Monetary Fiasco

Submitted by Doug Noland – Credit Bubble Bulletin 

All great monetary fiascoes are forged upon a foundation of misperceptions and flawed premises. There’s always an underlying disturbance in money and Credit masked by supposed new understandings, technologies, capabilities and superior financial apparatus.

During the nineties “New Paradigm” period, exciting new technologies and “globalization” were seen unleashing a productivity miracle. The Greenspan Fed believed this afforded the economy an accelerated speed limit. With inflation and federal deficits believed conquered, there was little risk associated with low interest rates and an “asymmetrical” policy approach to supporting the booming economy and financial markets. The Fed significantly loosened the reins on finance precisely when they needed to be tightened.

The nineties were phenomenal from a financial perspective. Total system Debt about doubled to $25.4 TN. Remarkably, Financial Sector borrowings surged more than 200% to $8.2 TN. Outstanding Agency (GSE) securities ballooned from $1.267 TN to end the decade at $3.916 TN, for growth of 209%. Securities Broker/Dealers (liabilities) jumped 212% to $1.73 TN. “Fed Fund and Repo” expanded 112% to $1.655 TN. Wall Street “Funding Corps” rose 387% to $1.064 TN. Securities Credit surged 414% to $611 billion.

And the most incredible aspect of the nineties boom in “Wall Street Finance”? Pertinent to today’s backdrop, the 1990’s Bubble unfolded over years with barely a notice. Everyone was mesmerized by the Internet, exciting new technologies and the white-hot IPO market. I was fixated by what I was convinced was evolving into epic financial innovation and a historic Credit Bubble. Yet attempts to explain this backdrop to other financial professionals, academics, economists, journalists and even Fed officials went absolutely nowhere. Repeatedly I heard frustrating variations of “Doug, you don’t understand.” “Only banks create Credit.” “The Federal Reserve controls the money supply.” “Fannie and Freddie are only financial intermediaries – they don’t impact system Credit.” “Financial system borrowings don’t matter. Doug, you’re double-counting debt.”

Even back in the nineties, it was largely ideological. Everyone had adopted a doctrine of how finance worked and it was very rare that someone would take a deep dive into developments and the analysis and then challenge orthodoxy. As I’ve noted in the past, it was not until Paul McCulley coined “shadow banking” in 2007 that analysts and policymakers belatedly began to take notice.

It Is Different This Time – Now Comes The Global CapEx Depression

Submitted by David Stockman – The Contra Corner Blog

Caterpillar (CAT) posted a disastrous 16% decline in worldwide retail sales this morning, meaning that its sales have now fallen for 35 straight months. As Zero Hedge noted, not only did US retail sales finally rollover and drop by 8% compared to prior year, but the rest of the world was a veritable bath of yellow blood:

…….. sales elsewhere around the globe were a complete debacle: Asia/Pacific (mostly China) was down -28%, a dramatic drop from the -17% a month ago, EAME dropping -13%, and Latin America down -36%…

Needless to say, this is something new under the sun. CAT is the leading heavy capital goods supplier to the global construction and mining industries and has a long history of boom and bust.

But CAT’s past contains nothing like what is conveyed in the graph below. The current 35 month plunge in its global sales is now nearly twice as longas the downturn in sales during the Great Recession, which was itself a modern record.

Guile Replaces The Stick: Washington’s New Approach To Russia

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

Washington has learned that threats and coercion do not work against Russia. All the threats have done is to build Putin’s public support to astronomical levels and to unify Russia against the West’s assault. This is a failed policy that Washington is abandoning as Washington sees a new opportunity in Russia’s desire for Western cooperation, not only against ISIL but also on a wide range of other issues.

Realizing that guile can be more effective than the stick, the West is moving toward drawing Russia into the Western system by offering a coalition against ISIL. Once Russia is in a coalition against ISIL, Russia will lose control. This is Washington’s strategy for counteracting the initiative that Russia seized in Syria.

Once Russia is in a coalition against ISIL, Russia will have to make compromises. Putin will be told that Russia can have ISIL, but Russia has to turn Assad’s fate over to the West. If Putin balks, the Western media will blame Putin for topedoing the war against ISIL.

Getting rid of ISIL is more important to the Russian government than saving Assad. If a jihadist Islamic State is established, there will be a base for exporting turmoil into the Muslim regions of the Russian Federation.

Once Russia accepts “cooperation” with the West against ISIL, more “cooperation” will be used to gradually erode bit by bit Russia’s independence and to bring Russian policy in alignment with Washington’s.

Many in Russia believe that the Paris attack proves that Putin was right and that the West now realizes this and will accept Russian leadership in the fight against ISIL. This belief is delusional. Washington will take advantage of Russian desire for Western cooperation and will use this desire in order to bring Russia under Western influence, thus reestablishing Washington’s hegemony.

The Greatest Racket of All Time

Submitted by Pater Tenebrarum  –  The Acting Man Blog

The Successes of the Global War on Terror

One would think that the so-called “Global War on Terror”, which has been given fresh impetus by the Paris attacks, must be going swimmingly. What else could explain the great enthusiasm with which it is pursued? It may be recalled that it started in earnest after the WTC attack – also a declaration of war, as it was put at the time.

As is often the case when Islamist fundamentalists strike, the actual attackers immolated themselves on occasion of the attack itself, making it impossible to exact retribution. Except by proxy, that is. This was playing right into the hands of those who had planned the attacks. It seems to us that they have ultimately succeeded beyond their wildest dreams. Not to put too fine a point to it, our wise political leaders have evidently been outfoxed by a bunch of turbaned cave dwellers and goat buggerers in the Hindu Kush.

 

Steve Bell on the reaction to the Paris attacks.

 

To wit, between 2013 and 2014, the global death toll from terrorist attacks has increased by yet another 80%,setting a new sad record. So 15 years of bombing places far and wide to smithereens, engaging in extremely costly “nation building” exercises, droning assorted terrorist groups so thoroughly that selected Al Qaeda leaders can by now boast of having been killed up to 17 times (only to miraculously reappear again), have produced thisby way of bottom line results:

The result to date of 15 years of “Global War on Terrorism” – there is more terrorism than ever before – click to enlarge.

 

THE GUARDIAN: Australia is a ‘plaything’ of world economic forces it cannot control

Submitted by Yanis Varoufakis  –  The Yanis Varoufakis Blog

Click here for the Guardian site)

Australia is a “plaything” of forces it cannot control as the world economy heads into another phase of the global financial crisis, according to the former Greek finance ministerYanis Varoufakis.

The “remarkable” flow of overseas money into the economy in recent years had created a “false sense of well-being”, he said, but the economy needed to change direction quickly to avert a crisis.

Varoufakis, who quit as finance minister after a tumultuous six months in charge of the near-bankrupt Greek economy, taught economics at Sydney University for 12 years up to 2000 before he returned to Europe in dismay at Australia’s turn to the right under John Howard.

 The economist, who has dual Greek and Australian citizenship and whose daughter lives in Sydney, said Australia had become “complacent” about the health of its economy.

The Sydney and Melbourne housing boom, where price growth has been in double figures, was particularly alarming, said Varoufakis, who is in Australia for a short speaking tour.

“Australia – especially Sydney and Melbourne – has always insulated itself from facts about the world. Aided and abetted by the remarkable flow of capital towards the property market in Sydney and Melbourne, it has created a false sense of wellbeing,” he told the Guardian.

“People have always said to me that Australia is immune to the crisis because during the good times money has come as an investment. Then if things go wrong the rich Chinese will emigrate here and bring their dosh with them.”

But Australia had become a “plaything of forces out of its control”, he said, and risked an economic shock as the credit bubble created by China in the wake of the global financial crisis began to deflate.

“The crisis of 2008 won’t go away. It is a unified, solid crisis, although it is metamorphisising and changing. Between the 80s and 2008 the world economy was fuelled by US debt, then financialisation [the huge increase in credit] which created a pyramid of money which collapsed in 2008.

“The world economy lost its capacity to create demand for factories, but China reacted by creating a huge bubble. They were hoping the west would stabilise but it didn’t because America is ungovernable and Europe even more so.”

After his bruising experience trying to face down the might of Germany, the European Central Bank, the European Union and the IMF, Varoufakis has become an outspoken critic of economic policy.

Echoing the call for innovation by new prime minister Malcolm Turnbull, Varoufakis said Australia should redirect its economy from “rent” in the shape of selling commodities to “entrepreneurial profit” in the form of greater innovation.

“Australia has excellent pockets of innovation such as CSIRO. But there is a glass ceiling where they usually have to sell up and move to the US in order to progress.

“It was Paul Keating who said Australia needed to move from being the lucky country to being the smart country. But the government didn’t help that and Australia still has a problem taking ideas to the next stage.”

• Yanis Varoufakis will be appearing in conversation with Mary Kostakidis at Melbourne’sAthenaeum Theatre on 28 November (wheelercentre.com) and the Sydney Opera House on 29 November (sydneyoperahouse.com)

 

 

 

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Total US Household Debt Hits $12.1 Trillion As Subprime Auto Lending Jumps (WSJ)

• US Oil Producer Bankruptcies Are Piling Up (WSJ)

• Low Crude Prices Catch Up With the US Oil Patch (WSJ)

• Speculators Test Saudi Currency As Oil Crisis Deepens (AEP)

• Petrobras’s Dangerous Debt Math: $24 Billion Owed in 24 Months (Bloomberg)

• Bank of Japan To Switch To Indicators That Show Rising Prices (Reuters)

• Mario Draghi All But Announced an Expansion of ECB QE (Fortune)

• The Power And The Impotence Of The ECB (Steve Keen)

• Financially Engineered Stocks Drag Down S&P 500 (WolfStreet)

• Volkswagen’s Emissions Scandal Is Getting Even Bigger, Again (AP)

• EU Journalists Take European Parliament To Court Over Expense Accounts (EUO)

• Australia Is A ‘Plaything’ Of World Economic Forces It Can’t Control (Guardian)

• ‘Terrible’ Public Finance Figures Heap Pressure On UK Chancellor (Ind.)

• Is It Time To Close The Door To Foreign Buyers Of British Property? (Guardian)

• A Nation Of Immigrants Wants To Close Its Doors (MarketWatch)

• How Refugees Are Selected, Vetted, And Settled In The United States (Quartz)

• EU-Turkey Refugee Talks Turn Sour As Erdogan Belittles Juncker

• Merkel Slowly Changes Tune on Refugee Issue (Spiegel)

• Over 900,000 Migrants Arrived In Germany This Year (Reuters)