Financial Armageddon!!

[eri]

whatever, the trend is upwards and it many ways it cheapens money

as to where the quote came from, the post above

"However, it would be odd to be using money as a standard measure of value for goods and services if its value was going to decline by 5% or 10% every year."

http://www.bankofengland.co.uk/education/targettwopointzero/mpframework/currentInflationTarget.htm

"http://www.house.gov/jec/fed/fed/goals.htm
In this April 1997 study, it is argued that a price stability (or zero inflation) target should be introduced. Historical and international evidence in support of such a policy is presented in this document."

"Thomas C. Melzer, "To Conclude: Keep Inflation Low and, in Principle, Eliminate It"

http://research.stlouisfed.org/publications/review/97/11/9711tm.pdf

In these November 1997 article, Thomas C. Melzer, past President of the St. Louis Fed, argues that maintaining price stability is an important goal of the Fed. He suggests that there is low inflation will result in a higher rate of economic growth. In this speech, Melzer argues that a credible Fed policy of price stability (or zero inflation) may be achieved at no substantial economic cost and provides large long-run benefits. (To view this document, the Adobe acrobat viewer plugin is required. You may download this viewer by clicking here.)"

"http://www.stls.frb.org/news/speeches/1998/10_22_98.html
In these October 22, 1998 remarks, William Poole, the President of the St. Louis Fed, provides a series of economic arguments in favor of a zero inflation rate target.
Interview with W. Lee Hoskins

http://minneapolisfed.org/pubs/region/91-06/int916.cfm

In this June 1991 interview which appeared in The Region (a publication of the Minneapolis Fed), W. Lee Hoskins, the President of the Cleveland Fed, discusses his arguments for a zero inflation target. Hoskins argues that inflation distorts relative prices and results in economic inefficiency."

[Austrokiwi]

Interesting quotes. With my oft confused understanding( and from my reading that's not an uncommon state for anyone , including Keynes) of money.

It seems that some of these people you posted links to are mixing the fundamentals of old specie based money and today's fiat money. They seem to be applying an absolute standard to money ignoring the fact that the money supply does need to increase to match the increases in the size of the economy. If we want the economy to grow the money supply does have to expand, if it doesn't then deflation is created. The problem for central banks is to match their expansion of the monetary supply to the growth levels. Obviously it is not an easy task. If they put too much money into the system, they can overbalance the system and create in the worst scenario Hyper inflation. Too little money into the system, can lead to recession and worse depression.

I have mentioned it before but it is really interesting reading the arguments for and against mono-metalism ( ie the de-facto Gold standard) in the last quarter of the 19th century. Silver after centuries of being "money" was taken over by gold. Many people resisted the change. From my limited understanding the rise of the gold standard was a necessary step towards the development of fiat currencies.

[Matt Gilligan]

This is the best thread on property talk. Love it.

[muppet]

Valley National Buys Two Banks in Two Days Amid Lender Failures
March 13 (Bloomberg) -- Valley National Bancorp, operator of more than 200 branches in New Jersey and New York City, acquired its second failed bank in as many days as U.S. lenders continue to collapse amid losses tied to real estate.
Valley National agreed to acquire the $494.5 million of deposits held by Park Avenue Bank in New York City, which was shut yesterday by state regulators. It also agreed to buy “essentially all” of Park Avenue’s $520.1 million in assets, the Federal Deposit Insurance Corp. said in a statement. Wayne, New Jersey-based Valley National agreed to buy the deposits of LibertyPointe Bank, also in New York City, on March 11.
U.S. lenders are collapsing at the fastest pace in 17 years amid losses on residential and commercial real estate loans made at the height of the market. “Problem” banks climbed to the highest level since 1992 in the fourth quarter and FDIC Chairman Sheila Bair said on Feb. 23 that the pace of failures will exceed last year’s total of 140.
“There are a lot of bad banks out there,” said Jeffrey Rulis, a banking analyst at D.A. Davidson & Co. in Lake Oswego, Oregon. “As time passes the situation can only get worse and to the FDIC that only means more losses.”
Gerald H. Lipkin, Valley National’s chief executive officer, said the bank picked up eight branches with the two transactions, which will immediately boost earnings. The FDIC said it agreed to share in losses on a total of $561.3 million of assets in the LibertyPointe and Park Avenue deals.
Three U.S. lenders were seized yesterday, with total assets of $1.08 billion and deposits of $1.02 billion. Regulators have seized 30 U.S. banks this year after 140 lenders collapsed in 2009.
Old Southern Bank in Orlando, Florida, was shut by state regulators, and Centennial Bank of Conway, Arkansas, agreed to acquire the deposits and assets, the FDIC said. Statewide Bank in Covington, Louisiana, was seized, and Home Bank in Lafayette, Louisiana, assumed the assets and deposits.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNthy.zdGQXQ&pos=7

[TonyMacaroni]

Walkthrough of empty malls in Helena (State Capital), Montana. Not a great place to be invested...

From: http://www.youtube.com/watch?v=9i3W7GPVYK0

[Commercial Dan]

Watch out for Deflation, low interest rates for a while and little growth.

[TonyMacaroni]

The Keiser Report RT 4/3/2010

This time Max Keiser and co-host, Stacy Herbert, look at the scandals behind: 'the owner of Great Britain' bouncing a $54 million check for a pile of dirt in the Persian Gulf; a currency speculator in Monaco moving currency markets with an 'accidental Jim Rogers press release' while Colonel Gaddafi calls for jihad against Switzerland and receives zero market impact; and Alan Greenspan wins major award for causing up global financial markets to explode. Keiser also talks to David DeGraw about his new book, "The Economic Elite versus the People of the United States of America."

From: http://www.youtube.com/watch?v=3WRsLXOTtt0

[TonyMacaroni]

Ratigan on the Lehman Report

Ratigan and Spitzer discuss the Lehman report and massive fraud involved, which could be used as the basis for bringing charges on Mr Geithner among others.

From: http://www.youtube.com/watch?v=uiZ33UnYG3E&feature=youtube_gdata

[TonyMacaroni]

From Mish 5/3/2010:
Construction Developer Says Banks Suddenly Playing Hardball, asks "Mish, What's Going On?"

Today I received an email from "Construction Insider" concerned about banks suddenly playing hardball and calling in construction loans.

Hi Mish

I work in the construction business and something has been creeping to the forefront of my attention for the past few weeks and now it seems to be moving full steam ahead.

Banks are forcing developers/builders (especially smaller ones) to give up their properties (unsold homes and lots).

Banks say the reason is that the properties in question are no longer performing assets. I am sure there are some loans out there that are not performing and the owners are going under. I am equally sure that there are plenty of developers that are still selling homes - just not at the pace originally planned on the pro formas.

Having inside information on one of these scenarios that happened today, I cannot help but wonder what is really going on? The bank told a small developer/builder I work for that they were taking back his ongoing subdivision.

He is selling houses and updated pro formas would indicate that the current sales pace would exhaust all remaining lots within 33 months. Yet the bank stated they would only give him until April 15 to find alternative financing. The bank is also willing to let him buy the subdivision at a 33% discount to what is currently owed.

If he is unable to obtain this backing, the bank will let him walk away without penalty or consequence so they can write it off.

I have been on the phone trying to put some of these pieces together. It seems there are many banks doing the same thing. However, there is apparently no interest [or ability - Mish] from anyone wanting to pick up land/lots at 30% - 50% discounts to today's prices.

Another interesting point is that the banks all state that they must have these situations written off or taken care of by the end of Q2.

These are the immediate questions running through my head:

Why the end of Q2? And why do so many banks seem to be simultaneously doing this?

Is it possible that there is some government incentive to the banks to meet this timeline? And how much will this cost the taxpayers?

There is something extremely concerning about this whole thing, especially from the standpoint that many banks appear to be acting in concert, all with the same specific timeline. Any thoughts you have would be greatly appreciated.
...

http://globaleconomicanalysis.blogspot.com/2010/03/construction-developer-says-banks.html

[Davo36]

The “burning desire” of Australians to “to own real estate at any cost”.

Will it just keep going and going in Aussie, or will it all end in tears?

At any cost: the seduction of home ownership

CHRIS ZAPPONE

March 23, 2010 - 12:11PM
“There is a big seduction that's very powerful in this country of having your own home.”
Australians are spending an ever-increasing amount on homes, seduced, to borrow psychologist Elisabeth Wilson-Evered's term, by the dream of ownership.
Indeed, there is sometimes a "sense of failure" if a couple is still renting when they marry or have children, said Professor Wilson-Evered, director of research at Relationship Australia Queensland. The home represents security and comes to embody a family's very identity, even achievement.
Ironically, Australians are engaging in increasingly risky behaviour to gain that security as they face the uncertainty that comes from a combination of the global economic crisis, labour market reforms and a widening gap between rich and poor.
“Many Australians will do almost anything to purchase a home,” said Sydney University anthropologist Stephen Juan. “They will often take out loans far beyond their ability to repay them.”
Regardless of their - or the world's - financial position, Australians "reason that they might as well 'go for it' now because it may be their only chance,” Dr Juan said. “Or if another chance comes along tomorrow it will not be as good as today's.”
That notion is borne out in official data from the Australian Bureau of Statistics that show the average loan size for first-home buyers was $285,000 in January. That is more than a third higher than it was five years ago. But over the same timeframe, full-time weekly earnings rose only 21 per cent to $1226, according to ABS figures.
That shows a lag between earnings and mortgage costs, a growing differential between cash coming in to the average household, and cash going out.
Add to that the fact that home prices are expected to increase between 8 and 12 per cent this year after jumping 13.6 per cent in 2009, and the "get in now or miss out" urgency becomes more apparent.
At the same time, mortgage rates are also on the rise, with about $200 a month added to the cost of an average $300,000, 25-year loan since the Reserve Bank's rate-rise cycle began in October. If credit market predictions are right, the average mortgage will be another $200 more expensive by the end of the year. And if banks move above and beyond official rates - as Westpac hinted this morning - it could be even worse.
Banks of course check to ensure a would-be borrower can afford to repay a loan but it is the unexpecteds that see people wind up with unmanageable levels of debt.
“Customers who default on their loans usually experience an unexpected change in their circumstances such as illness, family breakdown or job loss," the Australian Bankers' Association said, noting banks often work with financially stressed customers to find short-term solutions to their difficulties.
“Home-ownership is an aspiration of many Australians and we have one of the highest rates of home-ownership in the world," chief executive Steven Münchenberg said. "Banks are responsible lenders - it doesn't make business sense for a bank to make a loan to a customer who cannot afford to repay."
In most cases, families and individuals will cling to their home even when the mortgage stress reaches breaking point, selling it only as a last resort.
In February, according Fujitsu Australia, there were 218,700 Australian households at risk of having to sell, refinance or lose their homes, up 2 per cent on a month earlier.
And it all comes down to what Fujitsu Australia industry director Martin North sees as the “burning desire” of Australians to “to own real estate at any cost”.
[email protected]
BusinessDay


Source

[TonyMacaroni]

Max Keiser On The Edge 26 March 2010

Max discusses the weeks financial news including Chinese property bubble and talks to Dmitry Orlov auther of Closing The Collapse Gap


From: http://www.youtube.com/watch?v=pFdVlFgGcGc

From: http://www.youtube.com/watch?v=up53ZjOUmr4&feature=response_watch

From: http://www.youtube.com/watch?v=wsfwffg30gs&feature=response_watch


Letter mentioned sent to Dmitry Orlov by a fellow Russian marooned in a US suburb:

Dear Dmitry,

I hope you don't mind that this is in Russian. I think that this way I can be more completely honest. I am a relatively recent graduate of one of the many faceless post-Soviet institutions of higher learning, with a degree in philosophy. Last year I moved to the USA and married an American woman.

The question of when the modern capitalist system is going to collapse has interested me since my student years, and I have approached it from various directions: from the commonplace conspiracy theories to the serious works of Oswald Spengler and Noam Chomsky. Unfortunately, I still can't fathom what it is that is keeping this system going.

My wife is a very pleasant woman, but a typical white conservative American. Whenever any political question comes up, she starts ranting about the Constitution and calling herself a libertarian conservative and a constitutionalist. I used to think that she is well-educated and understands what she is talking about. In fact, she is the one who introduced me to the US, and I once believed everything she told me about it. But as I found out later, she understands nothing about politics, and just repeats various bits of populist nonsense spouted by Severin, O'Reilly, Limbaugh and other mass media clowns. Well, I am not going to try to prove to my wife that she is wrong on a subject that I don't quite understand myself. After all, she is a good wife. And so I try to steer clear of any political questions when I am with the family, although I do not always succeed. Perhaps if I had a copy of your book, it would help me explain myself to her better, but our family was one of the first to be flattened by the real estate market collapse. My wife went bankrupt, lost her bank account, house, job and the rest a while before I came here, and so we can't buy anything online.

In the talk you gave at the conference in Ireland you mentioned that there are certain regions of the US where the common people only eat garbage food from places like Walmart, which consists of artificial colors and flavors and corn, and that such a diet makes them "a little bit crazy." To my utter disappointment, I have to entirely agree with you. Various witty Russian commentators love to heap ridicule on the "dumb Americans" and on the USA as a generally stupid country. But if they spent a bit of time living here and paid closer attention, they would realize that it is not the low cultural level that distinguishes Americans from, say, Russians: both are, on average, quite beastly. But even when I've visited here before, as a student, my first impression was of a country that is full of madmen, ranging from somewhat mentally competent to total lunatics. And the further south I traveled, the more obvious this became. At first I even marveled at this, thinking, look at how intoxicating the spirit of liberty can be! But now I understand that this is a catastrophe, that American society is brainwashed and alienated in the extreme, and that all that's left for Americans to do is to play each other for the suckers that they have become.

Unfortunately, I feel the pernicious influence of all this on my own family right here and now. You don't have to be a brilliant visionary to realize that in the current situation all these endless suburbs, built on the North American model, are slowly but surely turning into mass graves for the millions of former members of the middle class. Those that do not turn into mass graves will become nature preserves - stocked with wild animals that were once human. My family is turning feral under my very eyes. Lack of resources has forced us to live according to the Soviet model - three generations under one roof. There are six of us, of which only one works, who is, consequently, exasperated and embittered. The rest of the household is gradually going insane from idleness and boredom. The television is never turned off. The female side of the family has been sucked into social networks and associated toys. Everyone is cultivating their own special psychosis, and periodically turns vicious. In these suburbs, a person without a car is as if without legs, and joblessness does not allow any of us to earn money for gas, and so the house is almost completely isolated from the outside world. The only information that seeps in comes from the lying mass media. And I understand that millions of families throughout America live this way! This is how people turn into "teabaggers," while their children join street gangs.

For me, as for you, this is the second collapse. You had left USSR before it happened, while I was there to observe it as a child. I saw what happened when people were finally told that they were being had for seventy-odd years, and were offered a candy bar as consolation. Now, after all this, Russian society is finished. It grieves me to see the faces of Americans, who still believe something and wave their Constitution about, and to know that the same thing is about to happen to them. I think that the model which you have proposed will allow us to confront and to survive this collapse with dignity.

Yevgeny
New Hamshire

http://cluborlov.blogspot.com/2010/03/corn-madness.html

[Austrokiwi]

Cold war rhetoric

Now that letter from a Russian just left me laughing! I can't take such a post seriously The Letter is so typical of Cold war rhetoric ( both US and USSR) Was it written for propaganda purposes supporting a restoration the old soviet republic?

[Bob Kane]

That letter sounds like a Sacha Baron Cohen wanna-be aiming to be a Russian Borat.

[Davo36]

Yeah you shouldn't bother listening to what the Russians have to say about the USA Tony Macaroni.

[muppet]

Bernard Hickey: Bond vigilantes run the game

4:00 AM Sunday Mar 28, 2010
New Zealand's bond vigilantes helped push then-finance minister Ruth Richardson to slash benefits in her 'mother of all budgets'. Photo / NZ Herald


A grumbling noise has started within the bowels of the US bond market that everyone who either saves or borrows in New Zealand should know about.
It is the sound of bond vigilantes stirring and telling political leaders to stop spending and borrowing or they will push up interest rates to ruinous levels.
It will mean higher interest rates and restraints on Government spending for all of us, and for a long time.
The phrase "bond vigilante" was coined in the early 1990s, when bond investors started telling US and other governments to spend less money.
Whenever these bond investors worry about debt rising too fast, they push up interest rates by selling these bonds.
They became quite influential because whenever they pushed up long-term bond yields it immediately affected household borrowing through mortgage rates, which were connected to these wholesale markets. They forced politicians to cut benefits and impose new taxes.
New Zealand had its own bond vigilantes. They helped push then-finance minister Ruth Richardson to slash benefits in her "mother of all budgets". She was rightly worried that investors would hike interest rates unless the government showed it could reduce spending.
The bond vigilantes went into abeyance through most of the 2000s because government debt was beaten down to relatively low levels and short-term interest rates were kept (artificially) low by central bank governors such as Alan Greenspan and Ben Bernanke.
They have stayed quiet in the past two to three years as the recession and low inflation drove bond yields lower.
But that era is now over. Governments in Europe and America took on enormous debts from the private sector to avoid complete financial collapse in late 2008 and early last year.
They also spent like drunken sailors on infrastructure and benefits to keep their economies going.
That was fine for a year or two, but now their budget deficits are out of control, over 10 per cent of GDP and public debts are racing towards or are already over the crucial 100 per cent of GDP level.
Once over that threshold, it is difficult to avoid a vicious debt spiral. Low interest rates are crucial once debt is that high. Rising interest rates make such deficits unsustainable and therefore mean the bond vigilantes have real power.
Now those long bond yields are rising. Last week, everything came to a head. The US Government had to sell US$118 billion ($167 billion) worth of bonds in three auctions.
The US Federal Reserve stopped buying mortgage bonds and ratings agencies warned America's AAA credit rating was in danger unless it got its deficits under control.
All this matters for New Zealand because rising US long-term interest rates will slow the world's largest economy. They also set the base for fixed mortgage rates here.
The indebted developed world has begun a long, painful period of deleveraging where growth is slow and new jobs are scarce. Bond vigilantes are back in charge.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10634753

* Bernard Hickey is managing editor of interest.co.nz