To tack on to both David and Hacksaw,
all true. The terribly sad thing is that there's been enough greed and stupidity exhibited by all involved -- including some, not all, of the borrowers -- and laziness by many of us who didn't participate but saw it coming and did little but rail about it from the sidelines that we have truly put ourselves in this position...
Any Thoughts on Taking NKPR Off the List
... in light of China holding a lot of our paper?
The Stock Market Isn't the Only Market In Turmoil...
Quote:
Oil's Drop Squeezes Producers - Economies of Iran, Venezuela Vulnerable as Crude Price Falls but Demand Stays Low
By NEIL KING JR. and SPENCER SWARTZ
Dated: 10.09.2008
Big oil-producing countries are showing signs of distress as the global credit crunch and falling crude prices begin to squeeze government budgets and delay projects.
Fears that the boom days are fading appear strongest in Iran and Venezuela, whose governments have come to rely on oil prices to prop up otherwise shaky economies. Both countries this week led a chorus within the Organization of Petroleum Exporting Countries calling for an emergency meeting of the cartel, now set for Nov. 18, to weigh a production cut.
The global economic crisis is eating into oil demand, particularly in the U.S. and Europe, and helping drive down crude prices. Some forecasters said that despite a strong thirst for oil in Asia and the Middle East, global oil consumption could flatten out next year, potentially ending nearly a decade of steady demand growth.
In early afternoon trading, benchmark crude for November delivery fell $1.59, or 1.8%, to $87.36, on the New York Mercantile Exchange. Crude has plunged around $60 a barrel from its July high, and analysts said signs of a deep recession among industrialized countries could move prices down further.
Oil exporters have racked up cash surpluses as prices soared to historic highs. Saudi Arabia, the world's largest exporter, is expected to record $138 billion this year, up from $95 billion last year.
But government spending also has soared within OPEC and among other big producers such as Russia, based in part on the expectation that oil prices would remain high.
Standard & Poor's said last week that Venezuela's budget balance "could deteriorate quickly" if crude prices fall sharply. The nationalization of a number of industrial companies is expected to cost the government around $6 billion, or about 2% of gross domestic product, in 2008, according to Standard & Poor's.
PFC Energy, a Washington consultancy, estimates that Venezuela needs an oil price of nearly $95 a barrel to assure macroeconomic stability, three times what they needed in 2000. By contrast, Saudi Arabia requires an oil price of $55 a barrel, more than double from eight years ago, according to PFC estimates.
Link to Article
That was one week ago. Here's today's [10.16.2008] news on oil prices:
Quote:
Opec brings forward crunch meeting
By Javier Blas and Carola Hoyos in London
Published: October 16 2008
Opec on Thursday brought forward to next week an emergency meeting to consider a cut in production after oil prices dropped to less than $70 a barrel for the first time in more than a year on worries about a global recession.
The move coincided with fresh calls from those countries within the oil producing cartel that are heavily dependent on oil revenues for their budgets – most notably Iran, the organisation’s perennial hawk – to cut output. Ecuador and Qatar also supported slashing production.
Even Saudi Arabia, the cartel’s most powerful member, which initially opposed the 500,000 barrel a day cut announced last month and is close to the US, appears to be in agreement that the group needs to reduce its production.
Link to Article
The question really is if Opec can cut production fast and deep enough to take into account dropping demand. Everything I'm seeing is projecting China to experience a large continuing increase in oil demand (on the order of 500k+ Bbl. per day), but if US demand for imported Chinese goods keeps dropping, the much anticipated increased oil demand from China just isn't going to materialize.
An interesting concept being talked about currently is that now would be the perfect point for the US to really impact both the oil markets and Opec (and Russia) by announcing a major expansion in favor of increased offshore drilling as part of an overall energy increase plan here in the US. Even though such a plan would take 4 to 5 years to even start to have an actual effect, now's the time to hit Opec in the marketplace.
Banking Culture insights...
Poor taste, not for everybody, but funny: leveraged sellout...living the dream
Quote:
Several times a year, I receive a forward in which some young analyst at an Investment Bank has flipped out, decided to quit, and written an embittered email manifesto to his group detailing his thought process. These emails ring of both anger and haste, and, without fail, they carry the tone of “I’m meant to be doing something better than this.”
Quote:
Anyway, don’t get me wrong. I appreciate hubris; I applaud it. But when someone is so deluded to think that he is better than Banking, he is advertising his stupidity. These kinds of people don’t understand the solid fundamentals that come with getting one’s hands dirty, and it’s obvious that these quitters are just scared of a little hard work and the occasional all-nighter.
Economist Wants Population Centric Strategy
My main Man James K. Galbraith :) wants us to adopt a Bob's World Population Centric Economic Strategy. Link to article in UK Guardian below.
http://www.guardian.co.uk/commentisf...lobalrecession
Yep. We have met the enemy and he is us.
Napoleon said it, "Corruption has limits. Stupidity has none."
We are doing the best job we can to overreach and destroy our nation in the process. Because we have this idea in our heads that we are the richest and most powerful nation on earth we cannot allow ourselves to think in terms of limits. Bluntly put, we have acted (and continue to act) like a spoiled, rich, pouting child spending ourselves into the poorhouse to avenge an act (9-11) that killed 1/10th the number of people killed by influenza each year. (More able bodied adults in their prime are killed by the flu each year by a factor of a bout 2-3.)
Hubris now defines us, on the right and the left, republican and democrat. Hubris has become the core of our national soul and we cannot allow ourselves to realize the obvious.
The wake up call is just beginning. My honest opinion is that by the end of 20 years, the world will have a new order and the USA is going to be second tier at best. We could change that, but neither party has a single politician with the balls and vision to do it.
Consequently, Al Qaeda doesn't need to do a darn thing. All they need to do is sit and wait while we exhaust ourselves over virtually nothing, and we protect them by making sure that the local parties with interests don't take care of the problem. Then Al Qaeda can declare their "victory".
Unfortunately, the "victory" of Al Qaeda will include getting control of Pakistan's nuclear arsenal. That arsenal is what they were after from the beginning when they pulled the 9-11 stunt. They wanted us to react so that the presence of infidel boots on the ground would recruit for them. They miscalculated, yes, but we miscalculated even more by ignoring the cost.
When (not if) Al Qaeda gets their nukes, that may mean an American city going up although not necessarily. (I would expect that the Baghdad area round the green zone will go up in a mushroom cloud though.)
The smart thing for us to do, right now, and going forward, is to tell India "Go ahead. Knock yourself out." and let them take care of Pakistan and Al Qaeda. They have the local knowledge, and they have the motive, interest and wealth to do it.
But, quite simply put, we are stupid. And stupidity has no limits. I think our grandchildren will curse our names.
Been out of the US for a while - A bit of catchup.
Backtracking to the Engdahl piece, I agree in substance with some of his economic material, however, his take on the "color revolutions" is false. Even more than military campaigns, intelligence efforts take place in a fog; and in modern America, they suffer from a long history of administrations saying "Go ahead, yes we want that." until the plug is pulled at 1 minute to midnight and a bunch of people die or have to run for their lives.
The color revolutions only look like they could be "directed efforts" in retrospect, and Engdahl's ideas are simply hubris. In Engdahl's mind, the idea that the people of those nations could have been smart enough and motivated enough to make those work isn't even a question. But, I was there, right in the middle of Saakishvili's transition to power, and those people are so capable. Never, ever underestimate them. Stalin was a Georgian, so is Primakov, and other members of the FSB and Kremlin. They didn't magically become cunning because of some "vibrations" in the Kremlin. Yes, the USA does influence from time to time, and Saakishvili has stayed in power by throwing around the idea that he is America's chosen. But it was all very messy, and mostly Georgians. Flatly, those people are so much better at this stuff (intrigue, black ops) than we are that we aren't in the same solar system as they are. Never, ever, ever underestimate them.
Regarding this pricing model, the above arithmetic done on a daily basis adds up to 1.5 trillion on a yearly basis and has cascading effects. Yes, that makes a difference. Basic theory of markets - the marginal buyers set the price. Even during the height of the Enron created power blackouts in California, most of the power was sold at ordinary rates. But if only a few buyers must buy at a higher price, that becomes the new price.
Regarding the other nations of the world creating a new currency instrument - they have no real choice. They have to move to a new instrument because the USA has become a nation run by pirate capitalists. We are the source of the disease, and the Europeans, Russians, Chinese and Indians all know it. Those pirates have our elected officials so well in hand that they can't be stopped or regulated.
What happened with the meltdown is that AIG essentially insured loans made by the major banks. Based on those AIG issued derivatives, the banks moved loans they had made from the suspense account (which is where outstanding loans are carried) into their capital account. When the loans turned out to be bad, it became apparent that the lack of an open market for those AIG issued derivatives had radically underpriced them, because AIG could not actually cover them. What that means is that when the fraud was removed Citibank, Bank of America, et al had real reserves worse than 1:1000 when they are supposed to have 1:20 or at worst 1:40. That is why the international financial system broke. These banks no longer had the cash to carry out simple day to day operations for customers. The executives of those banks knew precisely what they were doing, and they did it to get around banking regulation of cash reserves. Their "record profits" were all lies.
This type of instrument is still not traded openly, nor is it regulated in any way. That is extremely dangerous because now, for the first time in history, capitalism has been decoupled from productivity. To make money (on paper) it is no longer necessary or important to produce value in the economy. In fact, quite the reverse is true. Productivity, the creation of value, is the real stuff that money is a symbol for. We have allowed a financial system to come to life that makes money with no relationship to value at all. This new system will destroy value while enriching (on paper) those who game the system. They are still gaming it. The longer they are allowed to continue to do it, the more industries will shut down, the more jobs will be lost, and the greater share of the total economy will be owned by those gaming it in a vicious cycle.
Given that, the rest of the world has no choice but to figure out a way to wall itself from uncle sam.
I put the majority of my money in accounts in other countries/currencies a while ago.
Interesting tidbit. Not a surprise, but interesting.
Interesting. Nice try Vladimir. :-)
I think I've posted here about that little Georgia war. I ran an office in Tbilisi for 5 years up until 2005. Saw the transition to Saakishvili. I'll quickly recap my thoughts on that and segue into what I think this attempt probably means.
I think the Kremlin decided that McCain was going to pull an October surprise in Georgia, pull the US into kicking some Russian ass to drive their troops back from Tskhinvali in order to throw the presidency to the republicans. Their reasons are: A. Saakishvili needed it to prop himself up. B. Saakishvili had been paying the guy McCain chose for SecDef as Georgia's lobbyist. C. McCain chose Saakisvili to succeed "Heavy Schevy." D. The republicans were clearly on the ropes. (E. It's what they would do in a heartbeat to keep power.)
So, Putin and the boys decided to pop it off early when it they would be in control, and could kick some Georgian ass instead. Saakishvili's government is crawling with FSB agents. And frankly, I have to say, Saakishvili is a good sycophant, but he's just - well - the guy ain't very bright. Since lobbyists always over-indulge their clients, it was no big deal to get Saakishvili to think he should attack during the Olympics. (Schevardnadze never would have.)
Putin knew that he would be in the stands with George Bush, able to watch him at the Olympics. When the balloon went up in Georgia, there he was. I watched him on TV during the opening preamble looking at Bush as Bush was told about it, and then Putin was conferring with his guys. Check the archives if you doubt me. I said right then what was going on - that Putin was using this as his final way to convince Kremlin doubters of the wisdom of his plan. The Kremlin boys have learned about us that our politicians are led around by the nose by our news media. And they knew the Olympics would be just too big a distraction for the Georgia war to get press. And that is why the war started at the Olympic opening, and wound up the day before the end. Nice, neat, tidy, and our politicians didn't have to give a damn.
Consequently, it does not surprise me at all that Putin and company would attempt to try to get the Chinese to whack us with a big stick at the same time. Thinking this through, I would bet good money that there was a contingency plan to extend the Georgia war and push all the way through Georgia, taking control of the capital and annexing the nation back into the Russian Federation. (Georgia was a province of Russia for longer than the USA has been a nation.) I'd bet that the idea was, that if the Chinese could be talked into doing that, it would slam the USA economy so as to make a US military response a non-starter inside the beltway. A quick little blitz, then lock down Georgia until the house-to-house fighting is over. In America, if a War falls in the forest and nobody reports it, it didn't happen.
But, the Chinese are no dummies. I am certain they saw right through it and knew darn well it wouldn't be in their interest. It would have critically weakened China too, because we are in a bit of a deadly embrace these days.
I have said for many years now that the long term Russian Federation plan is to wait until the USA tires, try to provoke nations like Iran and whomever else into provoking a US military response. The long term plan is to be able to waltz in when the USA tires out and runs out of money - then take control of the Middle East. After all, it is as much their backyard as Mexico is ours. In the interim, the Russians learned all about what happens when a nation overspends on military and gets bogged down - we pushed them into that to end the cold war. As Russia sees it, since we have no significant trade relations with them, our loss is their gain.
Nor does it concern me - short away!
The total size of the precious metals market is just not that big and the same goes for the supply. That is one basic reason we went off the gold standard - our money supply needs were just too big. Precious metals today are fundamentally industrial commodities. Otherwise, it's a psychological hedge against devaluing currency. Shorts do the world a service. They are the carrion eaters of capitalism. They can't eat carrion until it's already dead.
A better way to look at the whole situation is this:
Value is created by productive work in the context of reasonable demand, thus the economy is well modeled by a leaky balloon. The rate of work going drives a rate of value creation. That is countered by the rate of decay of the value created, which can be thought of as entropy.
In the current economy we have some serious basic issues aside from structural finance problems. The most basic is that the baby boomers have been driving a high rate of value creation, but the leading edge of the boomers are reaching retirement age. Unfortunately for us, retirement is a non-value creation activity. It consumes value, but creates nothing. As the number of non-productive value consumers swell, the rate of value creation going into the economy drops. That slows growth and can reverse it.
Since, in a capitalist society, we depend on the valuation of the work engine (corporations) by the marginal dollar buys, as soon as the money going into our financial markets needs to go out more than it needs to go in - big problems.
Fundamentally, there are only three ways to solve this problem.
A. Non-boomers can become 3 times as productive. But in a system dominated by tight energy supplies that is impossible. It won't happen.
B. Boomers can be gotten rid of. This requires ending their lives in something like Kurt Vonnegut's "Suicide Parlors", making it very attractive and fun. This also isn't going to happen.
C. Boomers can stay in the workforce and forget about retiring. For most, this is possible, if unpleasant. The tough part is going to be keeping boomers motivated to be productive in their peak value occupations, or to retool for other high value occupations.
Aside from that? We are in for a long, tough sled.