Will The Country Suffer Depression?

The markets go up…..the markets go down……a continuous yo-yo ride……

I know….very few Americans want to talk or learned about economics…..it is just all too hard.

We all have a fleeting knowledge of what happened in 1929, right?  But our minds are fresher in the events in 2008 when the markets dropped like a lead toilet in Lake Michigan.

But since that day the markets have steadily gone up and up and up……seemingly without any possibility of a return to the days of losing funds……but is there a possibility that we could see another loss of funds and value………..

A CIA analyst known for his dire economic predictions is speaking up again, warning that the next Great Depression may be right around the corner. Jim Rickards, a “financial threat and asymmetric warfare adviser” for the CIA, tells Money Morning that Americans should be preparing for a $100 trillion financial catastrophe. “Everybody knows we have a dangerous level of debt,” he says. “Everybody knows the Fed has recklessly printed trillions of dollars. … But all signs are now flashing bright red that our chickens are about to come home to roost.” Another reason for gloom: According to Rickards, the so-called Misery Index maintained by the Federal Reserve contains far worse data than most people believe.

The Misery Index adds the true unemployment rate with the true inflation rate, but Rickards contends that the Fed has altered the index’s calculations in order to hide the truth—that “the Misery Index has reached more dangerous levels than we saw prior to the Great Depression,” he says. “This is a signal of a complex system that’s about to collapse.” His prediction? A “70% stock market crash” followed by a 25-year depression, possibly sparked by a “major credit collapse” in China, he tells Reuters. His advice? Invest in “hard assets” like railroads, coal, wheat, or gold. Again, he’s not known for mild predictions:

Whatcha think?  Is this guy onto something or is he just giving Americans what they crave….a good dose of fear?

Do You Know What happened In 2008?

Yes, I am talking about the crash and the ensuing recession, the unemployment, foreclosures and the tune continues…….you may know that your 401k is not worth the paper it is printed on…..but do you know just how the crash happened?

I am guessing that most Americans either do not know or maybe they just do not give a crap……but if you are truly interested in educating yourself on how you were screwed….then by all means read on…….if not then maybe a good episode of “Jersey Shore” that teaches a lot about life is on MTV….if you do not care enough to learn what happen then keep thy mouth shut when it blows up again….and make NO mistake ….IT WILL!

A very good explanation has been written by Zeus Yiamouyiannis……..

Here is how the counterfeit value derivative con works.  It’s a game of “I pretend, you pretend, we all pretend, and the taxpayer will pay in the end”.

1) I’ll create an instrument, say a credit default swap (CDS), an unregulated insurance with no capital requirements, with a certain “notional” value. Notional value is just something I assign. It does not have to be attached to or backed by any real asset or actual money/principal, but I can pretend as if it is. (Notional amount.)

2) As a seller, I will just declare that this swap covers the full value X of this company, contract, etc. if credit event Y happens. I receive lucrative insurance premiums and fees for my unbacked promise. The CDS’s value is based in nothing more than my promise to pay. I don’t have to have adequate capital reserves on hand, but I can pretend as if I do perhaps with some mini-reserves based on objective-seeming risk ratios calculated by my mathematical models. (credit default swap.)

3) As a buyer, you can then buy as many of these CDS’s as you want, even for a single default. If you are really sure something is going to tank you can insure it 30 times over (or a 100 or 1,000) and get 30 (or 100 or 1,000) times the return when it goes bust! In regulated insurance it is unacceptable to insure beyond the full replacement value of the underlying asset. Not so with CDS’s. The seller has gotten 30x the premiums and the buyer gets 30x value in the event of default. As a buyer of this phony “insurance” you don’t have a stake in the affected properties, but you can essentially pretend you do.

4) As buyer and seller of CDS’s either one of us can assign our risks to a third party through another contract, and pretend as if we are covered in case our own game playing blows up in our faces. This allows us to retain even less reserve capital and spend freed-up funds on more high-risk, high-(pseudo) return speculation. (The monster that ate Wall Street.)

5) We can purchase and sell of these derivative contracts to each other at unlimited rates to generate massive volume and huge fees and profits. We can simply hyper-cycle risk and take our chunk each time.

According to the Bank of International Settlements, as of June 2011 total over-the-counter derivatives contracts have an outstanding notional value of 707.57 trillion dollars, ( 32.4 trillion dollars in CDS’s alone). Where does this kind of money come from, and what does it refer to? We don’t really know, because over-the-counter derivatives are not transparent or regulated.

Read More…

The answer to your questions are not as difficult to understand as the msm and the economists want you to believe……..once you learn the facts then you can keep your bank and brokers in check….that is if you really give a crap……and Dodd-Frank is a blowjob….it does little to keep the financial sector from gaming the system again and causing another meltdown….personally, I want to see someone go to prison because of what has been done to the economy and beyond that I want to make sure these con men cannot either game the system again so that we, the taxpayer, give them an out…..let them ROT in their own deceitfulness!

Finally! It Is Everything They Wanted!

Today is the big day!  The Prez will sign the new and improved FinReg bill into law….and it is everything they wanted….by they I mean Wall Street…..Obama has said….

“Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts—period.”

The GOP immediately sent out their Agent Orange, Rep. Boehner, to condemn the bill and its passage (go figure)….which to me is astonishing because Wall Street made out like a bandit and the GOP should be pleased that the bill was so watered down…..or is it just a political tactic?

Any way……

The bill authorizes the allocation of pubic funds to pay for the operation, without congressional approval, with the proviso that the major banks would subsequently be taxed to defer some of the cost.

This amounts to the institutionalization of financial rescue operations, instead of the ad hoc methods employed in the fall of 2008. The procedure is being put into place precisely because the regulatory overhaul fails to impose any real restrictions on the speculative activities of the banks.

It does not restore the legal wall between commercial banking and investment banking, a central reform carried out during the Depression of the 1930s to prevent deposit-taking commercial banks from engaging in the high-risk speculation that is the bread and butter of investment banks and brokerages. The weakening and final removal of this wall in 1999 during the Clinton administration encouraged the wave of speculation and swindling that led to the collapse in September 2008.

It does not cap executive compensation.

It does not eliminate or seriously limit trading in derivatives, the complex and opaque financial instruments that played a central role in the collapse of American International Group (AIG) and threatened to topple the entire banking system.

Instead, the bill sets up what some have called a Potemkin village of regulatory structures with little real substance, which Wall Street banks will have little difficulty manipulating and gaming. For the most part, the details concerning how much capital banks must hold in reserve, what percentage of their capital they can invest in hedge funds, which types of derivatives will be forced onto clearinghouses and exchanges and which will continue to be traded in the “shadow banking system,” etc. will be determined by the various regulatory agencies.  It will grow the bureaucracy but will not cease the gambling by the Banksters with taxpayer money.

Once again the paid agents of Wall Street have successfully set the stage for another economic meltdown…….sooner rather than later……the only good thing is that youtube is up and alive and everything anyone has ever said about FinReg has been recorded and it will come back to them in the near future…….the American people are getting their Christmas goose early…..sorry to be a buzz kill!

In The Beginning………

Daily Agitator

In the beginning there was a massive amount of anger leveled at the Wall Street banks that took the US to the brink of collapse……..so much anger that the Congress set about to stop the gambling on the taxpayer’s dime…..regulation and oversight was the call of the day…..it showed promise….it showed that the Congress got the idea and started acting on behalf of the people……that was in the beginning….now it is something way less than the original intent…..

When the Senate bank reform legislation passed in May, Senate Majority Leader Harry Reid (D-Nevada) said it sent the message to Wall Street that they can no longer “recklessly gamble away other people’s money.” The bill told Main Street, “you no longer have to fear that your savings, your retirement or your home are at the mercy of greedy gamblers in big banks. And it says to them, ‘never again will you be asked to bail out those big banks when they lose their risky bets,’ “

The bill the Senate passed did protect the taxpayers from reckless gambling by the big banks, largely due to the last-minute inclusion of strong derivatives reforms authored by Senator Blanche Lincoln (D-Arkansas). So why is it that Senate and House leadership are now busy behind these scenes trying to kill the best provisions in their own banking reform legislation?

Behind the scenes, Senate Banking Chair Chris Dodd (D-Connecticut) and House Financial Services Chair Barney Frank (D-Massachusetts) have made it clear they are not fans of Lincoln’s proposal. Neither is the U.S. Treasury Department. Treasury official Michael Barr has been running around telling anyone who will listen that these derivatives rules were not part of the administration’s four “core objectives” for financial reform.

But opponents of strong derivatives reform have a big problem. They can’t just yank it out of the bill with an outcry from consumer advocates and reform groups like Americans for Financial Reform, who have been working hard on the issue. So they have cooked up a new scheme. They will replace the Lincoln language with the strengthened version of the Volcker Rule offered (but never voted on) by Senators Merkley (D- Oregon) and Levin (D-Michigan). They want to convince everyone that a strengthened Volcker Rule takes care of all the issues raised by Lincoln.

In case you are not sure what the Volcker rule is…let me help….The Volcker Rule deals importantly, but narrowly, with derivatives trading for a bank’s own account. This is called “propriety trading,” and banks would be barred from trading any financial instrument (mortgage-backed securities and stocks, as well as derivatives) for their own as opposed to a customer’s account. Merkley-Levin would make this reform a statutory ban rather than leaving it to the discretion of regulators and would further crack down on Goldman-style conflict of interest trading. But big banks would still be allowed to deal and trade on behalf of their clients and their derivatives business would still be backed by the taxpayer guarantee.

Watch the slight of hand by the Congress…the bill that is the final version will be far from the regulation needed to prevent the economy from collapsing again….with the Congress being paid by the banks to water any reform down….we can look ahead ten years or so and see all this economic woes occurring again…….Politicians need to think about that when they are so concerned about our children’s future…….

Land Of The Lost (Decade, That Is)

I am sure when the word “Lost” is mentioned we will have a wealth of people that will tear up at the mere mention of the now defunct TV show……thanks to say this is NOT about a bunch of fictional people lost on the island of Manhattan…..but rather…..

Back in the 1990’s I was a frequent player on the stock exchange…made some money…lost even more….but I recall the days of my adventurism……Japan was a shining light of capitalism especially in the later 80’s….but that was about to change…..

The economic miracle ended abruptly at the very start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fueled a massive wave of speculation by Japanese companies, banks and securities companies. Briefly, a combination of incredibly high land values and incredibly low interest rates led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and securities.

This popped the bubble in spectacular fashion, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the huge debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks having to be bailed out by the government.

Overall, this has led to the phenomenon known as the “lost decade”; economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life has been rather muted, however. Unemployment runs reasonably high, but not at crisis levels (the official figure is a little under 5%, but this is a considerable underestimate – the real level is probably around twice that).

I will bet you wonder why I mention this……does it sound familiar?  It should or you are not paying attention to your life.

I gave you a little economic history because I see this happening in the US and I am not alone….Paul Krugman writes:

It’s not that nobody understands the risk. I strongly suspect that some officials at the Fed see the Japan parallels all too clearly and wish they could do more to support the economy. But in practice it’s all they can do to contain the tightening impulses of their colleagues, who (like central bankers in the 1930s) remain desperately afraid of inflation despite the absence of any evidence of rising prices. I also suspect that Obama administration economists would very much like to see another stimulus plan. But they know that such a plan would have no chance of getting through a Congress that has been spooked by the deficit hawks.

We hear daily that the US could become the next Greece because of the growing deficit….which seems to be the call of most conservatives these days,,,,,,,but I see it differently….I see the possibility of the US becoming another Japan with a “Lost Decade” and many years of suffering for the working majority of the country.  Slow growth, high unemployment and a rise in the inflation rate.

It’s All Greek To Me

Oh my God!  So much has been said about the crisis in Europe and most verbally the situation in Greece.  Gloom and doom is predicted…..if Greece then on to the others in P.I.G.S. and then if that why not the US going down the drain?

But what if?  What if the crisis in Greece could ultimately benefit the US?  In an article written by Derek Thompson for the Atlantic Business:

But what if Europe’s debt disaster actually works out for the United States … kind of? Tim Duy finds three reasons:

1. Capital Gains for the U.S. Scared investors are running from peripheral EU states that look like they could follow Greece into the abyss. (It’s called the contagion effect: explanation here.) Running from Europe, investors might seek shelter in US investments, driving down our interest rates and giving companies looking to hire more access to capital. Duy concludes, “the odds of sustainable recovery look better every day.”

2. No Tightening from the Federal Reserve. Some liberals and moderates are concerned that the Federal Reserve might try to prematurely tighten its monetary policy by selling assets to squeeze inflation before we’ve achieved sustainable recovery and consistent job gains. But the crisis in Europe makes it more likely that the Federal Reserve will sit tight and keep money easy. After all, a Greece default — which is all but certain — could shock high-debt, low-growth states like Portugal and Spain and send jitters throughout the global economy. The Fed, nervous about feeding those fears, will probably keep interest rates low for an extended period of time with the European debt bomb ticking.

3. Cheap Oil. A weak Euro and a stop-start European economy means cheap oil, relief at the pump for the re-emerging American consumer, and marginally higher demand for cars. An exogenous oil shock helped to pop the housing bubble in the mid-2000s. Cheap gas is an economic lubricant.

What is the possibility that the US could see some minor benefit from the crisis in Greece and possibly the rest of the EU?  What are the possibilities of other countries seeing the same?

Serpent Of The Dark Pool

Nope…this is NOT a Chinese restaurant (shades of Big Trouble In Little China)…..I am talking about a financial dance that is causing a bit of concern, to say the least…..it is called “dark pool”, Dark Liquidity, and so on……basically it is market manipulation….does that sound familiar?  Could this be the next economic slide waiting to happen?

Okay, Professor…but what the hell is a dark pool?

Truly dark liquidity can be collected off-market in dark pools. Dark pools are generally very similar to standard markets with similar order types, pricing rules and prioritization rules. However the liquidity is deliberately not advertised – there is no market depth feed. Such markets have no need of an iceberg order type. In addition they prefer not to print the trades to any public data feed, or if legally required to do so, will do so with as large a delay as legally possible – all to reduce the market impact of any trade. Dark pools are often formed from brokers’ order books and other off-market liquidity. When comparing pools careful checks should be made as to how liquidity numbers were calculated – some venues count both sides of the trade, or even count liquidity that was posted but not filled.

Secret deals carried on in the dark…..just another way to create wealth by side stepping the regulations of proper and fair financial transactions…..stock trader, Keith Fitz-Gerald sees problems looming:

  • First, as more volume moves to the so-called Dark Pools, the very notion of what constitutes “public pricing” becomes suspect. Practically speaking, if we’re seeing only 50% of the trading volume in a given stock, who’s to say that the pricing we’re seeing is accurate if the other half remains a mystery.
  • Second, the small- and mid-cap stocks that for so long have been the domain of smaller investors will likely become harder to trade. The reason: Dark Pools will absorb the liquidity that’s presently out in the open, just as a ” black hole ” in outer space sucks in all the matter that’s nearby. The net effect could be that smaller transactions become more inefficient, or that public pricing actually disconnects from private pricing. Either way, individual investors may not get the best possible prices.
  • Third, you can bet regulators will get interested if there is even a whiff of impropriety at the expense of smaller investors who perceive (and rightly so) that they are being “locked out” of the markets by the big boys yet again.

The question now is, will Washington do something to prevent yet another meltdown in the financial markets?  My guess would be…NO…they will do what they always do….wait and see….and we know just how successful that type of attitude has been in the last year or so…..