If Karl Denninger is correct, lead and gold are about the only worthwhile investments these days:
It will not be long ladies and gentlemen, when the bulk of the folks running the algorithms deduce that they’re exposed to the same risks – they have to post margin too, you know, and if it can be stolen then their capital isn’t safe either. These deposits aren’t supposed to be “at risk” when there’s no position actively open — that’s a performance bond against possible failure to pay, but is supposed to be exactly as safe as a bank deposit in a checking account under FDIC limits.
Well, it wasn’t. The CDS you bought on Greece wasn’t. And it will only take another event like this or two before people conclude that everything is unsound as the jackals running the game will redefine the meaning of words to suit themselves and, failing that will simply steal the money.
30+ years of lawless behavior has now devolved down to blatant, in-your-face theft. They don’t even bother trying to hide it any more, and Eric “Place” Holder is too busy supervising the running of guns into Mexico so the drug cartels can shoot both Mexican and American citizens.
What am I, or anyone else, supposed to do in this sort of “market” environment? Invest in…. what? Land titles are worthless as they’ve been corrupted by robosigning, margin deposits have been stolen, Madoff’s clients had confirmations of trades that never happend and proved to worthless pieces of paper instead of valuable securities and while Madoff went to prison nobody else has and the money is still gone!
Without enforcement of the law — swift and certain — there is no deterrent against this behavior.
There has been no enforcement and there is no indication that this will change.
It will take just one — or maybe two — more events like MF Global and Greek CDS “determinations” before the entire market — all of it — goes “no bid” as participants simply stuff their hands in their pockets and say “screw this.”
It’s coming folks, and I guarantee you this: Whatever your “nightmare” scenario is for such an event, it’s not bearish enough.
What concerns me most about all of this is that with a few minor exceptions, most of my economic predictions have been correct with regards to the trend and incorrect because they were too optimistic. Since my medium term predictions are fairly negative, although not catastrophic, you can understand that this pattern of being overly optimistic tends to concern me somewhat.
For example, I expected firms like MF Global to collapse. But I did not expect to hear that they had stolen over a billion dollars that their clients had on account with them. The fraud and the outright theft by the cancerous financial sector is clearly much worse than I, or nearly anyone, had imagined. The fact that Corzine could operate without the proper license, then steal over ONE BILLION DOLLARS without being questioned, much less arrested, will destroy more confidence than even the most heroic measures pushed by the Federal Reserve, the government, and the financial media can create.
Karl is sometimes accused, and not entirely unfairly, of having some chicken little tendencies. But when Chicken Little turns out to be overly optimistic in some regards, it would appear to be indicative of a fairly serious situation.
Barnhardt Capital Management shuts down. Ann Barnhardt explains her belief in “the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.”
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm….
And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.
Well, I tried to warn you that Wall Street was nothing but a casino anymore. There is no more genuine investment or financing of capitalist activity on Wall Street than there is in Las Vegas. It’s nothing more than borrowing – or stealing – money to place it on red… then scream for government bailouts when you lose.
The interesting question, which no one has even begun to answer, is how many other capital management firms have been gambling with their clients’ money. And how many have lost it all. I assure you, there is no chance Corzine’s MF Global was the only one.
UPDATE: it looks like the eurocontagion may be getting out of control rather quickly. This may be why Mervyn King of the Bank of England went public with his concerns about a credit crunch. The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market. With cash increasingly hard to come by, Italy’s banks are turning to CC&G, the L.S.E’s Italian clearinghouse, for short-term lending. That includes some of the country’s largest financial institutions, including Unicredit and Mediobanca, according to a person close to the situation.
The USA is moving closer to Soviet-style ritual denunciations. I don’t know about you, but I am rather looking forward to the emotional catharsis of a good Two-Minute Hate.
The House voted to set aside a privileged resolution aimed at condemning the stone on Perry’s ranch offered earlier in the day by an impassioned Rep. Jesse Jackson Jr. (D-IL).
Earlier in the day, Jackson read his resolution on the floor. It called on the House to:
“Condemn Texas Governor Rick Perry for using a secluded West Texas hunting camp as a place to host lawmakers, friends and supporters on hunting trips at a place known by the name painted in block letters across a large, flat rock standing upright at its gated entrance called ‘N*****head.'”
So, Congress has no problem with pharmaceutical corruption, handing two of every three Texas jobs to immigrants, and blowing millions, if not billions, on educating illegal aliens, but using land on which sits a politically incorrect rock, that’s legitimate national business demanding Congressional attention.
A U.S. citizen has been assassinated, apparently by the U.S. government, which had earlier placed him on a hit list. Washington celebrates. I suspect we will regret this precedent.
I do too. A government that assassinates its own citizens without trial is not a lawful one.
This summer it has been a softer, modern version of living in a cabin on the Great Warpath circa 1740 near Albany or Montreal (in this regard, take a look at Eliot Cohen’s new book Conquered into Liberty on the origins of the American way of war), readying oneself for the next break-in — so our inland “California Corridor” has become from Bakersfield to Sacramento.
More specifically, I have been on the lookout around my farm for a predatory, nearly new, grey/silver Toyota truck that drives in and then speeds out — always a day or so before the nocturnal theft. He’s clever, this caser — and audacious too, like a wily Sherman tank prowling through the hedgerows. (Why, if poor, is he not home growing a tomato garden or scouring the roadside for the ubiquitous tossed aluminum cans and plastic bottles?)
On three separate occasions from June to August, I have had copper wire stripped out of pumps, the barn ransacked, and the two locks pried off the shop and various things stolen. (Why did they steal buckets of 1900 antique bolts and square nails and leave alone a drill press and grinder? Ease of recycling? Ignorance?)
One of the stranger things in the California Corridor is to periodically walk around a barnyard and notice: “Hmm, that set of rusted furrowers is gone? Hmmm, what happened to those sections of 2-inch pipe? Hmmm, didn’t I have an old compressor next to the shed? Have I got dementia, or wasn’t there once upon a time three metal ladders leaning against the shop?” It is as if they became animate, grew legs, and quietly walked off in the sunset.
Twice I ran into the barnyard to see the truck, with its two gangbanger youths, peel off in clouds of dust. The Toyota is always around when theft occurs, and always speeding off when anyone spots it. Rural California is also like North Africa circa 420 AD: the few family farms left are mostly fenced or walled, the dogs large, the owners armed — trying to survive against organized Vandal attacks. All we need are mosaics in the courtyard portraying happier times as a testament to future archeologists. Maybe a “Cave Canem!” on the doorstep.
I know of no neighboring farm that has not been broken into or fought/scared off such intruders.
Such are the gifts of mass immigration during the last days of the American Empire. Some claim that these immigrants will revitalize the nation, but given their destructive, criminal, and parasitical proclivities, it seems readily apparent that they will be one of the primary contributors to the eventual downfall.
The question comes down to this. Is this the repeat of 1740 or 420?
Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.
In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks….
Not surprising, the large banks, which are eager to reach a settlement, have grown increasingly frustrated with Mr. Schneiderman. Bank officials recently discussed asking Mr. Donovan for help in changing the attorney general’s mind, according to a person briefed on those talks. In an interview on Friday, Mr. Donovan defended his discussions with the attorney general, saying they were motivated by a desire to speed up help for troubled homeowners.
In other words, the White House is attempting to shut down the joint 50-state investigation in order to whitewash literally years of massive criminal wrongdoing by the mortgage banks, then change the laws after the fact so that all of the titles they shredded in MERS are magically returned to the banks. Their problem is that they need to get the 50 state attorney generals to sign off on the deal. Obviously, most of these champions of the law have already agreed to be bought, so they’re leaning on the last few holdouts now.
This clearly demonstrates that there is not only no law in the USA anymore, there is barely a pretense at it. Instead of shutting down the criminal organizations and imprisoning the executives responsible, they will agree upon a small fine and cover up their crimes, which include but are not limited to stealing thousands, if not hundreds of thousands, of houses from homebuyers.
And the reason they need to get a deal done and let the banks off the hook? To help homeowners. Seriously. That’s the line they’re selling.
The American Psychological Association declassified homosexuality as a mental disorder in 1975. Now, as many sane observers warned at the time, it appears to be looking to do the same for pedophilia:
Researchers from several prominent U.S. universities will participate tomorrow in a Baltimore conference reportedly aiming to normalize pedophilia. According to the sponsoring organization’s website, the event will examine ways in which “minor-attracted persons” can be involved in a revision of the American Psychological Association (APA) classification of pedophilia.
B4U-ACT, a group of pro-pedophile activists and mental health professionals, is behind the August 17 conference, which will include panelists from Harvard University, the Johns Hopkins University, the University of Louisville, and the University of Illinois.
B4U-ACT science director Howard Kline has criticized the definition of pedophilia by the American Psychological Association, describing its treatment of “minor-attracted persons” as “inaccurate” and “misleading”…. On their website B4U-ACT classifies pedophilia as simply another sexual orientation and decries the “stigma” attached to pedophilia, observing: “No one chooses to be emotionally and sexually attracted to children or adolescents. The cause is unknown; in fact, the development of attraction to adults is not understood.” The group says that it does not advocate treatment to change feelings of attraction to children or adolescents.
The chickenhawks have a valid point. If society accepts the redefinition of homosexuality as “normal” on the basis of its practitioners being “born that way”, then it has absolutely no reason to condemn pedophiles who are also “born that way”.
For a society to accept open homosexual identification as a normal is a strong indication that it has entered its death spiral. This doesn’t mean it is necessary to drop brick walls on people as soon as they evince interest getting a Pete Rose haircut or watching the Oscars. Just as a society can survive a small percentage of immigrants, it can thrive and prosper so long as homosexuality remains aberrant and circumspect behavior.
This ceases to be the case once what was decentralized and aberrant behavior is transformed into an open and celebrated interest group with a monomaniacal interest in continually expanding its “rights” to the detriment of the traditional societal norms. If this isn’t apparent to you yet, perhaps it will once the law, in its infinite wisdom, determines that a middle-aged pedophile has a constitutional right to marry a collection of boys under the age of ten.
The Slippery Slope is not a logical fallacy. It is, rather, a correct use of logic to provide a reasonable guide to choose between possible future events. Advocates of normalizing homosexuality and homogamy argued that their reasoning would not be used to attempt to normalize pedophilia and polygamy. It is worth noting that subsequent events have proven them to be totally incorrect.
PPPS – A virus scan, two reboots, and everything is accessible again.
Daniel Indiviglio makes some relevant points in his article about the downgrade at The Atlantic and he was one of the few who correctly saw it as a real possibility, but I think he ultimately goes off-track when he calls into question S&P’s decision to downgrade the U.S. sovereign credit rating:
S&P was not happy with the $2.2 trillion minimum debt reduction plan. That’s understandable. A bigger deal would certainly have been preferable from a fiscal soundness standpoint. But does the agency really estimate that the deal is is so dangerously small that there’s a realistic chance that the U.S. could now default at some point in the future? In particular, does U.S. debt really look significantly riskier now than it did in, say, April?
The bond market certainly doesn’t think so. Treasury yields are near all-time lows, despite all that political nonsense. And remember, the interest the U.S. pays on its debt is far, far smaller than its tax revenues. If the Treasury prioritizes interest payments, then there’s no conceivable way the U.S. could default.
I defended S&P’s initial decision to put the U.S. rating on negative watch back in May when politics were becoming poisonous. But to actually downgrade the U.S. after Washington managed to avoid its self-created crisis is another story. S&P should have acted like the other agencies and affirmed the U.S. rating, but kept it on negative watch until more deficit reduction plans were put in place over the next couple of years, as I explain here.
In fact, this might not turn out well for S&P. The firm might think it’s acting boldly or proactively. Instead, the market may question S&P’s reasoning skills. The rating agency is acting here on an assumption not shared by its peers at Moody’s and Fitch: that U.S. politics are so screwed up that they could render the nation unable to live up to its debt obligations. That’s despite pretty much everyone agreeing that the nation will be financially able to pay for its debt in the short-, medium-, and long-term.
Indiviglio did a great job of demonstrating that the U.S. downgrade was be almost perfectly in line with the historical Japanese downgrade, which took place when its net government debt reached 60% of GDP. (It is presently around 225%). However, he reaches the wrong conclusion, as many have, by getting sidetracked over the way in which S&P’s analyzed the political situation in the U.S.A. And while there was never any question of short-term default, (despite the scare tactics of both Democrats and Republicans), I very much disagree that the nation will necessarily be able to pay for its debt in the medium- and long-terms.
The real reason that the downgrade was not only inevitable, but correct, and not only correct, but the first in a series of downgrades, can be seen in projections based on the historical patterns in the Z1 debt sector charts. These show the S&P’s worst case scenario to be far too optimistic to be credible.
While the debt figures don’t match up perfectly, as August “Net debt held by the public” is a little different at $9.78 trillion than Q1-2011 “federal government debt outstanding” at $9.65 trillion, they are close enough for the purposes of comparison. Utilizing the Q1 figure provides a federal debt/GDP of 64.3%, which is much lower than 74% presently estimated by the end of 2011 by S&P’s. However, we can see how they reach that number by plugging in the expected growth in the amount of debt at the post-2008 quarterly average of $365 billion. This indicates an end of year federal debt figure of 10.74 trillion and a GDP figure of $14.513 trillion.
In other words, S&P’s is probably assuming that either GDP will contract $490 million in the second through fourth quarters or the rate of federal borrowing will slow down. Either way, the so-called “double-dip recession” already appears to be baked in the S&P’s cake, assuming that its analysts are as capable of reading the Federal Reserve reports as Karl Denninger is. But that’s not the interesting aspect, from my perspective. What is interesting is the debt/GDP projections under the three future scenarios, Upside, Base Case, and Downside. Consider these projections of future federal debt to GDP ratios:
Where I suspect S&P’s has gone amiss, (and perhaps it had no choice in the matter due to its professional obligations), is by taking the CBO scoring figures seriously and thereby utilizing GDP estimates as the primary variable. Based on my calculations, it is also possible that S&P’s is simply plugging in the 66-year average rate of increase of federal debt, 5.92%, into their spreadsheets. But it isn’t GDP that has changed so drastically over the last three years and significantly modified the debt/GDP ratio, it is the rapid 82.89% increase in the federal debt over the last 11 quarters. If we utilize federal debt as the primary variable and plug them into S&P’s GDP estimates, we get some very different results. (I’m going to ignore the inflation and tax estimates in order to reduce the number of variables; these are estimates for the purpose of critical comparison, not predictive projections.)
The S&P’s GDP estimates are as follows:
UPSIDE: 3% GDP growth + lapsed tax cuts BASE CASE: 3% GDP growth DOWNSIDE: 2.5% GDP growth
However, net GDP growth over the 13 quarters from Q1 2008 to Q2 2011 is $729.9 billion, or 5.1%. That is an annual rate of growth of 1.57% and assumes that overall credit continues to remain flat at $52.6 trillion while federal debt continues to rise at the rate that private debt contracts. Call it the CURRENT CASE. Plugging in 1.57% annual GDP growth and 22.7% annual federal debt growth provides the following debt/GDP ratios if one begins with the firm numbers from the end of year 2010.
CURRENT CASE: 2011 77%, 2015 164%, 2021 509%
And if we substitute actual rates of federal debt growth for the S&P estimates of it that are based on the notoriously unreliable CBO scoring, it becomes very clear that the debt/GDP projections are wildly inaccurate regardless of what rate of GDP growth is assumed and shows that the problem is not one that economic growth can possibly solve. In fact, the revised UPSIDE case which takes historical debt growth into account is much worse than the Base Case that does not.
Notice that while the end of year 2011 figure (actually 76.8%) isn’t much worse than S&P’s is projecting at 74%, it is considerably worse than the DOWNSIDE in 2015 (164% vs 79%) and more than six times as bad in 2021 (509% vs 85%). But are these astronomical ratios even remotely possible? Could federal debt really rise to $26.1 trillion in 2015 from $9.6 trillion at present? After all, that would amount to 39.4% of all U.S. debt outstanding, assuming that the private sectors shrank at the same rate that the federal government sector expanded, and would indicate a Game Over default sometime in between 2016 and 2018.
This chart, which shows the historical percentage for each of the major debt sectors since 1946, demonstrates that at least the 2015 rate is clearly within the bounds of possibility. The Federal Government sector represented more than 39.4% of total U.S. debt until 1955. Furthermore, it also shows that the decline of Financial sector debt, which has contracted $3 trillion since 2008 and fallen from 32.7% of the total to 26.8%, could conceivably continue to dwindle away to less than one percent of the total, which would amount to an additional $11.2 trillion in debt-deleveraging that would need to be replaced by federal debt in order to prevent concomitant economic contraction. (It also, by the by, shows very clearly the real source of America’s current economic woes.) Government spending and borrowing is not the root cause of the problem, it is merely a failed attempt to cure the disease of massive private sector debt expansion and contraction.
Now, I am not making any predictions here, other than a general one that because private sector debt will continue to fall, there will be tremendous pressure to continue to increase federal spending and borrowing at rates more similar to that of the last three years than the historical norm. This is because the alternative is an immediate and sizable contraction of GDP. As ugly as it appears, the CURRENT CASE scenario I have outlined is not a worst case scenario because it does not account for the economic contraction I expect to finally begin showing up in the GDP numbers later this year and in 2012. The determining factor will be whether the rate of increase of federal debt is closer to the 22.7% annual rate of 2008-2011 or the 5.9% rate of 1946-2011. Just out of curiosity, I looked at the latter, which in combination with the 1.57% 2008-2011 GDP growth produces the following scenario:
Which of these five scenarios appears to be playing out should be readily apparent by the time the Q4-2011 debt sector numbers are published in the Federal Reserve’s Z1 report. If the Household and Private sectors continue to decline and end-of-year federal debt/GDP is over 75%, then CURRENT CASE is probably in effect.
UPDATE – More like 3 in 3, I would say: “A Standard & Poor’s official says there is a 1 in 3 chance that the U.S. credit rating could be downgraded another notch if conditions erode over the next six to 24 months. The credit rating agency’s managing director, John Chambers, tells ABC’s “This Week” that if the fiscal position of the U.S. deteriorates further, or if political gridlock tightens even more, a further downgrade is possible.”
VDH on a murder that is not only a snapshot of a sick society, but serves as a cogent metaphor for Vibrant America:
A woman found slain at a Hanford car wash this week was killed randomly when a 17-year-old gang member happened to see her while taking a walk, Hanford police said Thursday. Denise McVay was washing her car — something she did several times a week — early Tuesday morning before work.
The teen was wandering the streets after leaving a party when he saw McVay at the Royal Car Wash on Garner Avenue at about 5 a.m. and decided to kill her, police said. The teen “simply wanted to kill somebody that night” and McVay, 49, was “in the wrong place at the wrong time,” Capt. Parker Sever said. “It was a purely random act.”
The teen stabbed McVay several times and slit her throat.
The teen took McVay’s money and her car, Sever said, and drove to the home of a fellow gang member, Mauricio Ortiz, 18, of Hanford.
Consider the societal changes that have taken place in order for this incident to have taken place. McVay was likely unmarried, otherwise she wouldn’t have been washing her car, her husband probably would have done it for her. In pre-Vibrant America, there is a two-thirds chance she wouldn’t have been working at all, but would have been supported by her husband. In neither case would she have been at the car wash at 5 AM.
Prior to LBJ’s Great Society, the “teen” would likely have not been free to wander around at 5 AM, as he would have been sleeping or getting ready to go to his own job, as the various levels of government were far less likely to providing funds for unemployed youth to spend their days and nights in aimless partying.
And, of course, without the efforts of Senators Kennedy and Hart, and Rep. Celler, it is far less likely that either the murderous teen – who is almost certainly Hispanic – or his fellow gang member, Mr. Ortiz, would be in the country to commit the murders that Americans would not commit.
The picture of the future Vibrant America is becoming increasingly clear. It is shaping up to be a place where childless and unmarried white women will be expected to fend for their interests against the perceived interests of the growing third world underclasses. Somehow, I don’t think this was quite the gloriously liberated future that the feminists had in mind.
