Is today start of perfect financial storm? (caused by "6L cycle")

It is getting bad. - Even the FED does not like to buy US Treasury paper now. Furthermore, as the Treasury can not finance the growing debt long term as it once did (30year bonds) It will be begin to sell 1 year bonds (to see it investors are confident that the US will last at least one year more?) No wonder every government with surpluss cash has or is setting up a "sovern fund" to avoid buying US Treasury paper. They want real assets now, not promisses to pay later in dollars worth less than they are now. (No lender likes "negative purchasing power interest" and that is what Treasury paper has been for the last two years. - Even the dumbest central banker can learn from experience.) Perhaps the Treasury will be forced to issue "oil certificates" - I.e. promisses to deliver 1000 barrels of oil at a later date to get people to willing lend it dollars now. - there are two other alternatives:

(1) Printing press dollars
(2) Tax the population more.

Both mean you can buy less food, gas etc. - Thank GWB for all this. He doubled the US debt with tax handouts to the rich and needless wars.

The below condensed from Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aQty_l4.z_1M&refer=home

"... As if a slowing economy, a falling dollar, faster inflation and a credit crunch weren't enough headaches for U.S. Treasury Secretary Henry Paulson, he now has to worry that the Federal Reserve will undermine the return of the one-year bill.

For the first time since 2001, the government will sell 52- week debt tomorrow, ... The Fed owns $34.3 billion of the securities, down from $267 billion, or 27 percent of the market, in December.
...have to find buyers for the Treasuries that the Fed would have taken in the past. ...For every dollar the central bank adds to the banking system under the lending facilities, it withdraws a similar amount to maintain its target rate for overnight loans. The Fed bought bills at all but three of the 992 auctions from August 2001 to last December, according to the Treasury. By comparison, it didn't purchase bills at 30 of the 66 sales in the five months through April, and it won't buy any of those sold this week.

... President George W. Bush's administration forecasts the deficit will swell to $410 billion in the fiscal year ending Sept. 30, just shy of the record $413 billion set in 2004. {Billy T comment: If you believe that GWB's forcast, I have a bridge in Brooklyn I will sell you cheap.} On top of that, the dollar has fallen 11 percent against a basket of six major currencies in the past year; inflation is rising at a 3.9 percent rate, almost double its pace in August; and U.S. financial firms have reported $162.5 billion in credit- market losses, according to data compiled by Bloomberg. ...In the first five months of 2008, the Treasury sold $1.4 trillion of bills, an increase of 36 percent from the same period last year. Paulson didn't return a message left with his spokeswoman. {They forgot to mention that US growth is only 1% at best and 0.8% of that was US corportate earnings outside of the US!.}

The Fed boosted its sales this year as policy makers raised the size of the biweekly Term Auction Facility, which makes 28- day loans to commercial banks, to $75 billion from $20 billion; raised the amount of dollar transfers to foreign central banks to $62 billion from $24 billion; and made $220 billion in new 28-day cash loans to primary dealers. The central bank also started making loans in March directly to securities firms through its discount window, and loaned $29 billion to New York-based JPMorgan Chase & Co. for its takeover of investment bank Bear Stearns Cos. ... ``It's going to be much more difficult for dealers to make markets if there's not a backstop source of supply,'' said Louis Crandall, chief economist at Wrightson ICAP, a Jersey City, New Jersey-based government finance research firm. ``They know that if they sell a security that they are unable to source in the market, they can also borrow it from the Fed. But if the Fed doesn't own it, then they have to be much more careful.''

David Glocke, who manages $33.1 billion of short-term securities at Vanguard Group Inc. in Valley Forge, Pennsylvania, doesn't plan to buy one-year bills for his money-market funds because he expects the Fed to stop lowering borrowing costs after seven cuts since September.

``It's not a good fit in an environment where interest rates may rise,'' he said. Plus, ``the fact that the Fed's been selling a lot of bills would imply maybe that there's less overall liquidity in the market because the Fed's reduced positions.''

 

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Good description Billy T. and the cycle reenforced itself forming a death spiral, as it was a very profitable process for all involved. As all of the players were being well rewarded for their actions, so cycle just kept repeating itself with increasing vigor.

Now this process has been shut down...for the time being. No one wants to lend which creates another problem...deflation. I think we will need to see how the recent Wall Street/Financial reform law plays out before we can make predictions as to how this will all play out over the course of the next few years. But I do feel more confident that it will be a better process with Democrats in control as they have proven themselves better actors in favor of the average citizen that Republicans in recent years.

Here is what scares me about the future. Politics may prevent governments from taking the hard actions that needed to be taken in order to save world economies. This is what keeps me awake at night. If governments such as the United States get locked into inaction or even adverse action (e.g. elimination of the Federal Reserve Bank)...then things could get horrific very fast. We could be setting the stage for another dark age.

 

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Thanks. Yes, the next "6L cycle" has not yet started, but Ben Bernake is doing his best to get Liquidity restored. Eventually he will succeed but who knows how much new money must be printed. He is an expert on the dynamics of the great depression. About 1.5 years ago he said (not his exact words, which I forget):

"He was not going to repeat the 'sound money' policy mistake that deepened and prolonged the depression. I will make my own mistakes."

Truer words were never spoken. Just because his response is different, does not mean it is better. I expect that it is worse - Will destroy the value of the dollar, but he claims to have the tools needed to drain the excessive new money from the financial system once liquidity is restored. I seriously doubt this as one of his preferred tools, is for the FED to pay interest on funds placed with it. - Interest large enough to vacuum up the excess of new money; however, this does not destroy the new money - In fact it makes it increase by the interest paid.

True the excessive new money will not be circulating, initially, and that will delay the run-away inflation. When the owners of the funds on deposited at the FED come to the conclusion that the value of the dollar is dropping faster (higher rate) than the interest paid, they will take their deposits from the FED and quickly spend them on real assets, especially items China is importing and gold/ silver etc. Thus, this "deposit funds with FED" plan is only a delaying tactic. It only makes the original problem worse (increases the excess of dollars as it grew them and did not destroy any of them).
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Also you are very correct about "with increasing vigor." In the old days, each business cycle was quite like the prior one with minor variations. Now there are new components that make the build leverage phase of the 6L cycle much greater. All these CDOs, mortgages trances, etc. that in this most recent cycle drove average leverage above 25 to 1, (sometimes 35 to 1) so even only a 3 or 4% default rate wipes out ALL value of these new highly leveraged financial instruments. As I forecast when GWB still had about two years left as POTUS, he did so much damange to the US economy that depression was inevitable. At Baron Max's request, I set the date the run on the dollar would happen before as Halloween 2014, and see no need to move that date further into the future, but do expect Obama & Bernake will be able to delay the dollar run until the end of Obama's only term as POTUS. (He is too smart to run again and have the dollar collapse on his watch.)

 

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I'm wondering, if we had let the bad banks collapse in 2008, would we be living Mad Maxx style now, barely able to speak English, grunting at magic "fire sticks" and eating left over raped road kill... OR... would we be just about out of the mess now?

Because I remember just like Iraq War II, GW Bush Jr went live and basically gave us this advice: OMG OMG OMG... the sky is falling, WMD, OMG OMG OMG give the wealthy the keys to the f*cking vault or we're all DOOOOOOOMMMED.



I wish I could find that Economist article that detailed how most of the "bailout" actually ended up "bailing out" a very very small number of wealthy New York and London families. I mean, like a handful of ultrawealthy families would have lost their arse and they got all of us to help them recoup their bad investments by scaring us. How f*cking stupid.



Last, a very small number of medical studies have shown many successful CEOs have a personality disorder that's borderline psychopathic. They have shrunken amygdala just like serial murderers (no shit, they have the SAME neural abnormality) ONLY the CEOs have really good Amygdala-Forebrain white matter tracks. What does this mean? That they don't perceive danger/fear the way normal people do - when they do feel fear they don't worry about it nearly as much as sane people would.

They higher than average IQs. They certainly no qualms about putting an entire family out on the street in the middle of winter, I mean, an entire family with women, grandmother and kids. They have no qualms about outsourcing to maximize short term profits and letting the company go under after they got their peace of it.

Yeah, YOU were shocked when, 1 day after being bailed out AIG blew a million on a posh vacation. Now try to remember, these are psychopaths. Citi gave themselves Billions in bonuses to "retain" the best and brightest. Hahahaha - "retain" the best! Does this sound like something a psychopath would do? These are the people running GoldmanSucks. They are running the Federal Reserve. They run WallStreet. At this time, most financial responsibilities of the USA government have been given to GoldmanSucks and Citi criminals. Who are often the same people.

The ONLY real checks on these people are (1) threat of force - aka physically hurt them (2) threat to their liberty - aka put them in jail (3) threat of money - aka let them go bankrupt.

We haven't' done ANY of those things??? Why?

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It seems about time to drag this old thread up with some 20+ year old stuff I just found in closet:

More than 20 years ago on 4 March 1991, Business Week published my brief reply to P.C. Robert’s full page article (page 18, B.W. 18 Feb 1991) entitled: Rescuing Real Estate Will Save Banks and the Economy, too, both of which I accidently found today. First some excerpts quoted from Robert’s article which starts:

“ It was only yesterday that we were assured that a budget deal trading higher taxes for lower interest rates would save the economy. … Depressed real estate prices are not only an important reason why we are in recessions, but they are likely to make it impossible for us to spend our way out of it. … The sooner the downward spiral in prices can be stopped, the less red ink will result and the more effective the FED’s effort to ease credit will be. … A capital-gains tax reduction … would not be a handout to the rich … it would save many Americans form the hardships of unemployment. … The downward spiral will have long way to go if regulators succeed in forcing financial institutions to “mark –to- market” … their long term investments.”

Now his final paragraph:
“ If President Bush can make a case for expending American lives and treasure on Arab disputes in the middle east, he can easily put the straightforward argument to Americans for stabilizing real estate values with cut in the capital gains tax rates.”

Roberts, Chairman of the Institute for Political Economy, in Washington DC, got his wishes. “Mark to Market” is still not mandatory. – That is how the “toxic assets” got fostered off on Fanny May, etc. and ultimately upon the tax payers. Greenspan and George I took the advice of this “expert” about easing credit and making tax cuts, but George II is the one who really destroyed Clinton’s balance budgets with much greater tax reductions for the already very rich; However, before making more comments here is most of my reply, which B.W. published three issues later:

“Paul C. Roberts is correct in linking the S&L mess and the recession to “disastrously” dropping real estate prices; but wrong in his prescription. The “core problem we need to solve” is the fact that the tax incentives he advocates were in place and promoted excessive construction … but how long can we continue to build new {homes} and office buildings when existing office space cannot be rented?

A tax policy that artificially stimulates construction far beyond the needs of the market place is a form of central planning and centrally directed economies ultimately result in Economic Pain. – Better a recession now than a depression later. ”

You know what happened: Roberts and other Republicans wanting to help the rich feed more at the tax payer’s troth, got their wishes, especially under GWB. The SEC’s “interference” (Democrats call it “regulation”) with business and wall street decreased so we got Maddoff, etc. scandals. The gap between the wealthy and poor grew and now even the middle class is shrinking! Joe American’s salary lost purchasing power, few jobs were created (only 4 million during GWB’s 8 years and 22 million were needed to keep up with the growth of the labor force.) and even with the stimulus of GWB’s two “off budget” wars, and with the then unprecedented deficit spending, the US sank back into the second recession to start under GWB, which is still continuing as Obama has not been able to climb out of the 18 million job deficit hole he inherited from GWB.

Don’t expect things to get better with the tea party digging in against compromise in DC and all eight of the Republicans candidates at the Iowa debate so opposed to any restoration of the taxes GWB cut – on only the 2% of the richest American that not one would agree to a 1 dollar tax increase on the rich even when tied to a 10 dollar cut in government spending; So it looks like The US will get the depression my B.W. reply to Roberts forecast, if he got his wishes (which he did).

Despite the obvious historical fact that trickle down of tax relief funds given to the wealthy only made jobs in China and closed factories in the US, or promoted outsourcing , the Tea Party types and many Republican draw a line in the sand against any return to the tax structure that balanced the budget under Clinton.

I am not suggesting returning to those rates can save the US now as either the interest on the growing debt will the kill the US economy or the FED will monetize the debt away and kill the dollar as the international reserve currency – pretty much the same result – i.e. GWB’s depression is coming and now definitely unavoidable (as I forecast when GWB still had two years as POTUS).

But I did think this 20+ year old exchange between Robert and myself was both interesting and so up to date it could have been published yesterday. Nothing has changed: Most Republicans still want to use the government to help the rich and perhaps the poor via their false “trickle down” theory and most Democrats want the government to help the least wealthy of the US to a better life even if the rich are taxed more to do so.

 

Perhaps the "perfect financial storm" will be caused by Soros, (once again -recall he broke the bank of England and made >500 millions or billions?)


Aug 15 (Reuters) - Soros Fund Management LLC:

* Soros cuts share stake in Microsoft Corp by 48 percent to 24,900 shares

* Soros cuts share stake in Monsanto Co by 97 percent to 79,400 shares

* Soros cuts share stake in Motorola Mobility Holdings Inc by 12 percent to 325,134 shares

* Soros cuts share stake in Netflix Inc by 48 percent to 8,001 shares

* Soros cuts share stake in Oracle Corp by 99 percent to 6,900 shares

* Soros cuts share stake in Travelers Companies Inc by 23 percent to 52,900 shares

* Soros cuts share stake in Verizon Communications Inc by 24 percent to 1.3 million shares

* Soros cuts share stake in Visteon Corp by 25 percent to 1.6 million shares

* Soros cuts share stake in Wells Fargo & Co by 98 percent to 77,700 shares

* Soros cuts share stake in Xerox Corp by 68 percent to 12,700 shares

* Soros cuts share stake in Adecoagro SA by 3 percent to 26.4 million shares

((Bangalore Equities Newsroom; +91 80 4135 5800; within U.S. +1 646 223 8780))

Billy T comment: Could it be that Soros is building cash to back a short position against the dollar? - Drive the dollar into collapse by huge shorting of it as he did to the English pound. Perhaps he just differs greatly from Warren Buffett and thinks now is the time to sell, not buy stocks?

Yes we certainly are "blessed" to live in "interesting times."

 

Yes Billy!

I have been following this fker for a few months now and even posted in another thread about him shorting the Pound.

He is the antichrist lol