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Doctor, I want a second opinion…

October 8, 2008 2 comments

…And, it’ll be ugly too:

The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.

The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.

The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit.

The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.

Consumers are tapped out, not just in the US, but in nearly every country on the planet. We had our party, and a fine party it was. However, the party is over and the bill is now past due. The price is a global recession. That price must be paid no matter what Central Banks do.

–Mike “Mish” Shedlock, “Global Coordinated Rate Cuts Won’t Solve Economic Crisis

With thanks to Dick Cheney…

October 8, 2008 Leave a comment

Who taught us deficits don’t matter.

Former Treasury Secretary Paul O’Neill was told “deficits don’t matter” when he warned of a looming fiscal crisis.

O’Neill, fired in a shakeup of Bush’s economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from “the corporate crowd,” a key constituency.

O’Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. “You know, Paul, Reagan proved deficits don’t matter,” he said, according to excerpts. Cheney continued: “We won the midterms (congressional elections). This is our due.” A month later, Cheney told the Treasury secretary he was fired.

The vice president’s office had no immediate comment, but John Snow, who replaced O’Neill, insisted that deficits “do matter” to the administration.

Source: [X-ref O’Neill] Adam Entous, Reuters, on AOL News Jan 11, 2004

Categories: economics, Uncategorized Tags: , ,

Eating their own…

October 8, 2008 Leave a comment

Russia, Indonesia, Ukraine Shut Exchanges as Stock Rout Worsens

The Russian market has total capitalization of around US$1Trillion…to shut it down means that much capital of owners is taken out of circulation. The Russian state, therefore, has essentially performed the largest expropriation in world history.

Indonesia, and Ukraine followed their lead.

This is fairly silly since it only does all at once what normal trading was doing anyway – imposing massive paper losses on the owners of capital. But, the act itself shows precisely what is necessary: not increased liquidity, but removal of existing liquidity.

Capitalism is eating itself

Capital’s furious self-expropriation…

October 8, 2008 Leave a comment

It is absolutely necessary at this point to forthrightly demand:

  1. A sharp reduction of hours of work – 20 hours or less,
  2. Elimination of all taxes on working families,
  3. Abolition of all debt – public and private, foreign and domestic,
  4. A balanced budget for the US budget and the advanced countries, including immediate dismantling of US military forces.

Nothing short of this will allow the global community to gain control over events. We are not talking here of saving, fixing or regulating capitalism, we are talking about calmly managing its demise, and the abolition of the state bound up with capitalism.