Tag: economics

How We Got Here

Don’t blame it on the goose, blame it on Big Ben Bernanke.

As the Chairman of the Federal Reserve from 2006-2014, he decided in the aftermath of the Global Financial Crisis that the banking system had to be saved, by any means necessary. To finance the massive losses – which were over $10 trillion in the U.S. alone – the world’s central banks began printing money and buying government bonds to finance massive bailouts.

Like squirrels watching a bank robbery, the members of the Nobel Committee – which recently awarded Bernanke the prize in economics – saw everything that happened and knew nothing about what it meant.

Printing money doesn’t cure economic problems: it simply skews who pays for them.

Printing trillions to paper over the financial system’s losses moved the egregious errors of Bank of America, Bear Stearns, Lehman Brothers, Goldman Sachs, AIG, Fannie Mae and Freddie Mac, General Electric, General Motors and others from their balance sheets, onto the balance sheet of the U.S. Treasury and the Federal Reserve.

Morally these actions are repugnant – much like requiring that taxpayers finance hundreds of billions’ worth of second-rate college educations for 10 million lazy, underachieving students – but on a vastly bigger scale.

The real problem isn’t financial. Printing money changes societies by giving the government virtually unlimited amounts of power. That warps the ambitions of politicians and gives socialists unlimited budgets. People soon believe every problem can be solved by the government and the printing press. Trade-offs are no longer required. Costs are no longer relevant. In this kind of environment, no problem is too big to solve through politics and the central bank. And if there isn’t a crisis, then one will soon be invented.

And, sure enough, as soon as the U.S. central bank began to sell assets and return to “normal” policies in 2018 and 2019, a new, even bigger crisis was “found.”

A novel coronavirus. Never mind that coronaviruses appear all the time and that most people will get and survive the flu a half dozen times in their lives… this time the world went completely nuts.

Everything was shut down for two years – except politics. Trillions were spent on vaccines – vaccines that don’t prevent you from getting Covid or from transmitting Covid. It was definitely a government vaccine: it cost trillions, everyone was forced to use it, and it didn’t work.

Nothing else worked during the Covid lockdown either. Kids don’t learn at home. Employees don’t work at home. Flimsy surgical masks don’t prevent you from contracting or spreading Covid – they don’t work, but they were required too. Fauci wore two masks, everywhere. He received four different shots of the “vaccine.” Guess who got Covid anyway?

Worst of all, the government spent unlimited sums of money on things like the ridiculous “paycheck protection program,” which might as well have been called “Fraud on a Federal Scale For You.”

The lie that we could print over the mortgage losses led directly to the lie that wearing a paper mask can stop a virus. Or that a vaccine created in a few weeks and tested only on a handful of people could stop a coronavirus that constantly mutates. With a printing press, there’s no problem that appears too big for the government to handle.

But, much like the “vaccine” and the paper masks, the printing press is just a lie too.

Altogether, the world’s central banks have printed over $25 trillion over the last 12 years.

In the United States, the printing was equal to more than 30% of our GDP. In the Eurozone, the printing was twice as large – over 60% of GDP. In Japan, the printing has been equal to over 100% of GDP.

You can think of these figures as being the size of the mirage we’ve been living in.

Reality looms.

This is why the Sino-Russian alliance is going to win WWIII. They not only have the advantages of population, territory, social stability, and manufacturing capacity, but they also have the advantage of not being hamstrung by completely screwed-up economic systems.

Capitalism has completely and utterly failed, as what presently passes for capitalism is nothing more than a massive credit-fueled Ponzi scheme.

One of the most important historical lessons of warfare: he who can pay his troops wins.

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This is Fine

This is normal. Nothing to see here. Carry on.

Central Bank Liquidity Swap Operations
These swap facilities are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions. The New York Fed undertakes certain small value transactions from time to time for the purpose of testing operational readiness. The results of the central bank liquidity swap operations and small value exercises of the central bank liquidity swap lines are published on a weekly basis when conducted.

Transfer to Swiss National Bank 10/05/2022 10/06/2022 10/13/2022 7 3.33 3,100,000,000

Now, why would the Federal Reserve be loaning $3.1 billion to the Swiss National Bank? Oh, yeah, I suppose that just might be why.

Credit Suisse Group AG may be facing a capital shortfall of up to 8 billion Swiss francs ($8 billion) in 2024, according to an analysis by Goldman Sachs Group Inc, underscoring the difficulties the troubled lender will face is it approaches what will likely be an extensive restructuring. Given the lender will need to restructure its investment banking operations during a period of “minimal” capital generation, it will face a shortfall of at least 4 billion francs, according to a team of analysts

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A Hitherto Unthinkable Restraint

But sooner or later, their amassed leverage – which is the corporate word for debt – was inevitably going to start bringing down the big banks.

Today The Fed is holding an emergency meeting under “expedited procedures.”

The actions to be considered are the discount and advance rate — in other words, interest rates.

The rumored reason is that Credit Suisse may be in trouble — specifically due to writing interest rate swaps, along with a number of other institutions which happens to include pension funds both in the UK and US, none of whom should ever be playing with levered instruments for the simple reason that leverage is everywhere and always speculative.

But of course they are because nobody has ever gone to prison for using leverage as a means to evade requiring the underlying organization to fund pensions adequately with actual money. Why that would cause both firms and governments to have to behave responsibly and we can’t have that.

This sort of act is a ridiculous violation of anything approaching fiduciary responsibility — which is a legal obligation for pension managers, not a suggestion. After all its not their money — its the pensioners’ money and they are charged with prudent management of same, which the use of leverage, especially leverage on a trend 40 years old that cannot reasonably go below zero, is the exact opposite of “prudent.”

Of course the same is true for banks; they have fiduciary responsibilities too, including to the nation as a whole since they have a backstop through the government for depositors. Nobody went to prison last time in 2008 for this crap either, did they?

Never mind that exiting those positions (including at a loss) was clearly prudent in the two years after the US government along with everyone else threw trillions in printed credit into the economy as a result of the pandemic. Anyone with two IQ points to rub together had to expect that to reflect back into inflation and thus higher rates, never mind that its insane to expect that time has no value which is what a “zero rate” policy claims.

Now add to it that the economic report from Friday showed higher core inflation than The Fed and everyone else expected — not lower. In other words the bad news continued, and therefore the only logical “emergency” act is to withdraw even more credit from the system.

The Fed refused to take the bitter medicine that was necessary back in 2008. They bought a lot more time than I would have imagined by kicking the can down the road, and the Covid lockdowns and “emergency spending measures” appear to have given them an additional two years. But now it’s October, historically a month when the debt chickens come home to roost, and two of the world’s biggest banks, Credit Suisse and Deutsche Bank, have managed to get themselves in seriously deep trouble again, because no one ever stops doing what they’re doing when you prevent them from suffering the consequences of their actions.

While both giant banks are too big to be permitted to fail without significant ramifications through their host countries and the demi-global financial system – which now requires the prefix since the BRICSIA nations have their own system – and both are national flagships, the recent destruction of the energy pipelines suggests the hitherto unthinkable possibility that the Fed might not only be willing to let the banks fail, but perhaps even order the Swiss and German governments to refrain from bailing them out in the interest of furthering the Great Reset.

And both current governments are sufficiently corrupt, and sufficiently ignorant of economics, that they might well accept destructive direction from Washington DC on the subject. The fact that the only member of the Swiss Federal Council who has any grasp of economic matters just resigned last week might even be a sign that an unprecedented action – or rather, lack of action – may be in the offing.

This suggests that the next big economics battle will be the nationalization of banks and money vs centralized demi-global banking and a single digital currency for the former West.

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The End of Beer

It’s hard to imagine that the Germans, Belgians, and English are going to be willing to give up beer for Ukraine.

UK brewers are facing tenfold price increases for the CO2 they use to carbonate and package beers, the Financial Times reported on Friday, also citing supply disruptions that could threaten brewing ahead of the Christmas season.

According to the report, the market disruption follows a warning from US fertilizer group CF Industries last month that it would shut down a major UK ammonia plant that makes CO2 as a byproduct. The company said its decision was due to soaring natural gas prices, which have made production unviable.

The report also pointed out that gas suppliers have been struggling to source CO2 from international markets because of ammonia plant closures in Europe. The energy price spikes and shortages have come as brewers prepare to increase production for Christmas. According to William Lees-Jones, managing director at JW Lees brewery in Middleton, Greater Manchester, the CO2 that had cost £250 a ton ($284) in June was priced last week at £2,800 a ton ($3,187).

Meanwhile, in Italy, the best case scenario involves more than half-a-million people losing their jobs.

Italy is at risk of losing up to 582,000 jobs due to the energy crisis and the resulting economic downturn, national media reported on Sunday, citing a study by the Confindustria Association of Industrialists. According to the findings, if the gas price stays at its current level (the August average was €235 per megawatt-hour), Italy’s economy will shrink 2.2% next year and the country will lose up to 383,000 jobs in 2022-2023. However, if the price hits €298 per megawatt-hour, which is the predicted level based on current gas futures, Italy may suffer a 3.2% decline in GDP and lose hundreds of thousands of jobs.

If Europe isn’t allowed to surrender by the US neocons calling the shots, the price is going to go higher than the predicted €298 per megawatt-hour, which means the economic damage will be even more catastrophic.

UPDATE: Ach du Lieber! It’s getting worse than I thought, faster than I thought.

A German bakery was slapped with a €330,000 gas bill after a new energy company suddenly terminated their contract which guaranteed pricing until the end of 2023, Junge Freiheit reported, citing Bild.

“Are they crazy?” said owner Eckehard Vatter, who says he has 14 days to pay the bill. “A year ago, we paid €5,856 per month in gas costs for our large furnaces and heating,” he added. Vatter said his new energy supplier hasn’t given him a reason for the 1,200% price increase.

This crisis is also demonstrating the inherent falsity of what passes for “contract law”. The contracts are often loaded with one-sided fine print that renders them essentially irrelevant, thereby demonstrating that “consent” and “contract” are fundamentally immoral weapons in the con man’s arsenal.

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Why Russia Hasn’t Mobilized

The refusal to order the mobilization of Russian military forces has puzzled a lot of people who don’t understand what Putin is talking about when he uses the phrase “hybrid war”:

One of the most important dimensions of this war is the economic front. Europe is being driven to the brink by the energy crisis. The Wall Street Journal keyed in on what I believe to be the most apt descriptor of the crisis, warning of a “new era of deindustrialization in Europe.”

A full mobilization would be very costly for Russia’s economy, risking the edge that it currently holds in the economic confrontation with Europe. This, I believe, is the main reason that the Russian government was quick to quash rumors of mobilization today. There are other steps on the escalation ladder before going to total war footing.

There are already rumors that Russia is planning to change the formal designation of the war, from “Special Military Operation”. While that could mean a formal declaration of war, I think that is unlikely. Rather, Russia will likely give the Ukraine operation the same designation as its operations in Syria, loosening the rules of engagement and beginning to target Ukrainian assets in earnest.

We saw a foretaste of this last night, when Russia wiped out over half of Ukraine’s power generation with a few missiles. There are many more targets that they can go after – more nodes in the electrical grid, water pumping and filtration facilities, and higher level command posts. There is at least some probability that Russia begins targeting the command facilities with NATO personnel in them. Plausible deniability works both ways; because NATO is not officially in Ukraine – only “volunteers” – targeting their personnel is not an overtly aggressive act.

Russia also has many ways to boost its force deployment in Ukraine that fall short of full mobilization. They have a pool of demobilized contract soldiers that they can call up, as well as a pool of reservists that they can raise with a partial mobilization.

The Russian line is hardening. Just in the past 24 hours, Kremlin spokesman Dmitry Peskov said there were “no prospect for negotiations” with Ukraine, and Putin said “Unfriendly forces are targeting us, and we must take initiative in order to succeed in confronting them.” Medvedev went even further just now: “A certain Zelenskyy said that he will not hold a dialogue with those who issue ultimatums. The current ‘ultimatums’ are a warm-up for kids, a preview of demands to be made in the future. He knows them: the total surrender of the Kiev regime on Russia’s terms”

If you believe the Russian government is utterly incompetent and duplicitous, feel free to view statements like this as bluster. But given the warning shot at Ukrainian power generation yesterday, my sense is that Russia is preparing to escalate to a higher level of intensity, which Ukraine cannot match with its indigenous resources. The only other player on the escalation ladder is the United States.

Dark times area ahead for Ukraine – and perhaps for Americans on the other front of this war.

As the Allies proved in WWII, and as the Chinese colonels recognized in their landmark Unrestricted Warfare work on military grand strategy, war is a human activity that is a subset of economics. And the battle for control of Europe will be dictated by energy resources, not by population size or tactical brilliance.

Napoleon didn’t lose to the Coalition Powers because he lacked manpower, technology, or military prowess, but because England controlled the seas. The outcome was always inevitable unless France could somehow break that control. NATO cannot defeat Russia because Russia is energy self-sufficient and Europe is not. So, the question is: how long are Europeans willing to freeze and starve at the behest of US-based neocons in the name of Ukraine?

Russia hasn’t mobilized because doing so would, counter-intuitively, weaken its grand strategic position. Which, of course, is why the NATO forces are attempting to provoke it into doing so. But unless someone in Europe or the USA can introduce a new energy source, NATO cannot win this war. And it’s very clear that Putin, Xi, Modi, and the other BRICSIA leaders all understand this. And the nature of the war will become increasingly apparent as US attempts to escalate the military elements are met with energy-related escalations as well as military responses.

And apparently, some of the NATO leaders realize this too.

Turkish President Tayyip Erdogan said that Turkey’s goal is membership in the Shanghai Cooperation Organization

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Suicide is not Murder

If the Europeans want to starve and freeze themselves, how is that Russia’s problem? How is that Russia’s fault?

President Vladimir Putin on Friday denied Russia had anything to do with Europe’s energy crisis, saying that if the European Union wanted more gas it should lift sanctions preventing the opening of the Nord Stream 2 pipeline.

Speaking to reporters after the Shanghai Cooperation Organisation summit in Uzbekistan, Putin blamed what he called “the green agenda” for the energy crisis, and insisted that Russia would fulfil its energy obligations.

“The bottom line is, if you have an urge, if it’s so hard for you, just lift the sanctions on Nord Stream 2, which is 55 billion cubic metres of gas per year, just push the button and everything will get going,” Putin said.

Nord Stream 2, which lays on the bed of the Baltic Sea almost in parallel to Nord Stream 1, was built a year ago, but Germany decided not to proceed with it just days before Russia sent its troops into Ukraine on Feb. 24.

European gas prices more than doubled from the start of the year amid a decline in Russian supplies. This year’s price surge has squeezed struggling already consumers and forced some industries to halt production.

If I refuse to drive to the supermarket, I cannot reasonably complain that the supermarket is trying to starve me. No, even that analogy is too generous.

If I refuse to call Dominos and order a pizza, and if I tell them that even if I did order a pizza I will not pay for it with actual cash, but insist on paying with Monopoly money, then I cannot reasonably complain that Dominos is trying to starve me.

It is simply false to blame the NATO-Russian war on Russia. NATO started it and Russia is winning it. The longer the Europeans accept direction from Washington, the worse they are going to suffer. So stop posturing, push the button, and let everything get going.

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China is Next

The USA’s European satrapies have apparently been ordered to start reducing their economic ties with China:

Germany’s economy ministry is considering a range of measures to make business with China less attractive as it seeks to reduce its dependency on its major trading partner, according to a Reuters report. Sources familiar with the matter revealed that the measures may include reducing or even scrapping investment and export guarantees to China in addition to reducing participation in trade fairs and scaling basic training for local employees.

There have been ongoing discussions in Germany about “overdependence on China,” especially since Scholz assumed office. Despite the impact of the COVID-19 pandemic and the Russia-Ukraine conflict on Germany’s concerns about the security of its industrial and supply chain, its economy ministry’s consideration over measures is essentially related to a policy shift away from China.

It’s legitimate for a country to be concerned about its high level of external dependence and long-term economic security. However, it is unrealistic to unilaterally emphasize a so-called “decoupling.” After all, China and Germany cannot be decoupled considering the strength of two-way economic ties. It’s understandable for Berlin to assess adjusting and diversifying the supply chains in order to safeguard the stability. What is unacceptable to China is using “reducing dependency on China” as a pretext of “decoupling” while accusing China of being “unreliable,” which is a discriminatory and targeted attack on a major trading partner.

It would appear that the second front is in the process of coming, and that the US doesn’t wish to get caught off-guard as it was by Russian preparations for Western sanctions. But so much of the Western economy is reliant upon Chinese manufacturing that it’s hard to imagine the effect being less catastrophic than the consequences of sanctioning Russia have been.

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A Cold, Dark Winter

The numbers are not looking good for Europe.

We got a very shocking sense of the staggering numbers involved in the existential, crippling European crisis earlier today when Norwegian energy giant Equinor echoed what Zoltan Pozsar said in March, warning that “European energy trading risks grinding to a halt unless governments extend liquidity to cover margin calls of at least $1.5 trillion.” As Bloomberg put it, in its best non-Zoltan imitation, “aside from inflating bills and fanning inflation, the biggest energy crisis in decades is sucking up capital to guarantee trades amid wild price swings. That’s putting pressure on European Union officials to intervene to prevent energy markets from stalling.”

“Liquidity support is going to be needed,” Helge Haugane, Equinor’s senior vice president for gas and power, said in an interview. The issue is focused on derivatives trading, while the physical market is functioning, he said, adding that the company’s estimate for $1.5 trillion to prop up so-called paper trading is “conservative.””

In other words, massive amounts of newly-printed funding (because with yields blowing up, Europe’s fiscal stimulus will be over before it started unless central banks step in and backstop the latest energy hyperinflation bailout plans) will be required to avert an energy disaster. Alas, the final number will be even more massive, because overnight Goldman’s research team published a must read note (available to pro subs), in which the bank looked at the scale of the energy bill challenge, potential European government responses and industry implications, and quantified the total damage. The numbers are staggering:

According to Goldman, Italian household energy bills could rise from ~€150 to ~€600 in 2023. Some more details:

“For most families and industrial customers, energy bills are renegotiated every twelve months; on our estimates, energy bills for most consumers will peak this winter. We estimate a c.€500/month cost for power and gas currently, implying a c.200% increase vs. 2021 when average bills were c.€160/month. Energy bills could approach €600/month in a zero flows (from Russia) scenario we believe. “

The trigger for this exponential surge in costs: since January 2020, 1-year forward gas and power prices – usually the reference when signing new energy supply contracts for families or industrial customers – have each increased by more than 13x. The following exhibit shows this evolution, rebased to 100.

For Europe as a whole, this would be equivalent to a near €2 TRILLION increase in gas and power spending (equivalent to c.15% of GDP)… the math is simple: Europe can’t print more nat gas, oil, coal, etc, so one way or another, it will have to offset the surge in costs, first in commodities and then in all downstream chains, which in the very near future will mean governments will soon be subsidizing Europe’s cost of living as the alternative is a violent revolution.

This is not an exaggeration. I’ve heard of forward contracts with increases as much as 16x from very reliable sources, and that’s in Switzerland, which is in better shape, electricity-wise, than the UK, Germany, or France.

But the choice between inflationary subsidies and violent revolution is a false binary. There is a third and much better option.

It’s time for nationalist leaders to come forward, replace the failed globalists in the various European governments, end their retarded and self-destructive alliances with Ukraine, and make a peace with Russia that will inspire it to turn on both Nordstream 1 and Nordstream 2. The Europeans are going to have to surrender to Russia sooner or later, so they might as well do it sooner and minimize the economic consequences to their people and to their economies.

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Better Buckle Up

We’ve been warned, repeatedly. Now even the Russians are warning us.

The world is about to experience major turbulence as a result of illogical moves by Western nations, Kremlin spokesman Dmitry Peskov has said.

“Most likely, a huge global storm is starting,” Peskov warned in an interview with Tass on Monday.

“In many ways, there are objective reasons for that, but there are also subjective reasons for this beginning storm, which are linked to absolutely illogical and often absurd decisions and actions of the authorities in the US, Europe, the EU and individual European countries,” he said.

The sanctions imposed by the US, the EU and some other nations on Russia over its military operation in Ukraine have backfired causing a spike in energy prices and record inflation across the West.

While the rise in electricity prices is still largely speculative, they will be economically catastrophic even if they are only as bad as the politicians are openly discussing in the media. Behind doors, the situation may be considerably worse; whereas price rises of 20 to 40 percent have already been announced, the real range of future contracts is from 10x to 16x.

This is far more than the vast majority of small businesses can afford, which means that many of them are not going to survive the winter. If Britain is any guide, more than a few will not survive the autumn. And the Russians are not about to let the globalist governments of the Were-West off the hook either.

Russia’s gas supplies to Europe via the Nord Stream 1 pipeline will not resume in full until the “collective west” lifts sanctions against Moscow over its invasion of Ukraine, the Kremlin has said.

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Very Correct Indeed

At least one commenter on Gab gets it regarding the student loan situation.

The thing is, Vox is very correct. Forgiving student debt is deflationary. Erasing a debt is literally removing money from the system (despite the money being fake and gay). This means that there is less to go around, and thus services and products require less of it to buy.

Its just like if we got a trillion dollars in cash and burnt it all. The relative ‘strength’ of the remaining notes is now stronger as there is less of it in the economy. Its very simple stuff really (of course in this economy, money does not work like that. It is literally made up numbers on a spreadsheet and doesn’t exist in the same way cash does, but it makes a useful analogy).

The real issue here is the battle between your logical understanding, and your emotional reflex to hate the idea of it. I will freely admit that it sucks. It feels very unfair, because it is unfair that people are getting their debts forgiven at the (theoretical) expense of the tax payer. Especially when more sensible people either didn’t get in debt, or paid it off by living very frugally. Add to that the fact that we know the vast majority of these students are going to be blue haired human detritus, who wish us all dead if they could have their way. Again, I admit that this fact does suck.

But ultimately, you’re going to have to step out of that mindset and look at the big picture, and understand that you just got to rip off the band aid. This whole situation was brought about my the government, and the greed of the college industry. Many many decades of passed since Universities became a place of learning for the good of society. Now is just a multi-billion dollar racket. This situation should never have been allowed to happen. After the debt is forgiven, it is very important that the entire University cabal be taken down. There should no loans given by the government. All further education loans should be completely private, so that banks have to know they will get their money back, which will ensure people won’t be getting into debt with garbage degrees. IT also means universities will have to be competitive with their pricing. I am also in theory not against a government giving grants for in-demand industries if it helps the economy overall (although I wouldn’t trust the current government to determine this given their agenda).

Stop being over-emotional retards and see the big picture. Just accept that it needs to happen. A society cannot grow and thrive when entire generations of young people start their lives with 6 figure debts which they will not be able to pay off. It crushes their soul, stops them having families and in the long run will hurt you more than the short term “its not fair”-ism of having to bite the bullet. Yes most students are retards, but put the blame where it belongs.

I go considerably further with regards to education policy. All student loan debt should be banned. It is not only usury, it is a particularly wicked form of usury because it is unnecessary. The entire edifice of education credentials needs to be toppled – it is already in the process of collapsing – because it is totally useless and accomplishes nothing except to give the SJWs in corporate HR an excuse to prevent the hiring of productive people of whom they disapprove for one reason or another.

Remember, once converged, an institution loses its ability to perform its primary function. Therefore, every converged institution should be eliminated – not fixed, eliminated – for being no longer fit for cause.

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