financial doom round–up

Ah, the 10s…

“But did you realize that the Fed and Treasury threw billions of dollars of taxpayer money at Barclays and the other Libor–manipulating banks after they knew about the manipulation … and did nothing to stop it?”

• • •

“‘[…] If some people end up in jail, maybe that will teach a lesson to somebody. Or somebody hanging in the streets.‘”

• • •

“Few begrudge a Bill Gates his fortune. But where vast wealth accrues to people whose actions seem unrelated to any contribution to society or country, and to have come simply from rigging the system for their own benefit, that system will not endure. Our casino capitalists are playing with fire.”

• • •

“Although Libor manipulation affects the interest rates we pay on all number of credit products, gold market manipulation is more serious still.

The price of gold is traditionally a proxy for the value of money. A soaring bullion price is indicative of a lack of faith in fiat currency.

Our financial system is predicated on the notion that money stands as a proxy for the factors of production – capital, labour, land and enterprise.

In short, the abundance of money in the economy should be related to the abundance of those factors. The harder we work, for instance, the more we create. There is more labour in the economy, therefore a rise in the money supply is legitimate in order to mirror this. There is nothing wrong with printing money per se so long as the printing reflects an expansion in the real economy.

Twentieth and Twenty-First century economics appears to have done away with this. Money is now created ex nihilo to feed both the top and bottom ends of society.”

• • •

“[…] credit default swap “prices” and the indexes derived from them are determined almost entirely by a little company with zero transparency and, it appears probable, a high exposure to influence from market manipulators. The company is called Markit Group, whose owners include investment banks Goldman Sachs (NYSE:GS) and JP Morgan Chase (NYSE:JPM), and there is every reason to believe that its CDS-driven indices (the CMBX, the ABX, and several others) are inaccurate, while the credit default swap “prices” that they publish and which rock the market are in fact nowhere close to the prices at which credit default swaps actually trade.

[…] The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulators.

[…] It is all the more shocking when one considers that the necessary data exists and might be in the hands of The Markit Group— a black box company based in London.

A thorough investigation of Markit Group is urgently required.”

• • •

“Moody’s said the Italian economy is worsening, and that’s also hurting the government’s financial position. The agency projects the country’s economy to shrink by 2 percent this year, which would make it harder for Italy to meet fiscal targets.

Among risks from outside the country, Moody’s cited the possibility of a Greek exit from the euro currency union and a worsening crisis among Spanish banks. Earlier this week, European financial ministers agreed to a 30 billion euro ($36.88 billion) bailout for Spain’s banks. That deal is expected to be finalized July 20.

Last week, interest rates on Italian bonds rose to distressing levels, with the rate hitting 6.01 percent on Friday. That compares with less than 1.5 percent for German and U.S. bonds.”

• • •

Buchanan’s casino metaphor is only accurate if we make some adjustments:

• All the high–rollers are bankrolled with money that persons gave them with the idea it would be used for low–risk investments.

• When a high–roller wins at a table, the winnings are created by the house.

• When two high–rollers engage in side–tables, the house creates some of the winnings for them as well.

• If any high–roller runs out of cash, the house creates more chips for them.

In 2008, the reaction was, “This isn’t working, so let’s just do more of the same and hope it works out.” That obviously did not work.

We have three other bubbles about to pop: (1) Student loans, and the entire university system with them, (2) health care & insurance, and (3) Credit card debt. We can take it for granted now that the governments are not going to allow a deflationary event until it is out of their control, which means bailing out the banks, the debtors, or both. In the student loan situation, the stakes are even higher for .gov, which relies on the bloated education system as both a jobs program and a supply of mandarins.

There will be no significant cuts in the subsidy programs that matter; what you may see are cuts in very important programs that have a much smaller advocacy group— like WIC.

The health care bubble would be the second–easiest, because the overall risks for the US are lower (even a post–bubble US would be better for doctors than other advanced nations with a few exceptions that cannot absorb a huge influx of US practitioners), but this is extremely doubtful as it would require either a fold–up of Medicaid and Medicare or a law making all insurance companies illegal.

The credit card situation is completely unpredictable.

This all said, while it’s going to be disastrous, I do not agree with the doom & gloom party which thinks it will be the end of US hegemony.* Export–reliant nations like China are going to be in even worse shape after a global monetary blow–up, and US domestic production can be rebooted within 5-8 years. The USN is not going to go away (it may be cut)— though the pressure on .gov will be to start forcing open tribute from other nations for the upkeep of the trade–insuring thallocracy. Further, while we can expect disruptions in the food distribution sector, the US has absurd agricultural surpluses; we aren’t going to see mass starvation here, though we likely will in the Third World where the long–term post–war food aid has utterly destroyed local agriculture. Europe will be the logical target for a Camp of the Saints event, not the US.

* This depends on your point–of–view, obviously; but I think anyone who wants the US hegemony to collapse in an uncontrolled short–span event is insane— they aren’t considering the utter chaos it would involve. Strategically, the US would still be safe, but the rest of the world would be plunged into turmoil, and the risk of a nuclear event in Pakistan/India/China/the Koreas/Russia/the ME skyrockets.

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