For the last couple of weeks, there have been whispers that some large banks may be in trouble due to the rising dollar. The strength of the dollar is due, in part, to the Federal Reserve’s effort to fight inflation. It is also due to the decline in both the Euro and the British pound. Economic conditions in Europe are deteriorating quickly because of poor management at every level. The relative strength of a currency is the relative strength of the managerial elite that issues it.
Recently, the gossip has turned to Credit Suisse and Deutsche Bank, both of which have seen their share prices collapse. The former has lost about 60% since the start of the year and the latter is down around 50% off its recent high. Credit Suisse could be at risk of imminent collapse, due to its deteriorating credit condition. Banks need credit to function and right now, no one is excited about extending credit to a bank whose CEO is telling employees that the bank is not about to fail.
Some are calling the Credit Suisse crisis the Lehman moment. This refers to the collapse of Lehman Brothers in 2008, which triggered the financial crisis. Banks are dependent upon one another, so if one fails, it can set off a chain reaction where the next weak bank fails, then the next weakest bank. Get enough banks unable to make payments to other banks and the whole system crashes. This is why everyone is worried about the banks all of a sudden.
It is also why the market boomed on Monday. The stock market is wholly dependent on central bank policy now. Loose policy means lots of money creation in the banking system, which means lots of money flowing into markets. Tight central bank policy means the money gets fussy about where it flows. It can even sit on the sidelines and wait until things appear more stable. The robots are betting that Jerome Powell blinks and ends his tightening to save the banks.
This is similar to what recently happened with the Bank of England. All of a sudden, there was no market for the long dated British bonds. This is why the British pound declined in value. This in turn created a crisis for British pension funds, as their collateral started to evaporate. The BoE had to step in and buy long dated bonds to guarantee their price and save the pension funds. As a result, the gilt and pound have stabilized over the last few days.
The weirdness of this age is right there in that action by the BoE. On the one hand, they are trying to fight inflation by reducing the money supply. They do this by raising interest rates, which reduces bank activity. This slows the creation of money, thus reducing the supply of money relative to demand. As relative demand increases, the relative value increases, which is what brings down inflation. In reality, it means a recession, which does the hard work of cratering demand.
Where we are now with the BoE, and probably the Federal Reserve, is that the bank is trying to reduce the amount of money in the system relative to demand. At the same time, they are trying to increase the money in the banking system in order to prevent the banks from running out of cash. Put another way, we may be in a situation where central banks are injecting and withdrawing money at the same time, which is one of those things that is supposed to be impossible.
The current crisis is due to the choices facing central banks. They can provide liquidity to the system or they can fight inflation. If they raise rates to fight inflation, major players who got sloppy with interest rate swaps, for example, are suddenly facing an extinction event, which threatens the whole system. On the other hand, if they protect the system by leaving rates alone, they face the political fury of governments contending with double digit inflation and energy shortages.
There is a bigger issue. The energy problems, the supply chain disruptions, inflation and the fragile credit markets are due to political incompetnace. Over the last three years, Western governments, led by Washington, have found every bad decision possible and then made it with furious enthusiasm. People cannot be blamed for thinking it is deliberate, because that is the best answer. The odds of rulers being this dumb this often strikes most people as impossible.
This is a time when Occam’s razor does not apply. They are this dumb. Liz Truss came to power promising to give rich people free money to boost the economy. This was a moronic plan that nearly blew up the economy in her first weeks. Truss is a simpleton who has no business in politics, so she thought it was a grand idea. She is in office because her predecessor was a bloated party boy who saw Churchill whenever he caught a glimpse of himself in the mirror.
Go back through British PM’s and it is one buffoon after another. This mirrors what has been happening in America. Joe Biden is in the late stages of dementia and he will be on the ticket for 2024. His predecessor was a carny act. The guy before that was a formless nobody who was willing to act the role created for him. The guy before that was a simpleton controlled by his father’s friends. You can do this in every Western country going back decades. They are as dumb as they act.
The crisis of competence in the managerial elite is not the root cause. The real first mover is the moral hazard economy. Going back to the 1970’s, the Western political system has come to rely on a handful of clever bankers to save the political class from their own idiocy. Starting with Paul Volcker, central banks have been the mother hen of political economy, always right there to kiss the boo-boo of the politicians or the pirates in the financial system when they stepped on a rake.
This safety net under the political economy of the West has warped the selection pressure on the people in the system. In a world of no real risk, feckless airheads like Liz Truss can rise to the top on promises to the powerful. After all, if she breaks something, nothing really bad can happen. The result of this risk-free political environment is that it rewards reckless behavior. The bigger the claim, the bigger the media splash, which means bigger political clout.
The same selection pressure can be seen in banking. In a world where bankers go to jail and lose all of their money if they screw up, there is a low tolerance for people who are reckless and foolish. In a world where the Fed steps in to not only save your bank but save your golden parachute and those of your colleagues, why would you not take the most dangerous risks? For over thirty years central banks have created a moral hazard, which in turn created a culture of reckless disregard.
It is this sense that no harm can ever come from error that is leading the West into a crisis from which it may not survive. It is this mentality that is leading to the game of chicken with nuclear weapons. The West is now led by a collection of mentally unfit bullies who think they own the school yard. At some point, like all bullies, they will get punched in the nose and see their own blood. In this case, it is reality that will do the punching and the bankers will not be their to kiss the boo-boo.
This raises the serious question. Bullies learn their lesson in the schoolyard because that lesson is not lethal. In the present age, how can the ruling class suddenly feel the pain of their own stupidity, without blowing up the world? How can real risk be reintroduced to change the selection pressure without risking collapse? The moral hazard society may have reached a point where there is no solution. The phrase that may be needed here is creative destruction.
If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!
Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.
The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.
Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link. If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb. Just email them directly to book at sales@minterandrichterdesigns.com.
Pingback: The Moral Hazard Society | American Freedom News
Actually we live in a world where having morals and respect for God is deemed to be hazardous to someone’s health and is therefore deemed to be politically incorrect if not illegal.
Well of course its the job of a serious writer to speak truth rather than comfort. Our host’s offering today is both the clearest short piece on our current economic situation I’ve read, and a black pill hard and dark as obsidian.
Yep. A great read.
A real-life Xeno’s Paradox!
Huh. I didn’t think that was actually possible.
This Purple Prose Piece on the origins of the EU is worth a look.
The Red House meeting was one of many factors in the creation of the EU- The CIA avidly pursued it, Since Brexit, the EU as a mechanism for a German Empire in Europe loomed ever larger. The evil Putin looks to have stopped thay.
https://newspunch.com/secret-red-house-report-document-explosive-evidence-that-eu-nazi-created/
Interesting read. Sounds plausible. I hope it is true. I only know the Krupp story — based on William Manchester’s “The Arms of Krupp”, which I read around 46 years ago. Krupp prospered after the war but ran into some trouble in the late ’60s.
Z: “This raises the serious question. Bullies learn their lesson in the schoolyard because that lesson is not lethal. In the present age, how can the ruling class suddenly feel the pain of their own stupidity, without blowing up the world? How can real risk be reintroduced to change the selection pressure without risking collapse? The moral hazard society may have reached a point where there is no solution. The phrase that may be needed here is creative destruction.”
Bullies are Active Aggressors.
And surely part of the rise [to pre-eminence] of the genetic predisposition for Passive Aggression in advanced human societies was the primordial carnal desire for an upper tier of social privilege which would allow the Passive Aggressive to waltz through life never having to worry about being punched in the face by an Active Aggressor.
When facing the almighty power of the Passive Aggressive Industrial Complex, we must learn from our Eastern Brothers, Constantine & Djugashvili, who freed their people by leveraging the almighty power of the Milvian Bridge and the Lubyanka.
There is no other path to freedom.
Chi and Ro, baby.
Chi and Ro.
https://en.wikipedia.org/wiki/Chi_Rho
Passive Aggression cannot persist in the absence of a Praetorian Guard.
Pingback: DYSPEPSIA GENERATION » Blog Archive » The Moral Hazard Society
Regarding buffoonish presidents and PM’s, I heartily agree, mostly. I would still count Thatcher and Reagan as giants who did a lot of good, although they didn’t fend off serious decline for very long.
Blair did great evil, but he was no dummy, and I’m afraid he
and his minions irreparably demolished Britain in more ways than one, and intentionally. So in that way he was very successful, as Obama was very successful with his “fundamental transformation.” I agree that Obama’s intellect was hugely overrated, but that didn’t matter too much with the support he had in doing his damage.
With hindsight I’ve felt a lot of frustration towards Reagan and Thatcher for not focusing enough on cultural issues–education, Political Correctness, institutional politicization, etc. Some would argue that Thatcher did focus on culture by hurting working-class communities and promoting neoliberalism, which has had some dire effects. Yet as the reasonable British academic Matt Goodwin said recently, Thatcher was responding to real, specific threats at the time, such as the conditions which led to the “Winter of Discontent.” The GOP and Tories who want to apply Reaganism and Thatcherism to our current problems show what can happen when so many influential people are clinging to a dogma (if we can give them enough for being that smart). Goodwin thinks the Tories will have to shake themselves loose from it, or go into a political tailspin soon. Many of their voters understand this, like many American voters do, who don’t have much of a voice.
On the Ukraine prob, which Mitch McConnell assures me is vitally important beyond mom/apple pie, Obama’s past statements are sounding smart. His epitaph may be that he was a half-smart prez.
Obama’s epitaph may very well be that he was the last 21st century American President with the moral authority and opportunity to prevent the race wars of the later half of the century.
Except that he and his bitter, resentful wife have the same one trick pony for climbing and coping in life – pick at the race scab. They went beyond that – ripping it off and letting BLM jump out like a sinister jack in the box.
Their escalation to fully racialize America with DIE and struggle session and mask off anti-white racism will finally make whites have to be fully racially aware. I suspect his grand bargain with Wall St and the MIC was, you do all the white boy looting business you want and I get to unleash Black Golem.
When enough of us finally awaken the ones who join up will wonder why they waited so long to start the long overdue reprisals.
…and now society is so screwed up that Kanye West models a “White Lives Matter” shirt at his fashion opening. (Although it’s hard to tell – after all this is the Daily Mail, where tabloid meets MI6/pseudo-right-wing advocacy)…
https://www.dailymail.co.uk/news/article-11280315/Candace-Owens-says-black-Americans-outraged-obesity-abortion-crime.html
Kanye is just the flip side of the left wing black grifter, the right wing black grifter. “Oh this black guy is saying stuff that black guys don’t normally say, let’s all look at him and buy his products!”
Kanye West is, for all appearances, a legitimately odd duck. He started his career as an outlier and has only gotten outlier-er since. At a career peak he released an explicitly religious album called “jesus is king” and launched a weire revival/church/concert tour. You think the (((record industry))) liked that?
Due to a succesful music career plus a number of other succesful side hustles he’s also now RICH in a way basically no black people ever are. The majority of this did not come from white people or politics.
Might be nuts but he absolutely deserves the benefit of the doubt for sincerity. Dont have to be a fan in the least but not every cultural phenomena fits in the normal boxes.
Reagan and Thatcher were the beginning of what ZMAN is writing the entire article about. You need to rethink your love of them.
Yep.
Thatcher was one jaw of the pincer of the de-industrialization /privatization stripping push in Britain, which started pretty early.
I’m pretty sure Britain had the same issue as American manufacturing at the time: their manufactured products largely sucked. Now, something other than “closing it all down” should have been done, but the worst they can be faulted for, perhaps, is taking the easiest solution path to an intractable problem.
This goes back to the problem of system. The problems weren’t intractible then. Their solutions to them led us to this intractible moment. The US has been structurally bankrupt since 1971. Our, “leaders”, turned from one fraud and swindle to another to forestall restructuring. Democracy is a failed system because massive structural problems are created by wealth distribution. Then they can’t be solved because:
a) even an administration that wants to solve them can’t because the electorate dependent on goodies will not exercise the time preference required to go from sort of bad to awful so that you can go back to good again.
The second problem is that even if an administration and legislature does commit to it, they won’t last long as they will get blamed for creating the problem.
On top of this, we entered that period of time where a very large albatross population had rioted and burned our cities down and enacted a huge financial burden our society that just helicopter dropped pools of gasoline onto the fire.
Now the times get interesting.
A number of things. British manufactures couldn’t compete with German, Japanese or American one. Newly newly reconstructed German and Japanese factories were producing both better quality and lower priced products than British. British industrial stock was increasingly obsotete and decrepit. Plus of course the sneering and contemptuous attitude toward manufacturing from the political,and financial class. plus the loss of captive market and the taking away of the sterling area by the Americans, who replaced it with the dollar. It wasn’t just one thing; it was a cascade of problems.
North Sea oil saved Thatcher’s bacon — but production has been declining since 1999. A bleak future ahead.
https://www.youtube.com/watch?v=jJ6k4zECgK8
@Arshad
The UK could have used a lot of the North Sea oil to rebuild a lot of British industry as its own marshal type plan, or followed the Norwegian model, but did neither.
As you point out the sneering attitude from a govt largely made of financiers and lawyers put paid to Britian as an industrial nation.
@trumpton,
Sure — coulda, woulda, shoulda. Water under the bridge. It was used instead to finance tax cuts and to keep the creaking welfare society in place. I remember there was a televised debate in the late ’80s about Britain’s economic miracle, with Peter Jay on one side and Norman Tebbit on the other. Tebbit couldn’t put forward a persuasive argument that there had been one. An American economist called by Jay argued that “Britain is like a very sick man who has been given a shot of steroids; he runs a few rounds and then collapses.”
Well, as I tried to express, I have mixed opinions on Thatcher and Reagan. I don’t think “love” came into it.
As Goodwin indicated, Thatcher was responding to specific conditions at a specific moment in time, when the “postwar consensus” was breaking down and a new approach was needed. Whether it’s free trade, industrialization, imperialism, etc., there is a time and a place, and we get into trouble when we get locked into a dogma. Those on the Dissident Right, of whom I count myself a member, need to remember this as well as anyone. If you were living in Britain through the 1970’s you might have a very different opinion of what needed to be done at that time.
As much as we (Americans) like to blame a President for what he “didn’t do,” the sad truth is that even if willing, they often could would have been powerless. Imagine issues that might have made a huge difference: keeping legal segregation in place (at least freedom of association), extremely strict limits on immigration, and so forth. These and many other dramatic changes were mostly the work of Congress and Supreme Court decisions (call it 50/50). I’d think that of all three branches, it’s the Legislative that had the most responsibility for change, good or ill. Such is one of the outcomes of a balance of powers. I assume a fairly similar analysis for the UK; adjust as needed for rather different government structure.
“I’d think that of all three branches, it’s the Legislative that had the most responsibility for change, good or ill.”
Since it’s the branch answering the most to it, what you’re saying is that it’s been a failure of “Our Democracy” — and the extension of the franchise to people who should not be voting because they’re incapable of thinking beyond their appetites of the moment and are easily fooled by huckster politicians.
I fear that regards the Russia/Ukraine situation some of the bullies will get a lesson this winter. All the media sources are saying that Russia is losing the war. In fact, so they say, Russia is being routed. But we all know that Putin and the Russian Parliament did not bring those four districts into the Russian Federation to allow them to be taken by Ukraine/NATO.
Remember the old Klingon proverb? I think the Russian version is: Counter offensives are best served cold. When it happens we can only hope that the U.S./NATO doesn’t get us all killed.
Looking at the maps I would say Russia is in trouble.
The odd thing is that on the ground from the Russian telegram channel reports they appear to only have about 1/5th of the forces they are reported as having in each area.
So each attack they get pushed back very quickly.
To me it looks like the Kremlin has not only made a mess of Russia’s military reputation, they do not appear to want to do anything to rectify it as they do not use their airforce, better weapons, nor bother to re-enforce any positions at all despite weeks of push back.
It starting to look like a setup done on purpose.
The Russian channels have started calling defense minister Shoigu “Marshall Plywood”.
It sure looks that way. The Russians were relying on the Donbass Republics to supply most of the manpower. Maybe those soldiers in the LPR and DPR are depleted.
If the Russian Military Command did not plan on a massive NATO infusion of material and personnel as well, then they certainly miscalculated.
Seems to be all areas. Even those where its mostly Russian troops.
Given the mobilization, the complete lack of re-reinforcements in response to build ups and the less than 30k actual Russian troops they started with it sort of looks like Russia doesn’t actually have a physical army except on paper.
They also have odd things like the commander of the 58th Army’s brother is commander of the Ukraine 1st army.
It looks like Russia is intentionally setting itself up for a combination of humiliation and fighting permanent occupiers on its territory. For what reason, your guess is as good as mine.
A teenager with a few rounds of Panzer General under his belt could run the war better than they are at the moment.
The Russians do have a lot of equipment moving west. I would guess by the end of October or the first part of November some changes are coming.
look again, think.
Kayfabe may be springing some leaks as reports are surfacing that Russia is forcing jabs on the 300k they claim to be mobilizing, most likely the Sputnik V adenovirus type that inserts the Cv19 spike into one’s cells.
At least pro wrestling is occasionally entertaining compared to Cthulhu Theatre.
That is interesting. Maybe the whole world is suffering from the stupid protein.
Thanks for the laugh. It’s good to check up on the Kagan family bullshit once in a while.
Its nothing to do with the Kagans and their associates
Try reading as close to primary Russian sources like this (enabling auto translate)
https://t.me/s/rybar
Not sure why people don’t like the info.
This is one of the main pro Russian source channels used by guys like Military Summary, DPA and The Duran and its just reporting from the fronts.
I would like nothing more than globohomo to lose for once in their drive to burn the planet but things are as they are at the moment until Russia treats it like a proper war,
I’m skeptical of anything real happening in the winter. GH slugs along. This is all a distraction to centralize power. They can’t do that if real pain is felt. People will pay more, but credit and energy won’t run out fast enough.
The “right” (which includes DR) has been predicting the harsh winter since I was a tot. Ain’t happening gents. Wish it were.
I’m sure that we can rely on media reports about the Ukraine conflict. In today’s Daily Mail for example, we have detailed reports from “insiders” that tell in detail Putin’s hideaway bunkers and sundry other details. Who would ever have guessed that high ranking Russian officials readily disclose such intimate details to the press? Tom Clancy couldn’t write better copy! 🤣 And if that is what the media gets, just imagine what insights our intelligence services have. Just like reading the Russian’s minds! 😉
The greatest moral hazard of all has been the looming insanity of radical egalitarianism. Once you begin to spin off the detritus from that old delusion, the various utopian fantasies we see today, it is a short step into the monetary utopia we’ve witnessed in the last decades. After all, if “W” could rhetorically ask why a borrower should be required to put up any collateral on a home loan, and a man in a dress can call xerxelf a female, and Pentagon stooges can blithely discuss “surviving” a nuclear war, why not pretend we can print as much money as we desire whenever we need to? They’re all one big bubble of utopian hubris.
And I add, an offshoot of thread above, if the Russian Federation is “losing” or playing to stall, may they just be major actor partnered with the West?
Why not? I hope not, but you are correct in your assertion-as quoted below-so at this point anything goes.
“…After all, if “W” could rhetorically ask why a borrower should be required to put up any collateral on a home loan, and a man in a dress can call xerxelf a female, and Pentagon stooges can blithely discuss “surviving” a nuclear war, why not pretend we can print as much money as we desire whenever we need to? They’re all one big bubble of utopian hubris….”
This refers to the collapse of Lehman Brothers in 2008, which triggered the financial crisis.
—
I know everyone puts it that way, but the financial crisis was baked in to the cake and Lehman was just a signifier. If it wasn’t them it would have been someone else. Also worth pointing out what everyone knows: the issues from ’08 were never resolved just put on hold. A slight credit the money men that they’ve been able to keep this jalopy running for so long despite the best efforts of the passengers to break it. A heavy criticism to the money men though for they did nothing to reform the mess that they caused to begin with.
Too many rice bowls would have been taken away if they had done what was needed to fix it. Failure, Massive Failure, should have been permitted to instill a healthier sensibility, but what a surprise, this wasn’t going to be permitted for TPTB (who did not deserve that position given their combination of greed, stupidity, and raw exercise of force against all of the better angels).
What was done then has led inevitably toward what is coming. The cultural zeitgeist of that time expressed by, “Whoever dies with the most toys wins”, is smirking in our faces now, and will be for some indeterminate time to come.
Long ago some economics writer said that the Fed had done the economic equivalent of putting pennies in the fuse box. Although I’m old enough to have seen a fuse box, in USA they won’t be found in a home whose wiring is older than 1960s. So let’s update the analogy to use the breaker panel. The updated panel is just for show. The actual connections are hard-wired with copper for maximal conduction. After all, who wants the inconvenience of the lights going out while the wife is blow drying her hair? There is, from time to time, an occasional whiff of burning plastic, but the electrician assures us it’s nothing to worry about.
Can there be the concept of moral hazard in a society with no morals?
It seems equivalent to calling it apostasy, or blasphemous as concepts that no longer have any real meaning as the core pivot as been removed.
The closest one can probably come to is the hazard of being the one left holding the bag in public.
A comment from another site that occurred to me a few years back also. ZMAN you should explore this line of thinking. It would explain a lot of the anxiety these groups have felt the past few years and their lashing out at anyone and everyone.
“A bit off topic but still relevant, in a way I guess?🤔
I wonder how much the personal “freedoms”, “liberal” attitudes, women’s rights, gay rights etc and erosion of dominance hierarchies (church, monarchy, class) are down to the availability of lots of surplus energy?
And if so, with an increasing ECoE, will we see all this going into reverse.
For example, The “Church” controlled people’s access to food (energy) which allowed it to dictate the “social laws” that everyone (except themselves) had to live by.
Energy is “Power”.”
“what will i do if i can’t sit at a desk all day and work wonders in excel!?!!?”
This goes to the Great Reset. There’s a lot of consternation about it, rightfully. It’s going to happen one way or another, the question is whether it happens the the WEF set want it to. That only happens if they’re in control, and they’re only in control in the midst of an inevitable economic collapse if the average person continues to be an obedient slave. It’s that simple. These are people born into power, not the formidable sorts who fight their ways in. We’re entering a time when will, almost alone, will decide the next world.
Exactly, which is why i came up with the phrase years back “other people are my prison”.
Yeah covid really drove that home for me. Fully given to the ‘dark’ side now, although I think it might be the light. Giving a damn about people who don’t give a damn about themselves is a waste of a life.
I think that was Sartre (or Twilight Zone). However, I don’t see how they cannot steward in the Great Reset. After all, they will have the only power to purchase goods when we proles are left with worthless paper. And they will make us dance to get our weekly allowance of grain.
So grow your own grain.
Even if you have no land, it’s possible to do so on back lots, hidden on public lands and in inventive ways. Marijuana farmers do similar things all the time. After the collapse, petroleum based fertilizers and farm equipment will be nearly unavailable, so we may even move back to a sharecropper system, as bad as that was.
If there’s a real collapse in the food supply the best use of ones time may be in reducing the competition for it.
“Going back to the 1970’s, the Western political system has come to rely on a handful of clever bankers to save the political class from their own idiocy.”
Yes. I used to make this very point when I lectured on macroeconomics to political science students. The Keynesianism of the 1930s posited that governments would act in a fashion countercyclical to the business cycle though deficit spending and tax policy. However, democratically elected governments discovered by the 1970s that the only way to get elected was to engage in deficit spending and to cut taxes continually throughout the business cycle.
Consequently this led to the rise of monetary policy, in which unelected central bankers would use the reserve ratio and interest rates to counteract the business cycle as elected officials couldn’t or wouldn’t.
Today, of course, those same unelected central bankers have made the same error the Keynesians did, which is to provide continual “stimulus” to the economy in both good times and in bad. The end result is the same as a drug addiction. The economy, like a heroin addict, is completely dependent upon a constant “fix” of deficit spending, low interest rates, and inflationary money printing in order to function.
Like the addict, there is no way to solve the problem without a a total crash, collapsing destitute into the gutter.
Governments were going broke way before elections were a thing. I think it was our own Severian who pointed out that no government became more popular the more austere it was run.
That does not solve the problem. They just stay in the gutter and things get worse until they eventually OD.
Humans don’t seem to be wired in the main to resolve the issue and will carry on the behavior until death, as we see in the macro.
The question becomes: are countries too big to fail?
History says, no.
Before Covid and the war in Ukraine, I thought that we were still another couple of crisis away from things coming to a head, but I’m not sure now. Things are breaking in Europe and Japan.
So, the progression of debt trouble was consumers (2000s), banks (08-09), corporates (now) and foreign govts (now). That leaves the big dog – the US – up next. We make it through this crisis with help of the dollar/Fed, but next crisis take that down.
140 million people un Bangladesh just lost power.
We may find out soon.
The 20s banking crisis started in Austria and rippled across the world like a tidal wave.
This is looking like the same thing but done with energy as the starting point.
The US SPR is now down to 22 days of reserves.
I bet Xi gets status updates in real-time.
The Bangladeshis are used to havoc and failure. They’ll be fine.
But what happens when a first-world country’s citizens are looking at only sporadic HVAC and potable water? Gas shortages and no good medical service nearby? Indefinitely? Yikes. We all wish we were Bangladeshis.
Yes, we’ve had 30 years where childish political and economic decision by our leaders could be papered over with low interest rates and liquidity. But inflation and war ruined that party.
We won’t go back. We can’t go back. We ran out of room economically in Covid. Then Russia smashed the political silliness. The question is whether we can get to the other side where presumably we’ll have decent leaders without our current leaders blowing up the whole thing.
There was a recent post on gab regarding women in power.
“Taser, taser… oops, that was the nuclear button!”
Suffice it to say we have the worst “elites” since the summer of 1914 – & remember what happened then? – & most likely of all time.
The scary part is there’s no consequences for bad behavior which causes of all them to double down & take a “Green leap forward!!!”, crash their economies with their green pipe dreams & possibly stumble us into a world war.
“…but…but we have the first woman of color & the first gay press secretary, don’t ‘ya know so it’s all rainbows & unicorns!!!”
Unfortunately in today’s world, frivolity rules.
It doesn’t really matter how stupid the decision is to go nuclear because “they” will be safe in their bunkers, having been given the GOOD (get out of Dodge) signal ahead of everyone else, so in reality there are no consequences.
If it will make one feel any better, let’s play make believe. Let’s say the worst happens and the buttons are pushed. A tiny, select elite are safely in those bunkers or otherwise far away from the fun while the missiles are flying. They will be safe — for a time. Weeks? Months? Major point: eventually time is up.Supplies run out. Into what sort of world will they emerge? Not a very nice one. It’s certainly not going to be some pre-Industrial Eden with buff young men working plows and buxom maidens with flowers in their flaxen hair waiting to greet the just-emerged survivors of the old regime.
I argue that at that point, there will indeed be many consequences, and very dire ones, no longer to be evaded or postponed. 🙁
“…we have the first woman of color & the first gay press secretary, don’t ‘ya know…”
Hold on: are you telling me that the 928th Tactical Hairdresser Group is not going to swoop in & fix things?
Luckily, we have millions of Mexicans, Indians and Africans in this country, so THEY can fix things up to the standards of those lovely civilizations.
I just don’t see how the fed can maintain higher interest rates. Sooner or later, and probably sooner, they will have to reverse course or watch the US go bankrupt.
But, of course, people have been predicting collapse for a long time. Doug Casey is someone who used to find his way into sites I visit or various “shows” on youtube put on by gold grifters. He is always predicting collapse. There is a video on youtube of him on Donahue in 1980 predicting imminent collapse of the Dollar.
I have and continue to predict collapse, with the caveat that I’m always overestimating Americans’ will to live lol. Either the market is allowed to correct, or people spend their independence until there’s none left. Both lead to collapse, ultimately. It’s a matter of getting it over with while you’re strong enough to recover or putting it off until it’s a death sentence, and it seems like people are intent on dying, unfortunately.
Well, your “richest” cohort are your “Boomers” and they are checking out in the millions each year. I expect you won’t see long term planning coming from them, just postponement in the immediate sense.
I see myself as little more than a link in my family’s chain. I wish more ‘boomers’ would, too.
I use quotes because it’s a spirit. Happens to have afflicted a certain cohort more than others, but a spirit just the same.
Make sure to get jabbed and boosted. Don’t forget to get your flu shot.
Be safe!
I’m researching current and likely health issues and medications. One claim I’ve repeatedly read in the “crackpot” media is the claim that pneumonia or influenza shots are basically useless. Well, at least starting today, I’ve found a couple apparently reputable studies that say as much; in so many words, they are of little or no benefit to the patient.
Bet your family doctor, or the pharmacist assistant at the drug store where they give the shots away for free will tell you that.
Makes me wonder how much more of medical counsel I used to take as Received Wisdom is anything but. The entire Covid-19 fiasco laid bare much of the fraud that is our medical-industrial complex, but it turns out the problems go much deeper and much farther back in time.
To date, statins and aspirin as preventive therapy against heart disease looks emperically well documented. Jury still out on hypertension medications.
statins don’t work – another ssri issue of treating the wrong foundation.
amanetwork.com/journals/jamainternalmedicine/article-abstract/2790055
http://www.bmj.com/company/newsroom/half-of-patients-on-statins-fail-to-reach-healthy-cholesterol-level-after-2-years/
http://www.aafp.org/pubs/afp/issues/2019/0401/p461.html
Karl Denninger has noted frequently that far from being sage wise men the Fed has just been following the 13 week treasury bill; it goes up, Fed rate goes up, it goes down, the Fed rate goes down. Where they’re in a pickle now is that if they just leave it on cruise control and let he market decide it might result in a mess of great magnitude.
Take a long at the St Louis FED M2 graph, log scale, over four decades. Looks like *most* of the time, they just expand M2 k-percent each year, like Milton Friedman suggested back in the 70s. Auto-pilot.
Some of these gurus have passed on the business to the second generation, indeed. In fairness, I was young but exposed to a lot of the “hard money” lore in 70s-80s (via Dad.) Yes, the worst of their prophecies did not come to pass. Much of the advice would not have hurt anyone had they taken it, what we today call Prepping.
It seems inconceivable that the mighty USA is so fragile that a single idiot can bring it this far down in less than two years. But here we are.
Unfortunately, the “single idiot” is just the most recent idiot in a long string of idiots going back generations. They’ve been working to bring it down for a very long time.
Indoctrinate a generation to party like it’s 1999, the next to mope and feel hopeless, the next to live in the matrix. Presto!
Many of the elites are there through inter-generational wealth building that they start off their life with.
I often wonder if the mass promotion of really expensive consumer escalation in every sector to the middle class was partly driven to prevent the middle class doing the same thing they have done for centuries.
Blow it all now on frivolity, you deserve it.
BTW: I realize part of it was also because that is where the money was to be clawed back in the company town shop.
Back during covid, I was talking about the herd having been bred up for industrialization and, having served its purpose, being culled.
There’s also that scene in Network where Howard Beale gets the lecture about how the Saudis made a lot of money on oil, and they’re now going to return it by buying the TV network iirc.
That’s along the lines of what you’re saying, right?
So all of that would imply a strategy of taking money earned out of the system so it can’t be taken back. Which is, of course, what you’re not allowed to do.
People get on about old money and bloodlines ad absurdum. Nephilim, lizard people, etc. Even the JQ in the extreme. Making gods out of men, when the fact is, they stay on top because we keep playing in their sandbox.
The contempt elites have for normal people is perfectly rational. They know that, ultimately, the only power they have is that people keep following them because they won’t or can’t do for themselves, no matter what they’re put through or how they’re humiliated.
It’s not a “single” idiot. There are a cadre of handlers who run things, not Biden. This cadre is in my opinion composed of *all* idiots, or at least ideologues of one form or another. In true Leftist fashion, with them it is one for all and all for one. They support each other’s insane goals in order for their’s to be supported—even if such goals are often at odds with each other, and more importantly at odds with observable reality.
One of my favorites of the old “Successories” poster parodies was the picture of the usual linked arms of a rainbow coalition of workers but with the caption: “All of us are stupider than any of us.”.
As usual, it was funny because it was true.
Makes one wonder how much the bankers know about the real state of things, and how many simply are planning on being the first one out the door when things get sour.
There was a great movie called “Margin Call” about the 2008 crisis, where a low-level quant basically found out that not only was their position untenable, but it had been untenable for some time, and everything was due to come crashing down. It goes up through several layers of management and the movie gives subtle clues through management’s conversations that they knew the crash was inevitable, but simply kept plausible deniability until the quant basically blew the lid open and forced drastic action.
You see this sort of pretending all the time in the corporate world and the world at large, where people go through the motions because, for now, life is good, and raising the alarm, as necessary as it is, would means the good times stop.
Well, the FED did have a meeting yesterday and then didn’t release anything on it. What were they talking about? Market seems to think it will get its next fix of monetary smack based on the action yesterday and today.
Probably safe to assume that since they had A) a super-emergency meeting and B) they didn’t even whisper a leak concerning the subject of the meeting, that it’s really bad. Everyone is about to know whether they intend to save the currency or inflate it into nothingness.
“they face the political furry…”
Z, you have the best typos. For a brief, disgusting moment, I got the mental image of Pelosi in a cat costume. Now I have to start my day-drinking early to get that out of my head.
That popped on the spellcheck and I bust out laughing, so I decided to leave it until someone noticed. I probably should not do that, but life is for living. Nothing will ever top “gorilla war” rather than “guerilla war” but there is no harm in trying.
‘Gorilla war’ lol. Sounds like Chicago.
One of my earliest memories when a wee lad with no vocabulary was watching a news show where the stenographer was talking about ‘gorillas’ and I was confused because the footage on the TV screen was of a bunch of Africans with rifles.
Exactly. Gorilla war wouldn’t be seen as a typo.
I wrote a article about IJA small arms for a firearms periodical a bunch of years back, Word kept changing “Arisaka” to “Alaska” and sometimes “Arizona”. I have seen “Alaska” spelt in Engrish that way, as even though it’s a mispelling in Japanese kana, and three kana off, it’s close enough. But “Arizona”; how?
Don’t correct the good ones, it is part of your charm, and one of the things that I find uniquely interesting & comical about this website. Sometimes you get some serious zingers like Gorilla War or Political Furries. 🙂
Left unsaid, but clearly evidence of the collapse, is the illegal “student loan forgiveness” $1T vote buying scheme. Talk about moral hazard! They’ve given cheap money to stupid people who are bad at math. Then, instead of letting them suffer the pain of buying a college degree with no marketable skills, we buy them off with even more printed money. The universities, meanwhile, sit on $billions in endowments while throwing Cheetos to the peasants as they load the stupid people up with even more debt while claiming to have met “100% of student financial need”.
Don’t forget to vote harder. The stupid people in charge are counting on you.
But those folks who are terrible atath hold the correct political views, and that’s all that really matters to the controllers.
Would actually argue this was a layup for the Republicans that they botched. The truth is that the student loan debacle was due to countless counselors and other authority figures insisting that college was the only way to have a good career. They gave tens of thousands of dollars to ignorant high school grads with the blessing of everyone, and when the bill comes due the students realized they got ripped off.
The proper way to handle this would have been to allow student loan bankruptcy, allow full loan forgiveness after ten years if, and put colleges on the line to pay up on defaulted and forgiven loans. Colleges have no skin in the game, and that’s the issue that needs addressing.
Only problem is one – they do not realize they were ripped off. If they realized they were ripped off, I would say it would be worth it. Instead, it seems to me they feel vaguely wronged by the government’s failure to subsidize them; they have learned nothing.
Its very repetitive as a mindset.
In Europe the response to govts intentionally sanctioning their own energy inputs and spiraling costs on purpose is people demanding states subsidizing their bills with their own future tax money which will have to be repeated more and more as they continue the policy.
At least EU (or many countries therein) were a bit smarter educating youth. They often ended with a surplus of young adults with university degrees but no available jobs*. At least the education was (usually? always?) fully paid, so at least Enrico, Jurgen or Pierre wasn’t up to his skinny ass in debt with payment prospects.
*Social welfare was often generous enough that these kids didn’t have to take jobs that would be “beneath them.” As a result, odd as it seems, there have been times when white, middle class people ended up with a degree and have never worked a [official, on the record] job in their lives.
“Only problem is one – they do not realize they were ripped off. If they realized they were ripped off”
You only feel ripped off if you have to pay for being ripped off. If you can put it on the backs of everyone, then everyone was ripped off and you feel better! 😉
I don’t think I know anyone who’s eligible for the Biden bucks, but I do know a bunch of older people who *identify with* those people. The only thing they value about “student loan forgiveness” is that it forces people who didn’t go to college to give money to people who did. It subsidizes the professional class at the expense of the average American—a 40ish white male high school graduate who earns just enough to pay federal income tax.
They weren’t ripped off. They get to vicariously stomp again and again on the already stomped. That’s what they paid for.
I am eligible.
I went to college on the GI bill, and because I had to take some remedial math and English classes in community college, and repeat a few classes, my benefits ran out, and had to take 3 quarters worth of student loans.
The student loan forgiveness plan as offered would completely wipe out all my student loan debt.
As a white male, you bet your ass I am going to take full advantage of the program, because I so rarely get to benefit from a system that is now completely structured to impoverish me, and anyone else like me.
It was the smartest move, but liberalizing bankruptcy laws to favor debtors instead of creditors was never, ever something in the GOP’s wheelhouse. Favoring financial interests is probably the only *domestic* stand over which they solidly link arms.
It was Bush the Lessers’s 2005 Bankruptcy Act that made student loans non-dischargeable. The same Bill moved customer deposits to the bottom of the heap. Debts owed to other financial institutions take precedent over everything else.
Come the day, We are going to need a lot of lampposts.
US bankruptcy law is by historical standards rather lax, compared to what happened in ancient times. 😲 Much humanitarian progress made by 18th, 19th centuries, it was still rather dire even in England. 😬
I’ve said for decades now that colleges should be required to co-sign the loans.
You would see an immediate change in the economics of college.
The problem with the $400B write off, aside from its illegality, is that it comes without attempted correction of the underlying problem. As one person noted, we are subsidizing a “college education” where such is neither useful to the loan applicant, his future employer, or to the society that subsidizes it.
There are any number of corrections needed to the student loan program, but one *has* already been implemented some time ago—that of making the schools responsible for the student’s success in the program. This was done, but only for the “for profit”, trade type, schools, like “ABC Beauty Academy”, or “ITT Technical”, etc.
These schools (I made up the ones above) were notorious for luring in poor and ignorant students. They’d do all the work of securing the loans and the students were admitted with no qualifications nor understanding of the instructional rigors involved. Most students did not finish and the rest never were able to obtain jobs related to their (purported) training.
The rules were changed such that the schools involved are now required to report statistics on who graduates and who obtains work in their fields. Schools that don’t meet graduation and employment standards are no longer eligible for student loans. Now imagine if the “not for profit” universities and colleges were held to the same standards.
I know at my old university, we often attempted to follow up on graduates. At that time it was not mandatory, just for bragging rights and to sharpen our focus. Perhaps things have changed. Anyway, there is a typical loss of about 30-40% of new enrollees somewhere along the line and for those that do graduate, the majority of them are not working in employment reasonably associated with their major areas of study, nor are their salaries something to rave about given their “advanced” education.
A tremendous waste of societal resources in the name of equality and equity.
I know most students will enter into slavery and make a jerk-off attempt at paying their debts down, but I’ve also heard of a lot of students just saying “eff it, I’m out” and not even not even bothering making payments. Nothing is happening to them, either, that’s the hell of it. Yeah, they’ll never own a house and they have perpetually bad credit scores, but not incarcerated or sued or anything. I’m not sure how their situation works, but it seems like a certain percentage of people are just being completely written off. No specific point, your post just brought to mind a normie zoomer I talked to recently.
Dirty secret #2–There have been court cases, bankruptcy, that have written off the student loan as per judge’s directive! The explanation from the presiding judge was that the loan was in essence “fraudulent” given the totality of circumstances surrounding the loan and the “academic” education provided the bankruptcy petitioner.
To tell the truth, I’m inclined to agree given my experience at the university, which is why I’ve been easy on these folk.
Who’s bonds is the BOE buying?
10% of GDP to bail out someone.
Where does the BoE get £100 billion?
Maybe people will notice at some point that you don’t need bonds if you don’t have a metal standard as the fractional anchor. Japan’s bank and the ECB do the same. They own their entire bond market.
Where does the actual money originate to float the entire debt basis of an economy by a single institution that is a subsidiary of the entity it is bailing out?
“Where does the actual money originate to float the entire debt basis of an economy by a single institution that is a subsidiary of the entity it is bailing out?”
If I understand it correctly, that’s the central insight of MMT? The economic Uroboros lol. Yeah, that’ll work!
I think GB GDP is about £3 trillion so £100B is about 30%.
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=GB
Pretty shitty performance since about 2005.
That is in dollars.
So in 2021 when the data was done that would have been about £1,8 billion.
What sort of clown in measuring the percentage of two things denominated in pounds converts them to dollars to show a difference over time? Why not Bitcoin?
Because its the UK and that is the currency the GDP is in. Is this difficult to understand?
The value is the GBP value.
Perhaps we should do the US economy in the Turkish Lira exchange rate in 2021.
The IMF is converting the economy to dollars at the exchange rate at the time for that graph.
The UK bailout is in GBP, the economy is in GBP yet you quote dollars. Its idiotic, or perhaps you think the every country uses dollars?
Look at the title of your graph in the link it says:
“GDP (current US$) – United Kingdom”
perhaps you want to reflect on your statements.
A good example of stupid policies is ZIRP. What is the basis of any form of capitalism – capital. Where does capital come from – savings. What does ZIRP suppress – savings! Maliciously stupid so-called elites are destroying the society they claim to administer. The gibbet or guillotine can’t come quick enough for them. That is the natural selection they deserve.
No worries as the UN is proposing globally applied price controls.
The Russia oil cap and gas price caps are the first pieces of that plan.
The great depression is going to go the way of the great war in its rebranding to the mini-depression, compared to what is coming.
Well my sense of humor is nothing if not macabre, so I’m actually looking forward to the hilarity that will ensue if the UN, of all things, attempts anything like global price controls. At least I’ll be swirling down the drain with a chuckle.
It’s difficult to think of anything the US could do to alienate Saudi Arabia and other oil producers more or faster than proposing an oil price cap on anybody. There is nothing that the West has proposed that has damaged Russia and failed to damage the West.
Every time they aim at Russia, another round hits their own scrotum. It has been the most comprehensive display of ignorance of both simply economic facts and Geopolitical Reality that I have ever seen. Russia’s goal of a de-militarized Ukraine has been Trumped by the West demilitarizing NATO and Germany’s soon to be De-Industrialized.
The WEF are going to get their goal of Building Back Better but they’ll be building back from 1650 while the rest of the world marches on.
I agree.
They seem to imagine they have so much control they have the ability to centrally plan all the resources in the world.
I am sure they have a computer model showing how easy it is to distribute and control all the resources like some noddy sim city game.
As you say the white countries will self immolate given all the puppets in govt and everyone else will ignore them.
They’ll be building back from around 1350.
You sound like Murray Rothbard and Ron Paul going back to Hayek. (That’s a compliment.) Helicopter Ben was Arthur Burns’ revenge on Paul Volcker. And poor, sad Peter Schiff shouts his warnings from the rooftops not that anyone’s listening.
As you say, moral hazard is the ruling class’ Achilles heels though, as you also note, they don’t care. Their attitude is “après nous le deluge.” Most of us learn not to play with matches when we’re kids, but this crowd is happy to play with nukes. Maybe China will save us. It’s hard to see how nuclear radiation would be of benefit to China and its satellites of which we’re one. But then, over the sanpan skies, there “Rocket man, burnin’ out his fuse up there alone…”
I’ve praised him before here, and I will again, as I like Ron Paul. Yes, I know – people hate the libertarians here. However, Paul was the only member of Congress that asked fundamental questions that laid the groundwork for dissent. I remember when he said the Civil Rights laws were awful – who else in Congress would make a statement like that? He was effective (to me, at least) at giving optics on a situation outside the officially endorses red/blue binary.
Speaking of Libertarians [honk], the CEO’s of Koch Industries and Molex Industries (Koch subsidiary) are speaking at my son’s high school today.
Fascinating to hear what my 15 year old gets out of it.
Say what you will about the Koch Brothers, at least their companies MAKE things.
And if you think there is no uniparty.
Bernie NoRefunds’ foreign policy advisor is joining one of the Koch think tanks.
My how they must be have a good laugh at the theater of it. How do they keep a straight face on camera?
My issue with Koch is that they are faux libertarians seeking advantage for themselves through rent-seeking (buying politicians and think tanks). They’re like Buffett in that respect just from the other side of the coin.
Agree.
The Zman should see if he can get a copy of Ron Unz’s commentary system.
It would save me having to type.
“The energy problems, the supply chain disruptions, inflation and the fragile credit markets are due to political incompetence.”
But not solely. Lurking behind all these problems you mention is a resource crisis. The politicians and the technocrats have been looking for a workaround for this — financial alchemy, “green energy”, whatever — like drowning men clutching at straws. Unfortunately there is no magical solution, no philosopher’s stone, to deal with the underlying resource crisis. This resource crisis is arguably why the US has been cannibalizing its middle and working classes and why it’s now cannibalizing it’s erstwhile allies.
“This is a time when Occam’s razor does not apply. They are this dumb.”
I think you mean when Occam’s razor does apply: the simplest working explanation is probably the correct one. In this case Liz Truss is a moron.
Wonder if Zuckerberg’s “Metaverse” was an attempt to create a parallel global economy?
If the current model of capitalism requires infinite growth, eventually you’re going to need infinite resources. Easy to simulate in a virtual world.
Failed, of course, no just because it was incredibly lame, but because even Zuck required payment with real world economy fiat currency.
There’s a serious point in Zuckerberg’s notion (but not his alone): that is to distract and divert us with the siren song of the cyber-universe, so that we don’t see the increasingly decrepit and desperate nature of our physical world. A bit like “The Matrix.”
Its going to be a tough sell given the VR in meta looks like its out of the early 90s.
They could have at least hired some decent game programmers.
I believe much of the resource crisis is man-made. Germany, for example, is running out of energy because they are shutting down their nuclear plants and boycotting Russian fossil fuels. At that point there is no alternative (except maybe coal but they’ll limit their use of that too).
It’s like deciding to become a vegan, then complaining that there’s nothing to eat.
There is, in fact, no resource crisis. Or, rather, it is a wholly manufactured crisis in the midst of a glut of resources.
Unfortunately, the glut of stupidity overshadows all the other gluts of resources.
“It’s like deciding to become a vegan, then complaining that there’s nothing to eat.”
In this case, it is more like burning down your cropland(Russian sanctions), slaughtering your livestock decades ago (think of the nuclear plant shutdowns), eating all your seed stock(draining gas and petroleum reserves), turning vegan and THEN complaining there is nothing to eat.
Put me down as someone that doesn’t have enough good information to decide if the resource crisis is man-made or if we are reaching the limit of what is easily available on Earth.
It matters in the sense that, if the crisis is man-made, it can be man-unmade.
If we are running into actual limits, that’s a totally different story.
It’s a little of both.
The fossil fuels are probably running out, but the insane have constantly stymied nuclear energy.
Then there is the fact that the US only spends $700 million on fusion research per year.
We probably blow through a billion a day in Ukraine.
Getting fusion to work would change the world in unimaginable ways.
This is the intentional destruction of the energy supply. How do we know this? 3 years ago we had cheap gas and a booming economy. We are told to pretend that this is due to Putin or whatever, but really it’s the intentional collapse of Western economies to fit some bureaucratic model of acceptable energy use – that which can be supported by wind and solar.
The regime believes it can terrify its political opposition into going along with this. So far, they’re right.
This is the myth that is passed around. Booming economy for whom? In no way is this comparable to the economy of the 50s and 60s that made the white middle class. To pretend that the middle class was doing fine three years ago is to ignore the fact that in the 50s, one man working a blue collar job could support a family? Was it true 3 years ago? This is the real death of the society.
My thesis of about 10 years ago when the Green crap started seriously to bite was that we would go through the current “magical thinking” stage where we believe we can shut down all our nuke and coal powerstations and replace them with solar panels and wind turbines. Then, when these failed miserably, and mass poverty ensued, we’d push for nuclear. The only problem with my thesis is that nukes take a long time to set up.
Credit Suisse really can’t impact the overall system much anymore. They have shrunk their investment banking activities in favor of wealth management, their balance sheet has shrunk and they left the prime brokerage (lending to hedge funds) business in the US after the Archegos scandal. They are now a minor, incompetent criminal enterprise at this point.
Deutsche Bank, on the other hand, would bring down the world if it had major problems. Their derivative exposure alone is staggering. Somebody has written massive amounts of interest rate puts that are now badly underwater. DB would obviously be bailed out if it got into trouble.
All this having been said, Zman is spot on: the talent drain in politics is mirrored by the talent drain in major finance/banking firms. The really smart folks have moved beyond Maxine Waters’ scrutiny into private equity, VC and hedge funds.
But I think it’s important to point out that ZIRP really crippled core profitability in spread lending in European banking. You cannot borrow at zero and lend at zero and make money. This went on for years and is finally catching up with Euro banks. Their incompetence just exacerbated the problem.
Given the Swiss dropped all their bank secrecy rules so CS and UBS could stay in the US investment bank market and allow the senior execs to continue their massive bonus pools, it seems a poor deal given the current shrinking state of both.
They abandoned a long term neutrality to virtue signal about Ukraine. The Swiss do not have their best in charge. For crying out loud, they stayed neutral against Hitler! is anyone really going to say Putin is a more existential risk than Hitler was?
Putin is obviously worse than Hitler, but thank goodness he isn’t Covid.
Correct. As a Swiss cheesehead, I’m still seething about how our idiots up top destroyed 2 centuries of neutrality without even consulting us. The good news is that we just voted to make women work till 65 like we men do. Equality in action!
Think about the trillions in debt that is on balance sheets at near zero interest. In world where bonds are touching four percent, how much are those near zero interest rate loans worth? They are, after all, assets pledged as collateral. This was always the trouble with ZIRP. The longer it went on, the more it became a core feature of the system.
Bingo!
We have an entire system built on zero fed funds rate. Everyone – and I mean everyone – is addicted to cheap money. Mortgage rates were 2.5%. (Mine is 2.35%.) Junk bonds – let me repeat, junk bonds – were being financed at 4-5% in 2021. Govt short-term rates were close to zero.
Investment firms could borrow at insanely low rates and buy stocks, bonds and real estate.
People call it the “everything bubble” but it was really an interest rate bubble. Everything else just grew out of ZIRP, since interest rates impact the valuation of everything.
Unwinding this isn’t just about asset prices falling. It’s about financing the revolving debt.
When housing prices fall 20%, people spend less. The economy gets hammered. Housing is the economy.
When corporations refinance their debt – and the vast majority of debt financed is refinancing old debt – they will be paying 3% more in due rising fed rate AND a higher spread, so they’re looking at around a five percentage point increase in financing costs. What do people think that will do to profits or even the viability of a company?
The govt’s interest rate will go from 1% to 4%. That means that an additional 3.75% of GDP will be needed to fund the govt’s debt. The govt only takes in ~17.5% of GDP, so 20% of govt revenue would be needed to pay for the additional interest.
Yes, presumably, inflation will increase corporate revenues and GDP, but will it be enough. Also, the TIPs rate – which pay interest above inflation – went from ~-1.5% to +1.5%. That means real yield have increased three percentage points. I don’t believe the economy can handle such a rapid increase in real yields, not for very long.
Going from -2% real on the fed funds rate to +1% will smash the economy and not just our economy, the global economy. We’re already witnessing this. The problem is that if the fed reverses, the market will never trust it again. Inflation will be the issue.
The fed is so screwed. They’re only hope is to break the global economy just enough to get down inflation and not blow things up. Even if by some miracle they thread the needle, inflation will ramp up as soon as growth picks up and we’re back where we started.
All those stock buy-backs were the worst investment. It might have helped executives with stock options, but it sent the companies up to lose fortunes.
The options today are bad or worse.
But the deflationistas have a lot of good points. There is a lot of deflationary forces.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”
How prophetic.
So they guys that decided the stock buy backs made out like bandits and cashed them in, and you think they made a bad investment?
Using other people’s money to line your own pockets is great business, as the entire mafia state knows full well.
The shareholders are the proles holding the bag and the company is the hollowed out country. Its the same pattern.
Professional managers and professional pols are the same animal.
Corporate profits were flat from 2012 to 2019 and were jacked up by additional deficit spending the past couple of years. Annual corporate profits went from $2 trillion in 2019 to $3 trillion now.
That’s 14.5% annualized. Inflation has been high but not that high. Even with the inflation that we’ve had, corporate profits without unusually high deficits should be ~$2.5 trillion or 17% less than where they are now – and that’s not even factoring in a recession.
Will be interesting to see what happens to earnings.
DC/Fed would probably be happy to get by with annual inflation of 4-5%, indefinitely. If only!
The great Asset Deflation has 14 yrs worth to unwind.
Yeah, but entitlements are pegged to inflation. This “inflate the debt away” theory runs into some problems in the real world. Entitlements tied to inflation. Voters get pissed. Rates go up crushing investors.
We’re not in the 1940s. Financial repression won’t be so easy.
Most leveraged loans (loans to LBOs) and institutional real-estate loans are floating-rate these days (Libor +). But for sure, the minority that are fixed-rate are way underwater.
Meanwhile, lots of real estate and LBO borrowers bought swaps to cap their upside rate exposure. DB sells a lot of these swaps. These swaps are now way underwater as rates have spiked through the caps. The huge rise in interest-rate volatility has driven them further underwater (the embedded option value goes up at higher rates of volatility).
For sure, someone is in a lot of pain now. The next round of bank earnings disclosures later this month will be revealing.
Wasn’t DB’s risk exposure several times the GDP of Germany? Not even sure what can be done with such a mess other than to let it hit the floor and try to clean it up.
I’ve seen a couple of claims that total derivative exposure is about ten times total global GDP.
I was overly optimistic. it seems to maybe TWENTY times global GDP.
https://www.investmentwatchblog.com/banks-are-over-leveraged-2-quadrillion-dollars-in-derivatives-this-will-be-the-worst-financial-collapse-ever/
You’re largely right but missed a biggie.
They managed to borrow at zero Lend at Zero plus and still lose money.
They are gifted.
Well duh! You have to deduct commissions. 🤡