Halloween Coming, Time For Banks To Freak Out
Elaine Meinel SupkisLast month we just saw the European banking system sieze up now England is experiencing a classic banking crisis. The systems set up to prevent banking disasters were destroyed in this madcap quest for funny money creation. The euro and pound are some of the strongest currencies on earth yet at the very pinnacle of power, the banking systems collapse? A riddle that is part of the strange and I think, very dangerous financial system built up since the implosion of the Bretton Woods II system and the circumvention by the Japanese of the Plaza Accords.
Banking shares have been falling across Europe as savers continue to withdraw money from the troubled British bank Northern Rock.The firm's boss told the Independent newspaper that three unnamed Spanish banks had sought help from the European Central Bank (ECB).
Although the ECB denied any Spanish banks had used emergency financing facilities, their shares were hit.
French and Italian banks were also hit on fears of financial woes spreading.
All the banking systems are in trouble. Spain recently sold off much of its gold reserves this summer. Also this summer, the heads of several banks in Europe tried to convince everyone that gold as antique and wasn't needed as a fall back position for supporting the value of a currency and Switzerland decided to prove this by suicidally selling off much of its gold reserves, too! Gold speculators cried foul as this drove down gold prices which were rising against the dollar for the last 7 years thanks to the US experiment with 1% interest rates.
Northern Rock Plc, the U.K. mortgage lender that sought an emergency bailout last week, rose in London trading after the government stepped in to stop a run on the bank.Shares of Newcastle, England-based Northern Rock rose 9.6 percent to 309.75 pence as of 9:10 a.m. after falling 56 percent in the past two days. Rival Alliance & Leicester Plc, which fell the most in a decade yesterday, gained 26 percent to 753.5 pence and Bradford & Bingley Plc was up 5.8 percent to 295.25 pence.
Frantic central bankers strive to save one banking system after another. For many years they used interest rates as their main tool. Plus buying or selling each other's currencies in this strange game of musical chairs we call the FOREX markets. Starting with the debasing of the silver coinage in the US during the Vietnam War and the emptying out of Fort Knox, the US convinced its newly-won empire to support a total fiat dollar system. The cool idea the economists came up with was to have this open market and governments and investors could determine relative value via trading and buying currencies themselves.
I remember before Bretton Woods II, it was hard to change currencies, one had to do this via central banks which set rates of exchange. The new system meant people could bet against their own central banks and the theory was, this would prevent central banks from setting values at false levels compared to a market basket of prices at home, interest rates, inflation and gold holdings as well as general industrial strength coupled with the most important value of them all: trade profits/deficits!
The theory was, countries with trade surpluses with the world, countries with no inflation, would have strong currencies. Countries running trade deficits and with inflation at home would have their currency collapse. Something terribly wrong with the formulas and theories of the Bretton Woods and Plaza Accords economists and government officials' pretty little plans for fiat currencies: the system is now totally whacked out of shape and thus, collapsing and this is due to the theories being turned inside-out by money magicians in Asia!
Specifically, the Japanese. They have had no inflation at home for a decade. They have had full employment and their government no longer runs in the red. Nearly alone in all the industrial nations, by the way! They have the world's largest trade profits. They have the world's second largest trade surplus. They have the world's second biggest economy. And most tellingly, the world's second biggest FOREX reserves.
The Japanese may have done this unintentionally, they won't say, of course. But they discovered by 1996, putting dollars in the FOREX reserves caused the yen to drop in value against the dollar! Banzai! They began to hoard dollars in ernest in 1999. Up until then, the average FOREX reserves held by the top trade/currency nations seldom rose above $60 billion or below $20 billion. Suddenly, Japan held more than all the industrial world! And the yen collapsed in value! Right away, all the economists who cooked up this goofy and stupid system should have had a global meeting to discuss this new system being imposed upon the world by Japan, a nation with a very aggressive history of seeking trade advantage no matter how. Instead, this challenge was hailed as a great solution for Japan to end its 'depression' which was already over.
Of course, the Japanese LDP knew perfectly well, the key to running their new scheme lay in pretending there is a depression which is why all the new taxes imposed including this week's latest attempt, are all consumption taxes, the worst possible tax during a 'depression' one can think of! So it is obvious to me that the need to have zero commerce growth at home is a key element in this new currency value game. Everyone knows that weak currencies=trade advantages as well as profits when exchanging the currency with a trade partner who is sucking in imports. The Chinese figured this out very quickly and by 2002 were matching the Japanese with their currency accumulation/weak yuan actions. Unlike with Japan, the fools running Europe and America began this long process of screaming nonstop at the Chiense to stop doing this while China snarled, they should stop Japan first, then the West shrieking that Japan has this terrible depression they cannot escape no matter how many US bonds they buy or money from trade surpluses they park in their FOREX lock box! The Chinese even explained this game pretty well yet the West refuses to understand.
Or rather, they were bribed by the Japanese who opened up their nifty depression-era bank with the world's lowest interest rates in ALL HISTORY...the sub-1% rates that are utterly irresponsible and totally impossible to keep running yet have been running for a decade! The West is utterly addicted to this easy money and the debt balloon in the West began to grow very swiftly. The US made it worse by imitating Japan's interest rates while INCREASING our trade deficit which is the exact opposite of Japan and now, China! China didn't cut consumption like Japan so they have inflation, not deflation. But the US thought we should act as if all this was Santa Claus time and we could run EVERYTHING in the red. And the dollar stayed strong throughout this because both China and Japan were sucking up these dollars and holding them.
Until July when China suddenly changed the flow of money and began to sell dollars and buy up yen. The dollar, for the first time, began to drop against the yen. Since both Europe and America are both totally addicted to the Japanese system, the battle between Japan and China now evolving in the FOREX markets have caused all other banking systems to teeter and collapse because even the slightest change in the system will cause all others to change and the human tendency is to keep things going with whatever status quo there is. The Chinese have no need for the Japanese status quo any longer and are now engaged in changing it no matter what. No matter how hard the central banks in Europe and America try to re-establish the Japanese banking cycle, it is grinding in the other direction now and since China has the world's biggest FOREX reserves, they are on top of all the banks, everyone must look to THEM to see what will happen next and they are far more secretive than the Bank of Japan!
The entire Bretton Woods and Plaza Accords systems are in collapse. Some bankers are yelling that we should have a new accord only they want to impose it on China not sit down with China and have China decide what system we use to bank in the future...the idea of this is giving them all the willies, they are pissing in their tailored suits over this possibility!
So here we are, after the central banks in the West creating a trillion dollars out of thin air last month, this month they are shovelling money into the Baal Banks that burn up instantly as all the entities paying mortgages and financial loans for buy-ups and buy-outs are flaming out, a hell fire seldom seen in the banking world except during Great Depressions. The fake money creation bouys up the banks and the system for a few weeks but it doesn't fix the problem, nay, it makes it worse and worse!
Shares in the Alliance & Leicester bank fell by more than 31% on Monday - much of the slump coming in the last half-hour of trading.However the massive price fall was not thought to reflect big withdrawals from the bank's deposits, BBC business editor Robert Peston said.
Like Northern Rock, mortgages play a key role in A&L's business model.
But A&L is thought to be less dependent on other banks and institutions for funding than its beleaguered rival.
The firm said earlier this month that "current conditions in the funding and liquidity markets have had no material impact on either profits or franchise growth".
It is rather sad, reading the news cycle. The hopes, the desires of everyone to have Peter Pan save us and build us Wendy houses (British slang for tents---I lived in one for ten years!) won't die. The entire West indulged in a housing bubble with 100% mortgages, 0% down, floating rates, etc. From Sweden to Spain, England to New England, this bubble swelled as banks tapped into the endless pool of 0.3% loans from the Bank of Japan! The Japanese have only one choice now: they must buy yuan, not dollars, or the Chinese will buy out Japan's currency in the end! I warned Japan about this just last May!
So we have a real currency crisis as the dollar is no longer being held up by the Bank of Japan and it has been declining against all currencies. The Chinese will allow this to happen so long as the yen rises, too. But up until July, the yen was falling even faster than the dollar which pleased the Japanese exporters no end! Like I said in the past, this is finished. The Chinese will not let it happen again. And the Japanese housewives who are trying to game the system were wiped out last month, they are trying to game it again but they are now expecting the yen to rise so they make the rise even more likely. And again, the flow is changed and this is what makes or breaks a system: the established flow must continue. If is is interrupted, this unsettles the whole system.
The rising bankruptcies in the US are part of the system change: even Japan can't extend more loans to us if we are instantly going bankrupt and 90% of the bankruptcies in California and Florida, for example, are on loans that are less than 3 years old! So they haven't even begun to pay off the bulk of the interest due, this takes at least 7 years to do! Nope, the notion that someone buys a house and then, a mere year or two later, defaults, is a new thing and most dangerous. For this drops the value of all houses and on top of it, the bank's losses are doubled! They get less and less money at foreclosure sales and they had collected virtually no payments on the loan so their losses aren't 10% but up to 50% per property!
This greatly destabilizes the banking system.
Economist Milton Friedman once said, "Only a crisis produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. " Naomi Klein examines some of what she considers the most dangerous ideas -- Friedmanite economics -- and exposes how catastrophic events are both extremely profitable to corporations and have also allowed governments to push through what she calls "disaster capitalism."Klein writes in the introduction to "The Shock Doctrine" that "The history of the contemporary free market was written in shocks." She argues that "Some of the most infamous human rights violations of the past thirty-five years, which have tended to be viewed as sadistic acts carried out by anti-democratic regimes, were in fact either committed with the deliberate intent of terrorizing the public or actively harnessed to prepare the ground for the introduction of radical free-market reforms."
That is a fancy way of saying, all economic messes are fixed by the IMF and the reaction is IMF riots. But the most classic form of despotism imposed in the name of some crisis is the Reichstag Fire. 9/11 was a mega-shock event that was a confluence of a number of forces focusing themselve upon Wall Street and world trade. The New World Order people wanted an attack on themselves so they could invade oil pumping nations and steal the oil because of all that money flowing there from the West and Asia. A golden calf worthy of rustling! And violent revolutionaries wanting the West to invade so they could pump us dry of funds via war just as Russia, an old, old foe of the Ottoman Empire, collapsed fighting Muslims in Afghanistan.
The West threw away all our freedoms and also went on a spending binge hosted by Japan and thus, became very, very weak, financially. The New World Order people are insane and have mixed up the idea of wealth and debt so badly, they now think that having no money and being deep in debt is good! So the entire European/United States empire is in danger of bankruptcy which is bin Laden's strategic plans in the first place.
The world's investment banks are to reveal a $30 billion (£14.9 billion) hit from bad debts as they unveil results that give the first real insight into the impact of the debt crisis.City analysts predict the banks will have to write down as much as 10% of the $300 billion of leveraged loans currently agreed but not yet syndicated when they report third-quarter results to the market.Banks are also expected to announce further hefty provisions to cover their exposure to commercial paper, including the so-called conduits and SIVs, a type of highly leveraged investment fund. In some cases profits for the third quarter could have been almost wiped out by a combination of exposure to bad debts and complicated commercial paper.Kian Abouhossein, banking analyst at JP Morgan, said: "The hits will essentially mean that some investment banks will have made almost no money over the last quarter. Profits will be close to zero."
"It's going to be one hell of a week," said one investment banker. "The banks' numbers are as important as whether the Fed cuts rates. On top of that, what gets said will have a profound impact. People are spooked, there is a feeling that there are some surprises out there. Clarity is very important right now."
From ancient times, from our glacial Ice Age past, as the leaves turn and the deer go into rut, as the great herds start moving south and the birds frantically fly in great flocks to Africa and Mexico, as this happens, the land bound humans feel cold fear and take measures to prepare for winter. So it is here: the happy-go-lucky refusal to face reality last summer, the hopes of patching over this sinking ship and bailing out all the banks as the red ink flows in through a big gash in the hull, we look at the icebergs and shiver. The fact is, profits must be above zero to stay alive but even that isn't enough! Ask Japan. You can't have inflation and zero profits! Profits must be higher than the real rate of inflation and the value of assets are part of inflation and at the top, the bidding war for goodies has been madcap, setting records! And one can't do this with zero profits! The zero profits are actually losses and it will be reflected in a general rush to find something that earns 6% or else which is why money is flowing to bonds which at least, aren't zero. Even a sub-inflation level bond is better than zero! The Japanese fixed this by making inflation at zero but this is very brutal and leads to a collapse in commerce at home and if everyone imitates Japan, this will kill world trade including Japan's which is why Japan is even now, eager to lend money. A vicious circle. Oroboros which is part of magic, by the way. Refusing to see the financial system as partially magical, even as they call themselves wizards and talk about magic, they refuse to see how the magic world really works and if there is a place where Libra, the Lady of the Fall, rules, it is in the magic realm of money! All must balance! Instead of striving for some balance, the desire to get rich magically always overwhelms people. Greenspan's strange twistings and turnings as he tries to blame everyone but himself for violating Libra's rules is proof to me, he is terrified of meeting her face to face at the Gates of Death. He is making his irresponsible case. And he will be judged. Harshly. From Blacklisted News:
"We expect UK rates to be cut before the end of the year," said Robert Barrie, an economist at Credit Suisse.Everyone is cutting rates. The whole world except for Japan raised rates and now they are cutting rates. But this has to be accompanied by another cut, the unkindest cut of all: trade will be curtailed! This is why I demanded, for years, that the West force Japan to trade, not export exclusively. Now it is too late and the only tool left in hand is to restart trade barriers. The collapse of free trade will run alongside the collapse of the banking system! This will give us a world depression but since no one stopped Japan's depression, EVERYONE MUST COPY IT OR DIE! And this is bad for the world. But then, we asked for this by supporting Japan at all the G8 meetings, the IMF meetings, everywhere, Japan's rules for world trade were supported and endorsed while China's more dynamic and fair system was repudiated, harshly.
China's trade advantage was classic: cheap labor. If the industrialists didn't like this in the West, all they had to do was raise tariffs and such. Using money as a tool to stop trade with China was idiotic, it made it worse. And it allowed Japan to take over much of industrial trade in the West! Now this will all collapse. It is unsustainable.
A Treasury spokesman said the guarantee announced by the Chancellor Alistair Darling would work by the Bank of England "assuming control of both the assets and liabilities of the bank in this event".However, he added: "The FSA has said that Northern Rock is solvent, so the guarantee is not required. It is there if it is required".
Yesterday, I talked about the character, 'Mr. Darling' and his children, especially Wendy Darling and marveled that England's banking system is now controlled by him. I find this confluence of chance to be very playful of the Fates who like to joke once and a while. The nervous understory inside of some of the most famous British children's authors are classic: there is a lot of darkness there, fear about money and social status, fear of the hordes at the gates. Whenever I detect some sort of symmetry, my ears tingle with anticipation and I look for more. The other article mentioning 'Mr. Barrie' amused me for that is the family name of the creator of Peter Pan! So both are in the news today and this is just a coincidence but certainly is fitting. Traveler's Insurance was also in a story I did yesterday and Mary Poppin's creater was Travers, very close to that name. Coincidences are such fun, I say.
From the same article:
Professor Wood said Mr Darling's action was without precedent because the last time there was a financial crisis of this scale was in 1866.This sentence set me off on a hunt, what did the bankers and economists say 150 years ago? Who wrote about this earlier banking collapse? Who was the economist who wrote something useful about this mysterious event? In the last 30 years, every banking collapse has been declared impossible to understand and therefore, not worth worrying about, I presume. So...who is this mystery mid-Victorian man?
By Karl Marx on November 9, 1868;
Mr. Gladstone's letter of the 11th of May, 1866, suspended the Bank Charter Act of 1844 [43] on the following conditions: -1. That the minimum rate of discount should be raised to 10 per cent.
2. That if the Bank overstepped the legal limitation of its note issue, the profits of such over-issue should be transferred from the Bank to the Government.
Consequently the Bank raised its minimum rate of discount to 10 per cent. (which means 15 to 20 per cent. for the common run of merchants and manufacturers), and did not infringe the letter of the Act in regard to the note issue. They collected, in the evening, notes from their banking friends and other connexions in the City to reissue them in the morning. They infringed, however, the spirit of the Act by allowing, under the Government letter, their Reserve to dwindle down to zero, and that Reserve, according to the contrivances of the Act of 1844, forms the only available assets of the Bank as against the liabilities of its banking department.
Um, time to laugh: HAHAHA. I didn't know old Karl was as obsessed as I am about banking reserves! He wrote this piece for a Foreign Affairs magazine back then. This was before the bankers and rulers decided he was pure poison. He dared talk about imperialism and how the ruling elites needed to use the military to dominate the workers and how they needed to oppress the populations at home using the work force in newly-conquered lands to dilute the power of labor to seek its share of profits, etc. Back then, he was trying to figure out the banking system. Note that the government and central banks set up rules...AND BROKE THEM INSTANTLY! We saw that this month. Especially rules about reserves.
The magic tool for making money is to not hold anything except a barest minimum to service bank accounts which is why money in checking has returns slightly better than the Bank of Japan's. Around 1%. But the money making aspect is in generating loans and one can to this to infinity except the spectre of bank runs like we are seeing this week. Northern Rock had no money to give everyone demanding their savings back so the government which as no money but can make it up magically no matter what, has given the depositors their money back but this is inflationary money for it is not being paid back via loans! It is totally fake. But won't have an effect on anyone except by gently raising the inflation rate! So everyone gets to pay for this in the end.
The giant FOREX reserves held by Russia, China and Japan can be reduced to ashes this way which is why playing this game to suit ourselves has some very real dangers. The collapse of these funds is a form of theft which our central bankers contemplate in private but hesitate to do in public because this will trigger a bank run to end all bank runs as everyone withdraws dollars in order to spend them turning them into, most likely, gold or some other commodity that will retain value. The British fix iin 1866 caused problems across the globe. Including the US which just ended the Civil War. As usual, war has a lot to do with bank collapses. England sold cheap cotton goods to the world. The price of cotton shot up due to the Civil War. Many brokers hoarded cotton in order to drive up the price more but with the total defeat of the Confederacy, they all released their warehouses of cotton and the price collapsed and the bankers who loaned money to the cotton-related industries were hit with a sudden tsunami of bankruptcies.
The US went into recession, of course. Northern manufacturers refused government script calling it 'inflationary' and 'worthless' and a lawsuit in New York over all this went to the Supreme Court which ruled that the government could issue fiat script in lieu of coins and therefore, this was 'money' and had to be accepted as payment for goods produced during the Civil War and THEREAFTER.
So 1866 was an important year in the history of banking.
Good old Marx again:
The most morbid sense of distrust in English solvency having thus been created by Mr. Gladstone, out comes Lord Clarendon, the man of the Paris Conference, with an explanatory letter, published in The Times, to the English Embassies on the Continent. He told the Continent, in so many words, that the Bank of England was not bankrupt (although it was really so, according to the Act of 1844), but that, to a certain degree, English industry and commerce were so. The immediate effect of his letter was not a "run" of the Cockneys upon the Bank, but a "run" (for money) of Europe upon England. (That expression was used at the time by Mr. Watkin in the House of Commons.) Such a thing was quite unheard of in the annals of English commercial history. Gold was shipped from London to France, while, simultaneously, the official minimum rate of discount was 10 per cent. in London, and 3 1/2 to 3 per cent. at Paris. This proves that the withdrawal of gold was no regular commercial transaction. It was solely the effect of Lord Clarendon's letter.Things don't change much, do they? Must be a stubborn streak in humans at fault here. Just as the many players on stage in today's mess try to minimize things and openly lie about them, these very same words of reassurance are inspiring greater fear because people fear the unknown! And the deliberate need to keep things 'unknowable' leads to greater fear, not greater confidence. And so things get worse, rapidly. The more these guys talk in public, the more the public panics.
Marx, like myself, was trying to be a realist. He felt that if people understood the systems better, if they understood how these things interlock and interact, they could then use this knowledge to make the system fairer and kinder. The horrors of the Industrial Revolution should be clear to all of us, we see it in action in China today, all industrialized nations go through the same process, indeed, the need for primitive, early industrial systems seems to be an important part of modern economics. We never escaped from Victorian England's black skies and starving children, this just moves restlessly about th planet, seeking fresh ground to grow. Over and over again, it springs up, totally unchanged in an aspect! Now, it is rising in former communist nations which is another ironic development which the bitch of History is so very fond.
Informally, you can think of the P/E ratio as the number of years it will take to get your investment back. This isn't precise, but it's based on the following reasoning: Suppose that the P/E ratio is 20. That means that if you pay $100 per share, then the company earns $5 per share each year. Theoretically those earnings will be returned to you in the form of either a higher stock price or dividend payout. So theoretically you'll make $5 per year one way or the other, and you'll get your $100 back in 20 years.Another way of looking at it is as the reciprocal of the interest rate. If you pay $100 for a share of stock, and you get back $5 per year, then you're earning 5% interest per year, and 1/20 = 5%.
Historically, the P/E ratio averages around 14 (which corresponds to about 7% interest), as you can see from the above graph. Pundits often use the word "valuations" as a synonym for price/earnings ratios.
Like the issue of reserves, the price/earnings ratios also have to be in balance. Just as Japan and China and now, Russia have warped world banking systems by amassing huge FOREX reserves while the other nations amass huge debts, the price/earnings ratios in the bourses around the debt-accumulating countries is now way out of whack with the historic average. This will correct itself in the usual brutal way: by stock prices collapsing. The entire excuse for having economists like that Greenspan vulture is to prevent these bubbles and collapses yet this never works because everyone wants bubbles...forever. So the central banks blow bubbles like mad until it blows up. Every time.
Due to blacking out everything Karl Marx ever wrote, there is a huge hole in the middle of any analysis of the history of economics and banking. The communist dictatorships made this worse by misunderstanding Marx totally. Putting him in service of the State simply made things much worse. He was a rationalist who tried to solve the riddle of early industrialization and its effects, being a humanist, he wanted to spare the masses a lot of suffering. But history shows us that this process of brutal, destructive industrialization is endemic to the system and can't be separated! Even as the West tut-tut's China's huge messes and brutality, it also cheerfully buys the products of this mess.
Indeed, the very brutality and messiness is pleasing to the West for this keeps prices cheap, increases the profits of the capitalists running this system and the bankers love this for it increases the value of their reserves by holding down inflation and it allows them to make more money via the magic of debt, etc.
Stocks: Battered As Credit Crunch Fears Outweigh Rate HopesTOKYO (Kyodo)--Tokyo stocks fell sharply Tuesday as credit crunch fears outweighed widespread speculation that the U.S. and Japanese central banks will not raise interest rates this week.
And here it is: the banking collapse will be due to loss of 'credit'! The solutions to one problem makes the other worse. Even as world capitalists pray for free capital from the central banks, the people at the other end of this equation, the 'savers' and the 'investors' have been badly burned and are hurting. And the biggest saver on earth is the Bank of China and it is playing a different game, the destruction of the countries that invaded China during the 19th and 20th centuries will be dealt with! Ha! And this is history being very bitchy again: she must be served! We prefer to ignore her or the British, for example, totally lie about her but she will have her due!
This is why much of Japan's and China's diplomacy revolves around issues having to do with history. Korea and Japan fight over all sorts of historical matters, the wording of history text books, the names on monuments, memorials, these cause huge diplomatic rows! Riots and threats. It is a very serious force.
The U.S. economy will head into a "serious'' recession and the dollar will "collapse'' if Federal Reserve Chairman Ben S. Bernanke reduces interest rates, investor Jim Rogers said."Every time the Fed turns around to save its friends on Wall Street, it makes the situation worse,'' Rogers said in an interview from Shanghai. "If Bernanke starts running those printing presses even faster than he's doing already, yes we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems in the U.S.''
Damned if you do, damned if you don't. And with Greenspan joining the vultures who hang around grave yards, we head towards Halloween.
Once, in the last major recession I went as a demoness dressed in a huge, huge Marie Antoinette dress made of the Wall Street Journal and my friends spraypainted 'READ MY HIPS' on it. They were dressed as the devil and a bear and a Wall Street broker (that person was a broker, by the way!) and the broker carried a street lamp saying 'Wall Street' and the bear had a bag of play money he threw at the crowd watching us march up Manhattan. The devil poked the broker in the rear with his trident and I kissed the bear. The crowd yelled with joy as we moved along, we went to a number of fine dining rooms in Midtown and for drinks, would put on a show and by midnight, we were trashed. Heh.
May do this again! No changes needed.
