In central banking as in diplomacy, style, conservative
tailoring, and an easy association with the affluent count greatly and results
far much less.
This weekend, as we
await updates on the damage from hurricane Florence on east coast USA, and updates on typhoon
Mangkhut, currently brushing the Philippines and probably headed towards Hong
Kong, we review the 2008-2009 US banking scandal that nearly collapsed the
global financial system, and still might yet ten years on.
When the next global
recession hits, probably due to President Trump’s friend and foe alike trade
war, a multi-trillion mountain of debt and malinvestment is set to fail, and
with it, a high probability that the Great Nixonian Error of fiat money,
communist money, will fail with it.
What replaces the GNE
isn’t readily apparent, because all in the west’s central bankster system
pretend it can’t happen and aren’t working on a plan B. But then no one in the
central bankster system ever thought they’d face the great Ponzi Scheme of 2008
unravelling and the roof falling in, nor have they ever planned for a President
Trump starting a Great Global Trade War.
Expect very bad
things to happen fast next time round. With China the main target of Trump’s
suicidal trade war, don’t expect China to bail out the world as per 2008-2009. Unfortunately when the age of fiat currency
fails, the biggest losers will likely be those trapped in the biggest fiat
currency. That unfortunately, is the US dollar.
Does anyone on planet
earth other than President Trump, really think escalating the trade and
currency wars are a good thing?
In any great organization it is far, far safer to be wrong with the majority than to be right alone.
John Kenneth Galbraith.
September 14, 2018 / 2:34 PM
Emerging market currency crisis could lead to broader economic trouble
LONDON
(Reuters) - Emerging market investors are trying to gauge whether a currency
crisis and the steep interest rate hikes being used to fight it could turn into
a broader slowdown and even recession.
On Thursday,
Turkey’s central bank attempted to draw a line under a lira collapse of almost
40 percent this year by hiking interest rates more than 6 percentage points to
24 percent.
Argentina is
struggling to shore up its peso, which has more than halved in value despite
punitive interest rate rises to 60 percent.
Other
currencies have been caught in the slipstream, with India’s rupee plumbing
record lows and South Africa’s rand, Russia’s rouble and Brazil’s real losing
15-20 percent this year so far.
Signs
are appearing that months of market turmoil are starting to take the toll on
real economies. South Africa unexpectedly entered recession in the second
quarter of this year, Argentina is predicted to follow suit and Turkey is now
widely forecast to experience a hard landing over the next year.
Purchasing manager indexes have suffered sharp drops across many developing nations, according to data earlier in the month.
“When you have an environment where (the) U.S. dollar is strengthening and U.S. front-end rates are going up that tightens external financial conditions for emerging markets, especially for the deficit economies,” said Murat Ulgen, global head of emerging markets research at HSBC.
Meanwhile faced with capital outflows, many emerging market policy makers have opted to hike rates, thereby also tightening domestic financial conditions, Ulgen added.
Having
tumbled some 22 percent from their January peaks, emerging equity markets are
in territory commonly regarded as a bear market, is often considered to be self-sustaining
decline.
“Tighter
financial conditions are going to weigh on economic activity going forward,”
predicted Ulgen.
More
Trump Wants $200 Billion in China Tariffs Despite Talks, Sources Say
By Jennifer Jacobs, Saleha Mohsin, and Jenny Leonard
14 September 2018, 17:01 GMT+1 Updated on 14 September 2018, 17:49 GMT+1
President Donald Trump instructed aides on Thursday to proceed with tariffs on about $200 billion more in Chinese products despite his Treasury secretary’s attempt to restart talks with Beijing to resolve the trade war, according to four people familiar with the matter.
But an announcement of the new round of tariffs has been delayed as the administration considers revisions based on concerns raised in public comments, the people said. Trump may be running low on products he can target without significant backlash from major U.S. companies and consumers, two of the people said.
----Trump threatened a third tranche of tariffs on another $267 billion of Chinese imports last week, which would mean levying duties on nearly everything China exports to the U.S. Trump said at the time those tariffs were “ready to go on short notice,” but the administration hasn’t yet published a list for public comment.
It has become tricky to find additional products for duties that won’t more obviously impact American consumers, according to two people. There was no decision made during Thursday’s meeting regarding when to issue the $267 billion round.
Apple said last week the $200 billion round of tariffs could hit some of its most popular goods such as the Apple Watch and AirPods headphones. Retailers such as WalMart Inc. and Target Corp. risk being swept up in an escalating trade war if further tariffs hit a broad range of consumer goods, from TVs to sneakers.
Efforts to end the trade dispute have fizzled so far.
More
Opinion: These 4 called the last financial crisis. Here’s what they see causing the next one
By Howard
Gold Published: Sept 13, 2018
3:02 p.m. ET
In all the reporting I’ve done
about the 2008 financial crisis, which exploded 10 years ago Saturday, when
Lehman Brothers collapsed, I haven’t found anybody who predicted the whole
thing.
People warned about subprime
mortgage loans, derivatives, and too much leverage, but nobody, to my
knowledge, said a bursting housing bubble would cause a global crisis that
would lead to the demise of venerable financial firms, require trillion-dollar
taxpayer bailouts, and cause a recession that rivalled only the Great
Depression in its magnitude.
---- Neither economists, Wall Street
analysts, the financial media nor two Federal Reserve chairmen — Alan Greenspan
and Ben Bernanke — connected the dots and sounded the warning bell.
(Disclosure: I was editor of barrons.com and a columnist before the crisis, and
I didn’t see it coming, either.)
But some came pretty close
when the “experts” were saying the markets and economy were doing just fine.
Economist A. Gary Shilling
warned his newsletter subscribers about a housing bust and wholesale
deleveraging of household debt that would hobble the economy for years.
• Money manager James Stack
also told his clients the housing bubble had burst and that a new bear market
was coming—while stocks were hitting all-time highs.
• Raghuram Rajan, then chief
economist of the International Monetary Fund, said the amount of risk and
leverage in the system was much higher than most people thought.
• John Mauldin said a housing
bust would lead to a drop in consumer spending, a bear market, and a recession
(though at first he thought it would be a mild one), and that credit default
swaps (CDSs) posed a systemic risk.
I interviewed all four recently and asked them where they thought the next
crisis would come from. The consensus was that it probably wouldn’t be housing
but that debt and leverage were still huge issues, although they couldn’t agree
on a likely culprit. Here are their thoughts; I’ll share my own views in a
future column.Gary Shilling
The president of consultancy A. Gary Shilling & Co. started writing about a housing bubble in the early 2000s, and his work caught the eye of Greg Lippmann (of “The Big Short”), whose bets against subprime mortgages made Deutsche Bank $1.5 billion to offset long positions the bank had taken.John Paulson contacted Shilling in August 2006. “He talked about credit default swaps. I didn’t know what they were,” Shilling recalled.
Shilling did some consulting for Paulson’s hedge fund and even invested what “was for the Shillings a major piece of money in this.” Paulson, of course, loaded up on CDS’s and made $4 billion in what has been called “the greatest trade ever.” “We made 15 times our money,” Shilling says.
What he said then: “Subprime loans are probably the greatest financial problem facing the nation in the years ahead.”—January 2004
“The [speculative housing] bubble’s break will cause widespread pain...and be much worse economically than the 2000-2002 bear market.”—June 2006
“We continue to forecast a 25% fall in median single-family house prices nationwide.”—November 2006. (The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index actually fell 34% from its April 2006 peak.)
What he says now: “The ultimate thing that brings down financial markets is excess leverage … So, you look where’s the big leverage, and right now I think it’s in emerging markets.”
Shilling is particularly worried about the $8 trillion in dollar-denominated emerging-market corporate and sovereign debt, especially as the U.S. dollar rises along with interest rates. “The problem is as the dollar increases,” he said, “it gets tougher and tougher for them to service [that debt] because it takes more and more of their local currency to do so.” Of that, $249 billion must be repaid or refinanced through next year, Bloomberg reported.
More
Trump Plans to Rebrand Nafta, Warns Canada
President wants to call it the ‘USMC’ pact, telling donors he will drop the ‘C’ if Canada doesn’t agree to changes
Michael C. BenderSept. 13, 2018
12:46 p.m. ET
WASHINGTON—President Trump revealed plans to rebrand the North American Free
Trade Agreement as the “USMC” pact—for the U.S., Mexico and Canada—telling
Republican donors at a private fundraiser Wednesday that he will drop the “C”
if Canada doesn’t agree to changes he is seeking, according to people familiar
with the matter.Mr. Trump groused about Canada during a private meeting with about a dozen supporters, complaining that officials from the U.S.’s northern neighbor describe themselves as good friends to America while imposing tariffs of more than 200% on some American dairy exports, these people said.
The president was described as jovial during the event—“He was in fine form,” one Republican said—but his exasperation with Canada found a receptive audience in Dan Stamper, president of Detroit International Bridge Co., who was among about a dozen corporate executives, Republican officials and other donors who met privately with Mr. Trump for a half-hour.
After the U.S. and Mexico announced a trade deal, Canada and the U.S. have resumed efforts to come to an agreement. WSJ's Shelby Holliday takes a look at some sticking points. Photo: Getty Images
The smaller meeting, designed to give donors more access to the president, cost $100,000 per seat. It was followed by a dinner of about 175 people that cost $35,000 a couple, according to a copy of the invitation.
The event raised $3 million for Trump Victory, a joint fundraising committee for the president’s campaign and the Republican National Committee, a Republican official said.
A spokeswoman for the RNC, which organized the event, declined to comment.
Speaking with the president, Mr. Stamper repeated many of the points in a TV ad his company aired this summer during the “Fox & Friends” morning program on Fox News, which is among Mr. Trump’s favorites. The spot implored the president to revoke permits issued by the Obama administration for construction of a publicly owned bridge between Detroit and Windsor, Ontario.
Mr. Stamper, who didn’t immediately respond to a request for comment, runs the company that owns the 87-year-old Ambassador Bridge that spans the Detroit River and charges tolls.
More
Finally, what really
happened 10 years ago, when American financial
banksters set out to ruin the world. Matt Taibbi explains the rise of
the populist right and how America ended up with Trump. Not to worry though, no
US banksters even lost a bonus, let alone ended up in jail. A good read, and
sadly all mostly too true. The whole long article is well worth the read.
Ten Years After the Crash, We’ve Learned Nothing
The great financial catastrophe of our times is still badly misunderstood, and led to grotesque consequences, including the election of Donald Trump
Matt Taibbi September 13, 2018
2:08PM ET
Ten years ago, on Saturday, September 13th, 2008, the world was about to
end.The New York Federal Reserve was a zoo. Imagine NASA headquarters on the day a giant asteroid careens into the atmosphere. That was the New York Fed: all hands on deck, peak human panic.
The crowd included future Treasury Secretary Timothy Geithner, then-Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson, the representatives of multiple regulatory offices, and the CEOs of virtually every major bank in New York, each toting armies of bean counters and bankers.
The asteroid metaphor fit. In the twin collapses of top-five investment bank Lehman Brothers and insurance giant AIG, Wall Street saw a civilization-imperiling ball of debt hurtling its way.
The legend of that meeting, as immortalized in hagiographic reconstructions like Andrew Ross Sorkin’s Too Big to Fail, is that the tough-minded bank honchos found a way to scrape up just enough cash to steer the debt-comet off course.
In Too Big To Fail, the “superstar” chief of Goldman, Lloyd Blankfein, along with “smart” Jamie Dimon of Chase, “fighter” John Mack of Morgan Stanley, and other titans brokered the deal of deals, just in time to stave off a Mad Max scenario for us all.
The plan included a federal bailout of incompetent AIG, along with key mergers – Bank of America buying Merrill, Barclays swallowing the sinking hull of Lehman, etc.
With respect to the fine actors in the film, the legend is bull.
There are more accurate chronicles of the crisis period, including the just-released Financial Exposure by Elise Bean of the Senate Permanent Subcommittee on Investigations, probably the most aggressive crew of financial detectives who sifted through the rubble over the past 10 years. Bean’s account of what went on at banks like Goldman, HSBC, UBS and Washington Mutual is terrifying to read even now.
But history is written by the victors, and the banks that blew up the economy are somehow still winning the narrative. Persistent propaganda about what happened 10 years ago not only continues to warp news coverage, but contributed to a wide array of political consequences, including the election of Donald Trump.
The most persistent myths about 2008:
Myth#1: The crash was an accident
----These mortgage mills dispensed
with due diligence, rarely bothering to verify incomes, identification, even
citizenship. The loans were designed to have short, fragile lives, like fruit
flies. They had to stay viable just long enough to be sent back to Wall Street
and resold to secondary buyers, who took the losses.It was a classic Ponzi scheme. So long as new loans were created and sold faster than the old ones failed, the subprime market made everyone rich. But the minute the market started to swing back the other way, everyone knew they would all crash to earth, Wile E. Coyote-style.
Paulson knew as well as anyone. Treasury and the other regulators received ample warning. Take the Office of Thrift Supervision (OTS), a regulatory arm of Treasury that happened to oversee two of the worst basket-cases, Washington Mutual and AIG. According to Bean, the OTS observed and ignored more than 500 deficiencies in mortgage practices just at WaMu in the years before the crash.
Even the FBI – not exactly an on-the-ball financial regulator, certainly not to the degree that Treasury or the Fed is expected to be – had warned as far back as 2004 that so-called “liar’s loans” were “epidemic” and would cause a “financial crisis” if not addressed.
----Myth #3: The bailouts were about saving capitalism
The deal those bankers cooked up was to save the banks from capitalism.
Losers must be allowed to lose. It’s the first and most important regulatory mechanism in a market economy.
But by 2008, the banks had simply grown too big and interconnected to allow normal market processes to take place.
These firms almost certainly would have died without help. In 2011, the Financial Crisis Inquiry Commission released a report quoting then-Fed chief Ben Bernanke as saying this about that fateful week in September 2008:
“Out of maybe the 13, 13 of the most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two…”
Again, the legend is that the banks at the Fed that weekend were the healthy ones, saving us from the contagion of AIG and Lehman. This legend has been reinforced by constant propaganda about the banks being “forced” to accept bailouts like the TARP.
It’s a lie. Paulson and the other regulators repeatedly intervened to prevent the natural demises of these firms.
It wasn’t just small market-stopping moves, like when they banned short-selling to protect corrupt companies from smaller gamblers who’d wagered on their failure. Or the deal made on September 19th, 2008, when two companies that were not commercial banks, Goldman Sachs and Morgan Stanley, were given emergency commercial bank charters on a Sunday night, allowing the two plummeting giants access to lifesaving Fed cash the next morning.
The public to this day has no understanding of the scale of the intervention.
More
J. K. Galbraith.
The monthly Coppock Indicators finished August.
DJIA: 25,965 +207 Down. NASDAQ:
8,110 +265 Up. SP500: 2,902 +168 Up.
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