

2) You kill Firefox via Task Manager and then reboot the PC.

You’re still using the same system, but now everything has a fresh start.

This is what needs to be done with the entire worldwide economic system from all the way at the very bottom to the top.

Worldwide economic reboot.

The only way that can happen is for every government to agree that we’ve all screwed up. The only way out is a synchronized reboot of the system.

I call that 777: The total forgiveness of all debts, period.

Adam Smith was wrong.

And we are not not not going to have worldwide suffering to prove a goddammed point of ideology.

Ideas are created to serve people.

We do not create ideas to enslave us.

I am not offering this up as a suggestion, either.

I am telling you that every single one of you is going to recognize this as the only way out of this mess, period. It’s inevitable, it’s unavoidable, and it’s the only only only thing that will work.

Everyone is going to left holding a bag of shit at the end, one way or the other, from very rich to very poor.

But our nations will be intact, our infrastructure will be intact, the flows of information will remain intact, our populations will not be sick and dying and frustrated, and the massive release of productive energy this will create will be unprecedented in all of human history.

Recognize that.

I pray you all do so before the chaos really begins and gets out of hand.

Chronicles Of Depression 2.0: #474: Cheer

December 17, 2008

Aw, in these dark times, I thought I’d post a happy, fun video that will make all of us get in the proper spirit of the times!

Watch it completely.

Enjoy.

Chronicles Of Depression 2.0: #468: End Of Days

December 8, 2008

Vauxhall Insignia 2.8 V6
An adequate way to drive to hell

Yes, this is a car columnist. Yes, this is a column about cars.

It also presents the most frank assessment of our economic doom.

I have spoken to a couple of pretty senior bankers in the past couple of weeks and their story is rather different. They don’t refer to the looming problems as being like 1992 or even 1929. They talk about a total financial meltdown. They talk about the End of Days.

Emphasis added by me.

And:

It is impossible for someone who scored a U in his economics A-level to grapple with the consequences of all this but I’m told that in simple terms money will cease to function as a meaningful commodity. The binary dots and dashes that fuel the entire system will flicker and die. And without money there will be no business. No means of selling goods. No means of transporting them. No means of making them in the first place even. That’s why another friend of mine has recently sold his London house and bought somewhere in the country . . . with a kitchen garden.

These, as I see them, are the facts. Planet Earth thought it had £10. But it turns out we had only £2. Which means everyone must lose 80% of their wealth. And that’s going to be a problem if you were living on the breadline beforehand.

Eventually, of course, the system will reboot itself, but for a while there will be absolute chaos: riots, lynchings, starvation. It’ll be a world without power or fuel, and with no fuel there’s no way the modern agricultural system can be maintained. Which means there will be no food either. You might like to stop and think about that for a while.

Emphasis added by me.

Oh, you can read it again and again and wonder if his tongue is planted in his cheek. That’s what the Brits are very, very good at doing. But reading through it carefully, all to the end, and no, he’s telling the truth you won’t see on front pages.

Update: Jeremy Clarkson on car sales decline — here’s a BBC video with him on the radio briefly mentioning key points written above. You decide. I don’t see tongue-in-cheek. (Thanks to Alan Pritt for this!)

Chronicles Of Depression 2.0: #462: I, Minority

December 7, 2008

Deflation virus is moving the policy test beyond the 1930s extremes

We are beyond the extremes of the 1930s. The frontiers of monetary policy are being pushed to limits that may now test viability of paper currencies and modern central banking.

You cannot drop below zero. So what next if the credit markets refuse to thaw? Yes, Japan visited and survived this policy Hell during its lost decade, but that was a local affair in an otherwise booming global economy. It tells us nothing.

This time we are all going down together. There is no deus ex machina to lift us out. Certainly not China, which is the most vulnerable of all.

Emphasis added by me.

All Sink or All Swim.

Pay attention:

As the risk grows, officials at the highest level of the British Government have begun to circulate a six-year-old speech by Ben Bernanke – at the time of its writing, a garrulous kid governor at the US Federal Reserve. Entitled Deflation: Making Sure It Doesn’t Happen Here, it is the manual of guerrilla tactics for defeating slumps by monetary means.

“The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost,” he said.

Critics had great fun with this when Bernanke later became Fed chief. But the speech is best seen as a thought experiment by a Princeton professor thinking aloud during the deflation mini-scare of 2002.

His point was that central banks never run out of ammunition. They have an inexhaustible arsenal. The world’s fate now hangs on whether he was right (which is probable), or wrong (which is possible).

As a scholar of the Great Depression, Bernanke does not think that sliding prices can safely be allowed to run their course. “Sustained deflation can be highly destructive to a modern economy,” he said.

Once the killer virus becomes lodged in the system, it leads to a self-reinforcing debt trap – the real burden of mortgages rises, year after year, house prices falling, year after year. The noose tightens until you choke. Subtly, it shifts wealth from workers to bondholders. It is reactionary poison. Ultimately, it leads to civic revolt. Democracies do not tolerate such social upheaval for long. They change the rules.

Emphasis added by me.

They change the rules — we are they.

Pay closer attention to this:

The Fed can acquire houses, stocks, or a herd of Texas Longhorn cattle if it wants. It can even scatter $100 bills from helicopters. (Actually, Japan is about to do this with shopping coupons).

All the Fed needs is emergency powers under Article 13 (3) of its code. This “unusual and exigent circumstances” clause was indeed invoked – very quietly – in March to save the US investment bank Bear Stearns.

There has been no looking back since. Last week the Fed began printing money to buy mortgage debt directly. The aim is to drive down the long-term interest rates used for most US home loans. The Bernanke speech is being put into practice, almost to the letter.

No doubt, such reflation a l’outrance can “work”, but what is the exit strategy? The policy leaves behind a liquidity lake. The risk is that this will flood the system once the credit pipes are unblocked. The economy could flip abruptly from deflation to hyper-inflation.

Nobel Laureate Robert Mundell warned last week that America faces disaster unless the Bernanke policy is reversed immediately. This is a minority view, but one held by a disturbingly large number of theorists. History will judge.

Emphasis added by me.

1) Tell me where that Fed helicopter dropping 100s is going to be. I want a fat handful.

2) “A minority view.” Let me tell you what else was the “minority view” just a short year ago:

– we had massive fraud in mortgages
– we had massive fraud in finance
– major banks would topple
– investment banks would go under
– the word “depression” would be widely used
– unemployment would explode
– the Big 3 would beg for handouts
– investing in gold was foolish
– oil would never hit $100/barrel

Do I need to list any more?

Now sudden hyperinflation is the “minority view.”

When that comes to pass and you’re starving and suffering in USA-Zimbabwe, I want all of you to remember the new “minority view” — there is only one way out of this.

Chronicles Of Depression 2.0: #442: Destruct

November 26, 2008

This Is Not A Normal Recession: Moving on to Plan B

There are many types of of structured instruments including asset-backed securities (ABS), mortgage-backed securities (MBS), collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) all of which provide a revenue stream from loans that were chopped into tranches and turned into securities. There are many problems with these complex securities, the biggest of which is that there is no way to unravel the individual pools of loans to isolate the bad paper. That’s why subprime mortgages had such a destructive affect on the secondary market, because–even though subprimes only defaulted at a rate of roughly 5 percent–MBS sales slumped nearly 90 percent. Why? Former Secretary of the Treasury Paul O’Neill explained it like this: “It’s like you have 8 bottles of water and just one of them has arsenic in it. It becomes impossible to sell any of the other bottles because no one knows which one contains the poison.”

Exactly right. So why weren’t these structured debt-instruments “stress tested” before the markets were reworked and the financial system became so dependent on them?

Greed. Because the real purpose of these exotic investments is not to provide true value to the buyer, but to maximize profits for the seller by increasing leverage. That is the real purpose of MBS, CDOs and all the other bizarre-sounding derivatives; higher profits with less capital. It’s a scam. Here’s how it works: A mortgage applicant buys a house for $400,000 and puts 10 percent down. His mortgage is sold to Wall Street, chopped into pieces, and stitched together in a pool of similar loans. Now the brokerage can use the debt as if it were an asset, borrowing at ratios of 20 or 30 to 1 to fatten the bottom line. When Fannie Mae and Freddie Mac were taken into conservatorship by the government, they were leveraged at an eye-popping 100 to 1. This shows that nearly an infinite amount of debt can be precariously balanced atop a paltry amount of capital. This explains why the $4 trillion aggregate value of the 5 big investment banks and the $1.7 trillion value of the hedge funds is now vanishing more quickly than it was created. Once the mighty gears of structured finance shift into reverse, deleveraging begins with a vengeance pulling trillions into a credit vacuum.

Emphasis added by me.

You know what’s screwy? This is exactly a laissez-faire market at work and there are people who refuse to recognize that! This is a Comment posted to the Blogger backup of this blog in response to my scourging the “Austrian school” of economics:

This crisis was neither a failure of laissez-faire capitalism nor Ayn Rand’s ideas, it was a failure of intensive regulation —with Greenspan’s hypocritical contributions.

Hello! These structured investments had no regulations governing them at all! That’s as fucking laissez-faire as gets!

Back to this post:

So far, the Federal Reserve has provided nearly $2 trillion through its lending facilities just to keep the financial system upright. The Treasury is currently distributing $700 billion to key banks and other financial institutions that are perceived to be “too big to fail”. In truth, the “too big to fail” mantra is a just public relations hoax to conceal the web of counterparty deals that make it impossible for one institution to fail without dominoing through the rest of the system and wreaking havoc. That’s why AIG is still on life-support with regular injections of taxpayer money; because it had roughly $4 trillion of credit default swaps (structured “hedges” that are not traded on a regulated exchange) for which AIG does not have sufficient capital reserves. In other words, the taxpayer is now paying the debts of an insurance company that didn’t set aside the money to pay its claims. (As yet, No SEC indictments for securities fraud) In fact, the Fed and Treasury are now providing a backstop for the entire structured finance system which is frozen solid and shows no sign of thawing any time soon.

Emphasis added by me.

Hey, Ayn Randroids and “Austrians,” don’t squeak about the free market. Read here how no capitalist would touch CitiGroup to rescue it! It’s as Ralph Nader said: Capitalism will never die because Socialism will keep rescuing it!

There is much detail in this post about how Paulson’s and Bernanke’s efforts are nothing more than smoke-and-mirror feel-good triage (my terms) rather than fundamental repairs.

The post concludes:

Rome is burning. It’s time to stop tinkering with a failed system and move on to “Plan B” before it’s too late.

They have no “Plan B.”

I do:

Chronicles Of Depression 2.0: #441: Nash V. Smith
Chronicles Of Depression 2.0: #431: Acceleration
Chronicles Of Depression 2.0: #427: 777

Chronicles Of Depression 2.0: #437: Global

November 24, 2008

The world’s central banks must buy assets

The world economy is suffering from a Keynesian shortage of demand. Worse, it is trapped in a dangerous downward spiral of falling asset prices, rising bankruptcies, foreclosures and unemployment feeding into more of the same, along with falling commodity and now goods prices. Since no country is exempt, international co-ordination is needed and made easier because of the obvious common interest. The rapidity of the current contraction also means that fiscal solutions, though helpful, are not timely enough and create obvious free rider problems.

That is why monetary policy should be the first line of action. But conventional monetary policy has gone almost as far as it can in the US and Japan. The failure of the European Central Bank and the Bank of England decisively to respond in October was very damaging, but that is now history. Policy rates will fall further in December, but may make only a modest contribution to stabilising demand, given the further decline in bank balance sheets and rising levels of fear. It is therefore time for unorthodox policy, but one that is far better than Milton Friedman’s helicopter drops of money, because it is reversible.

Emphasis added by me.

This is the first article I’ve encountered calling for cooperation on a worldwide scale.

Why continue to throw bad money after good?

If demand is the problem, it can be created on a scale never before witnessed in the history of mankind.

This guy’s “unorthodox” solution is merely orthodoxy writ larger.

Why call for worldwide cooperation and coordination for just that paltry effort? It wouldn’t work anyway.