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Render Unto Caesar and One Trick Pony Pressures

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Thursday, February 14th, 2008 at 5:19 AM There has been little mainstream media recognition of one of the primary themes of this blogger, and that’s the One Trick Pony (OTP). OTP is the benefit all governments in the US have received from Bubble economics. It’s the old money for nothing concept. Unfortunately when Bubbles leak or even worse burst, so does OTP. I believe that is what is rapidly happening and government coffers are now reflecting it.
I originally introduced OTP back in March and quoted from Kenneth Safian. That article is no longer online, but I repeat the relevant numbers as follows. When one realizes that ten of billlions, if not hundred of billions in dicey securities are being written off and destroyed at a rapid pace and that “financial fees/graft” and the associated “jobs” are dropping like a stone, it is not at difficult to translate that back to tax receipts.
Feb. 13 (Bloomberg) — Morgan Stanley, the second-biggest U.S. securities firm, will eliminate 1,000 jobs by scaling back its U.S. residential mortgage business and closing the Advantage Home Loans unit in the U.K. Banks and brokers have eliminated at least 19,000 jobs in the past six months as they racked up $146 billion of writedowns and credit losses tied to mortgage securities.
My term for this is the “Great Give Back”.
Safian points to the line labeled "individual income taxes other than withheld taxes" (see table 2) which is largely a measure of of levies on dividends and capital gains. They've soared with the stock and real estate markets from $250 billion in 2004 to $400 billion today. Corporate taxes rose from under $200 billion to $400 billion today. Much of this was racked up by investment bankers (Pig Men) and real-estate firms. Safian argues that if you back out these firms from GDP data, the rest of the economy would be flat or down. That of course has been one of my primary points all along. And reverse asset prices and the US' one trick pony gives it back, with the potential for skyrocketing deficits and interest rates.
Indeed, I have been pointing out that various attempts by the Pirates to get fresh supplies from the Natives, are coming up short. Friendly cooperation is required to keep the game going. And the Natives need to feel they are getting good trinkets, not shoddy ones. Plus they have to have supplies to give. I think there are two elements that have been joining forces to cause this emerging problem. One of course is lack of confidence in fictitious capital and Trinkets (Dollars). At minimum there is a need to get capital more correctly priced for the risk. The Ministry of Truth and Pig Men run the Three Man Monte scam (discussed yesterday) to counteract that. At times, and in the short run, this ploy has been successful, at least superficially.
But now there is a second wave of Pirates (the Gubnuts or governments) coming. They have a first call over the prior Pirates for fresh supplies from the Natives. And the Natives have effectively slashed and burned the best cropland and hunting grounds. In fact there is word that the Natives too are going hungry. Will scarce resources and capital be allocated “fairly” or does one player just preempt the others? I think the later, so look for “crowding out” to enter the discourse. And fiscal stimulus equals even more crowding out. If this sounds arcane, it is because OTP Bubble economic conditions have ruled until now, and that is in people’s recent memory. Now the opposite is transpiring. With less OTP coming in, already the states are feeling hunger pains. This is the price to be paid for maladjusted and malinvested Bubble economies that uses trinkets to trade with Natives.
Feb. 13 (Bloomberg) – U.S. states’ credit ratings may be lowered this year as slumping housing and the weakened economy constrain tax revenue, Moody’s Investors Service said. The rating company changed its credit outlook on states to negative from stable as sales, corporate and income taxes fall below forecasts. States will likely borrow more to fund programs, Moody’s said. Half of U.S. states, including New York, New Jersey and California, are projecting budget deficits next fiscal year amid the worst housing slump in 16 years. States that had robust residential real estate markets, such as Florida, Arizona and Nevada, have been particularly hard hit, the Center on Budget and Policy Priorities, a Washington-based research group, said in a Jan. 28 study.
New York State being hammered:
Spitzer administration on Sunday said that the latest economic forecasts show a growing threat of a national recession and declining tax revenues in New York that will deepen the state’s 2008-09 budget deficit by $384 million.
And suddenly, despite weeks if not months of forewarning, the Muni market is seizing up. Although the collapse of credit insurance is a large component of this, so is OTP economics.
A collapse in confidence in a $330bn corner of the debt market has left US municipalities and student loan providers facing spiralling interest rate costs. The implosion of the so-called auction-rate securities market - amid worries that bond insurers guaranteeing much of this debt could face rating downgrades - is the latest incarnation of the credit crisis. The market, heavily used by municipal borrowers and backed by triple-A rated guarantees from bond insurers such as Ambac and MBIA, was until now used as a safe harbour for investors.
The market’s sudden slump has pushed interest rates as high as 20 per cent for entities from the Port Authority of New York & New Jersey to a hospital. “The auction securities market is falling apart,” said David Cooke, chief financial officer at Park Nicollet Heath Services in Minneapolis. Municipal borrowers are scrambling to seek letters of credit from banks and other fresh sources of finance.
Next we learn that another big Pirate ship is also being crowded out. Of course, these Boyz have been asked to increase their appetite with even more Bubble support operations, such as expanding into the jumbo market. I discussed the difficulties with that one in Shaved Coins. Clearly this too has taxed the ability of the Natives to offer assistance and aid. Besides they have already slash and burned half a valley for offerings of prior supplies, and trinkets today are a luxury, not a necessity.
Feb 13 (Reuters) - Freddie Mac the second largest U.S. home funding company, said on Wednesday it reduced the size of a planned Reference REMIC (Real Estate Mortgage Investment Conduits) issue to $400 million, its smallest ever. Freddie Mac trimmed the issue due to current market conditions, it said in a statement. On Monday, it said it planned to sell $700 million in the REMICs.
Last and most certainly not least, the big render unto Caesar fleet has arrived on the scene, and quite suddenly I might add. Seems like Caesar didn’t bring nearly enough supplies for this voyage, and is also trading with the Natives. This week the Treasury came for $76 billion in new money. My WSE colleague Lee Adler (see professional edition) provides the gory particulars on this one. Is this the Great Give Back at work? I think so.

And if lame brained “programs” to socialize loses like this one take root, I don’t think there is any limit as to how high Treasury, GSE housing agency, and other interest rates could spike.

WASHINGTON – The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government. One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers. Credit Suisse officials have met with senior officials from the Department of Housing and Urban Development, which runs the FHA, and other policy makers to discuss the proposal.
Adding to this dilemma is the fact that other smaller Caesars are prowling for supplies as well. And some may have figured out what that might take.
Feb. 13 (Bloomberg) — The Bank of England raised its inflation forecast and signaled policy makers may need to keep interest rates higher than investors currently predict.
Feb. 13 (Bloomberg) – Sweden’s central bank unexpectedly raised its benchmark interest rate to 4.25 percent, the highest since November 2002, after inflation surged to a 14-year high last year on plunging unemployment and rising food costs.

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This entry was posted on Thursday, February 14th, 2008 at 5:19 AM and filed under Russ's Blog.

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Comments (52) to “Render Unto Caesar and One Trick Pony Pressures”

Crimson Ghost wrote:

The worse the dollar does, the more dollars central banks want …
Brad Setser | Feb 13, 2008
Rumors of the dollar’s demise as a reserve currency have been greatly exaggerated.
The hard data here is pretty clear, at least if you look a bit beyond the (too) easy to calculate data on the dollar’s share of total reserves. Central bank demand for dollars has NOT waned over the past couple of years. Indeed, 2007 was been marked by a remarkable acceleration in total reserve growth and, I suspect, with a commensurate acceleration in the pace of increase in central banks’ dollar holdings.
The worse the dollar does, the more dollars central banks seem to want.
The easiest explanation for the negative correlation between the the dollar’s value (against say the Euro) the global increase in dollar reserves?
Central banks aren’t building up dollar reserves because they want dollars. They are building up dollar reserves because they don’t want their currencies to appreciate against the dollar. The dollar’s fall against the euro and the growth in emerging economies dollar reserves are thus both manifestations of the same basic trend — a lack of private demand for dollars, relative to the US current account deficit, and the resulting pressure for the dollar to fall.

Posted on 14-Feb-08 at 8:19 am | Permalink | Quote

Stuart wrote:

Competitive currency debasement.

Posted on 14-Feb-08 at 8:59 am | Permalink | Quote

Stuart wrote:

I’ve commented on this before, it’s past 8:30, time to rally the buck for a few hours. Watch. Every day same thing.

Posted on 14-Feb-08 at 9:08 am | Permalink | Quote

Stuart wrote:

So much is predicated on MBIA and AMBAC keeping their triple A status yet we ALL know it’s not deserved. We ALL know now that they haven’t been downgraded because of political pressure on the rating agencies to extend them time infinitum. So our whole financial system depends on maintaining the fraud when we all know its a fraud.

Posted on 14-Feb-08 at 9:37 am | Permalink | Quote

Russ Winter wrote:

Oh what a tangled web we weave. Would da thunk that counterparty insurers might be junk too?
Solvency Worries Stalk Credit-Derivatives Market: Mark Gilbert
Feb. 14 (Bloomberg) — Suppose you lent money to Morgan Stanley back in the mists of 2004, paying a bit more than 99 percent of face value for a chunk of the bank’s $4 billion of 4.75 percent bonds repayable in April 2014.
According to Feb. 12 prices on the Trace reporting system, the bonds are now worth about 97 percent of face. According to your gut instincts, there may be worse to come. Rather than sell at a loss, you decide to buy insurance in the derivatives market.
You call your friendly credit-default swap broker, who happens to work for Merrill Lynch & Co. He quotes a price of 160 basis points, which means an annual cost of $160,000 to insure $10 million of debt for five years. If Morgan Stanley’s creditworthiness slumps, the value of that swap will rise, delivering a profit to offset further losses on your bonds.
So you have secured some peace of mind on your Morgan Stanley risk. But there’s a catch. You have added Merrill Lynch risk to the mix. And guess what? According to the credit-default swap market, Merrill is even riskier than Morgan, trading at 183 basis points versus the 160 basis points you just paid. The gap gets even wider if your broker happens to be at Bear Stearns Cos., which trades at about 276 basis points in default swaps.

Posted on 14-Feb-08 at 9:52 am | Permalink | Quote

solohedger wrote:

The Sheeple have a fine sense of humor
“Is it just me, or does that Treasury seal look like a key under a house with a decision being weighed about whether the key should be mailed in or not?
Posted by: MyLessThanPrimeBeef | February 12, 2008 at 04:06 PM”
From LA Times Blog

Posted on 14-Feb-08 at 9:53 am | Permalink | Quote

Stuart wrote:

Looking forward to the next radiofreewallstreet. Alot of folks wondering whether the negative no-borrowed reserves are a bookeeping entry allocating funds obtained through the TAF or whether it is a true reflection of aggregate cashflow. If the later what the implications are and in very direct and clear terms, probable outcomes with timelines.

Posted on 14-Feb-08 at 9:59 am | Permalink | Quote

Lee Adler/The Wall Street Examiner wrote:

If I may make a suggestion–
Rather than posting 3 or 4 short thoughts, it’s better for the flow of the discussion if you put your thoughts together in a single comment. And keep them on topic, please. It’s much more interesting that way.
We appreciate everyone’s thoughts, but would like to keep the comment threads flowing nicely along the lines of Russ’s post.
And Russ has asked me not to edit to much (since I get kind of finicky ) so I won’t.
Many thanks for your understanding!

Posted on 14-Feb-08 at 10:11 am | Permalink | Quote

Aaron Krowne wrote:

Hilarious seeing the market proceed to raise all sorts of critical interest rates itself, with Treasuries only staying low because of the ultimate guarantee of printing money. Guess that’s why we need to have Democrats in office next — they can be trusted to do lots of that (then Repubs can get in afterwards, blaming them for runaway inflation).

Posted on 14-Feb-08 at 10:20 am | Permalink | Quote

Russ Winter wrote:

UBS Won’t Support Failing Auction-Rate Securities
Feb. 14 (Bloomberg) — UBS AG won’t buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation.
The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn’t publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail as mounting losses from the collapse of subprime mortgages causes capital markets to seize up.
Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds that are scheduled for bidding daily, according to Alex Roever, a JPMorgan Chase & Co. fixed income analyst.

Posted on 14-Feb-08 at 10:23 am | Permalink | Quote

kris b wrote:

#10
Credit contraction in a full swing. Sweet.

Posted on 14-Feb-08 at 10:47 am | Permalink | Quote

splatt wrote:

Current 7.3?fault rate on all outstanding US mortgages ($10,000 billion). In Nov 07 the figure was around 1?? Prime $8,000 billion, and about 20 ? subprime Alt_A $2,000 billion, now. That’s a shuttle launch in my book. Much, much more to come from that perspective. And Paulson’s comment re RE “Its going to get much worse.” ARS auction lock up is a big dot.
Looks pretty bad and to get worse. Munis are toast, States will be reeling. Fed? They can always “print”, I guess. We have “responsible media” airing segments that feature conservative, well funded middle class Americans who do the math on air and declare they ar emaking a business decision to dump their houses back into the laps of the banks. That certainly will both inspire and educate the masse regarding the HOW&WHY, a short course if you will.
AVALANCHE!!!

Posted on 14-Feb-08 at 11:11 am | Permalink | Quote

Reinko Venema wrote:

To Stuard:
You are right with the weird dollar behavior, it might very well be this is computer program driven trade.
Computer trade is taking a large roll on Wallstreet too, when you know how large the size of computer trading is there are enough days you recognize the pattern of the day.
For example: Lately when weirdo Bernanke threw in his 75 basis points the DOW staged a 600 points rally from minus 300 to plus 300 compared to the previous close.
The 600 points rally was almost a line, no human traders would do such a thing.
So now Wallstreet ‘investors’ can sit back, eat another hamburger and get more fat and obese while the programs do the work…

Posted on 14-Feb-08 at 11:20 am | Permalink | Quote

Jeff in Cleveland wrote:

Russ, Just wanted to say that watching all the talk on Bond Insurers with Spitzer et al; as well as all the talk about the general financial mess seems like “old news” when in reality it is just ‘news” to the general public. You were quite a distance ahead of the pack. Great Blog!

Posted on 14-Feb-08 at 11:20 am | Permalink | Quote

cadams wrote:

OT: Hank Paulson looks eerily like Woodrow Wilson without glasses, or the Woodrow look alike in the movie Battleship Potempkin. Somehow that seems ominous to me…

Posted on 14-Feb-08 at 11:29 am | Permalink | Quote

Reinko Venema wrote:

To Lee Adler:
I disagree with you, the charm of this blog is that many topics come along but they all point more or less in the same direction.
It is a bit like going to a pub after a football match; you not only discuss the match but also if housing prices are bottoming out and what female has the most nice bottom.
To Russ: Thanks for the link to the State trouble stuff, it has been a long journey since I discovered in the Summer of 2004 that the US Federal bonds will loose their AAA rating…

Posted on 14-Feb-08 at 11:33 am | Permalink | Quote

Shawn H wrote:

Anyone who pays their mortgages, auto or boat loans, HELOCs, credit cards, etc, is an absolute moron.
Let’s give Ben and Hank what they want. STOP PAYING ON EVERYTHING. They will let the FHA buy the loans.

Posted on 14-Feb-08 at 12:41 pm | Permalink | Quote

Shawn H wrote:

Being a morally-corrupt, fiscally-irresponsible American is rewarded handsomely.
Say you’re an illegal with 10 condos. Hank wants to lock in teasers for 15 years. Due to neg-am, the loan principal will continue to climb, while the illegal can rent the condo for double the monthly teaser pittance. With 10 condos, he will be making $250k/year, having been rewarded for his financial irresponsibility. He doesn’t pay his taxes, so they will raise taxes on those that do. They are also talking about additional muni loans to “refinance” those investment loans, so the illegals are getting a double benefit. Oh, and when they finally default? No 1099, W has forgiven them on that too.
In the meantime, the banking system will continue to mount losses, off-balance sheet of course.
Anyone see a trend here? The more you had a hand in causing this problem, the more you will be given until the government goes bankrupt.
Thanks Hank Paulson. When the book is written, this man is going to be the face of the destruction of America.
How can the FHA be allowed to assume losses for Credit Suisse and other banks anyway. I am so disgusted by this, I’m sick to my stomach.

Posted on 14-Feb-08 at 12:51 pm | Permalink | Quote

gregor wrote:

As for this blog, I just like watching history in the making. It would be fun except for all of the suffering coming soon to real people unbeknownst. But they can choose. In this life, pain is mandatory. Suffering is optional. I personally cashed in about half my savings and bought a nice farm up north in order to sit it out and have a way to productively use my remaining years to help my community. If it gets that bad, c’mon out and work for food. To recover my retirement savings by selling foodstuffs each year, I get paid in that year’s dollars - whatever the crazy de-valuation may be - so I believe that my retirement money may be worth more this way. Please help by breaking complacency where ever practical in your own life. You know the facts. Raise your courage and act. Don’t be a victim. Do something!

Posted on 14-Feb-08 at 12:52 pm | Permalink | Quote

DC in SD wrote:

Re #12 Splat where did you find those forclosure stats? Thanks

Posted on 14-Feb-08 at 1:00 pm | Permalink | Quote

fattyk wrote:

Shawn,
The programs will never bail out investment properties, only borrower occupied homes. Obviously, there will be fraud, but any attempted bailout will only amount to a bandaid. Remember all the government bailouts in the Great Depression? It still took the big war to pull us out. I don’t see that working this time.

Posted on 14-Feb-08 at 1:15 pm | Permalink | Quote

Shawn H wrote:

fattyk,
I hate to break this to you, but that is a lie. Just like two months ago when they said they would only bail out subprime, and on Tuesday they announce that the foreclosure freeze applies to everyone, including JSP with his 800 credit score.
Another point. What was the most wide-spread lie on mortgage apps? You got it, owner-occupied. Everyone filled out owner-occupied to get a lower rate.
Remember, this is a bank and Wall St bailout, Hank doesn’t give a rat’s ass about the American Dream. And what they need is loan bailouts without restriction…and that’s what Hank is bringing, fast and furious.

Posted on 14-Feb-08 at 1:24 pm | Permalink | Quote

jeff in cleveland wrote:

Bond insurers have days to re-capitalize, Spitzer says
12:32p ET February 14, 2008 (MarketWatch)
SAN FRANCISCO (MarketWatch) — Bond insurers have four to five business days to re-capitalize themselves enough to keep their crucial AAA credit ratings, New York Governor Eliot Spitzer said during a Congressional hearing on the $2.4 trillion industry on Thursday. If that doesn’t happen, regulators will have to step in and separate bond insurers’ municipal businesses from their more troubled structured finance units. “We will need to move in that direction. It is not our first choice but time is short,” Spitzer said. “In the next for or five bus days we would like to see a resolution,” Spitzer added. “It’s time for deals to get done.”

Posted on 14-Feb-08 at 1:34 pm | Permalink | Quote

GSM wrote:

I think we are now seeing a top in 30 Yr Bonds. More action to confirm but if it is what I suspect then the worm has truly turned. Could be this OTP is being given up big time.

Posted on 14-Feb-08 at 1:37 pm | Permalink | Quote

edgar wrote:

nEW yORK AND cALIFORNIA AND aRIZONA AND fLORIDA WILL ALL GET BAILOUTS, SO WILL ALL THE BANKS. THE ONLY ONES WHO WON’T GET A BAILOUT IS AUNT MILLIE. tHERE IS NO DEFLATION, THERE IS ONLY INFLATION. dOES ANYONE REALLY BELIEVE THAT STATE GUBBERMINTS WILL TIGHTEN THEIR BELTS? bWAHAHAHAAH!!

Posted on 14-Feb-08 at 1:54 pm | Permalink | Quote

Obfuscation wrote:

Russ,
You called it! Yoy December imports from China grew at the slowest pace since 2001. Monthly decline (normal for this time of year) was also the steepest since Feb. ‘06.
Also, Socal housing news. My local paper reported that Dec. was the slowest sales month in Ventura county since recordskeeping began in 1988. Prices have fallen 23?om the peak, and are still 30?ervalued based on affordability of median county household income, say local economists. Prices have retraced their steps to April 2004 levels. Look out Below!!!!!

Posted on 14-Feb-08 at 1:59 pm | Permalink | Quote

Obfuscation wrote:

re: 25.
California has already started to tighten the belt by 10?ross the board. It will happen real fast if the muni bond markets aren’t fixed.

Posted on 14-Feb-08 at 2:04 pm | Permalink | Quote

OOUA wrote:

“And if lame brained "programs" to socialize loses like this one take root, I don't think there is any limit as to how high Treasury, GSE housing agency, and other interest rates could spike.”
nobody want to hear this … but it is very much the fact
I think there is a growing dis-connect of real interest rates with the fixed game the central banks are trying to float to ’stimulate’ economic activity
so again I ask … is 20?ort rates inflationary or deflationary

Posted on 14-Feb-08 at 2:06 pm | Permalink | Quote

Stuart wrote:

And brace for bad news as a result for all state budgets…
hat tip: Mish
California Sales Tax Receipts Down Again in January
With a tip of the hat to Credit Bubble Stocks, California Sales Tax Receipts Down Again in January.
January Retail Sales and Use Tax revenue was $991.4 M in Jan 08 vs $1,097.7M in Jan 07, down 9.7?ar-over-year.
Clearly, California’s woes have only just begun. Property tax and sales tax receipts will both continue to plunge. In August California had a $4 billion surplus. By December that surplus turned into a $14 billion deficit.
Brace yourself California because that $14 billion deficit is likely to double or triple. If double another 10?dget cutback will be needed. If triple, an additional 20? budget cuts will be needed.

Posted on 14-Feb-08 at 2:23 pm | Permalink | Quote

garyalan wrote:

How is it possible with the previous issuance of treasuries from last year running over 4?or the fed to drop rates to less than 3?specially when official inflation is running over 4? the retail prices index (the uses of the RPI and its derivatives include indexation of pensions, state benefits and index-linked gilts). I think the pressure behind higher rates is building, especially with state governments facing large shortfalls in revenue and businesses facing a reduction in earnings. It is obvious that the fed is trying to prevent the collapse of the banking system. Something will eventually give in the system that cannot be corrected, such as higher food and energy prices that will precipitate an end to this foolishness. The question that I am curious about is where will the dollar index and gold rest at once that the banking system losses are resolved. I think that holders of dollars are going to be disappointed and holders of gold will find that there investment was not so golden if the gov’t moves to seize these assets.

Posted on 14-Feb-08 at 2:28 pm | Permalink | Quote

Obfuscation wrote:

re: 28

is 20?ort rates inflationary or deflationary

I’d like to attempt an answer to your question.
Deflationary. First, let me give my definition of deflation: a decline in the amount of money or credit. Rates are spiking because investors are reducing credit to muni bond issuers.
If, by deflation, you mean a decline in prices in general, then the answer is trickier. Higher yields (lower prices) on MBS’s have caused deflation in the housing market. Higher yields (lower prices) on commercial paper have caused other companies to raise prices. The question is whether or not the cost of the higher yield can be passed along to consumers, IMHO. With this second definition of deflation, I would answer that some prices will go up and some will go down. That’s why I like the first definition better.

Posted on 14-Feb-08 at 2:31 pm | Permalink | Quote

garyalan wrote:

I agree with No.19 (Gregor), food is going to became a precious commodity going forward. It is unlikely the gov’t will seize land. I have been looking for rural farmland for some time now.

Posted on 14-Feb-08 at 2:35 pm | Permalink | Quote

Crimson Ghost wrote:

Long treasury bonds getting smashed despite plunging stocks.
Another “safe haven” bites the dust?

Posted on 14-Feb-08 at 2:53 pm | Permalink | Quote

OOUA wrote:

#31 you see well the eventuality of costs having to be passed on which will result in higher actual costs and an eventual reflection in the prices of things that are sensitive to such financing

Posted on 14-Feb-08 at 2:59 pm | Permalink | Quote

MKB wrote:

#33
I can’t help but to think the instruments being employed by the Fed, Treasurey & gang are to cause just that - a smoking out of the capital that has headed for the hills.

Posted on 14-Feb-08 at 3:03 pm | Permalink | Quote

edgar wrote:

#27, We’ll see, color me dubious. Bureaucrats and politicians always find a way to spend more, not less.

Posted on 14-Feb-08 at 3:14 pm | Permalink | Quote

edgar wrote:

The Manhattan grifter’s bonuses went down by what, 20? 2007? They’ll probably only get a measley $150 billion next yeah. Yeah, the great deflation is upon us.

Posted on 14-Feb-08 at 3:19 pm | Permalink | Quote

GSM wrote:

Yep, looks like the T Bond market has cracked…

Posted on 14-Feb-08 at 3:33 pm | Permalink | Quote

jeff in cleveland wrote:

FGIC Loses Aaa Insurance Credit Ratings at Moody’s (Update1)
By Emma Moody
Feb. 14 (Bloomberg) — FGIC Corp., the bond insurer owned by Blackstone Group LP and PMI Group Inc., lost its Aaa insurance rating at Moody’s Investors Service after failing to raise enough capital to compensate for losses on subprime mortgage guarantees.
FGIC’s insurance units were cut six levels to A3 and may be reduced again, New York-based Moody’s said today in a statement. FGIC is about $4 billion short of the amount of capital needed to justify a Aaa ranking, Moody’s estimates.

Posted on 14-Feb-08 at 3:44 pm | Permalink | Quote

tj & the bear wrote:

Fed? They can always "print", I guess.
Not without consequence. Who’s going to trade oil for green paper? Either the world inflates at once or the dollar is toast.

Posted on 14-Feb-08 at 4:36 pm | Permalink | Quote

Reinko Venema wrote:

Just in: Federal Reserve h3 update;
Two days ago weirdo Bernanke auctioned 30 billion into the system and how did it fare?
The real US commercial bank reserves are in the ‘non borrowed’ column and they say:
Jan 02 = 8732
Jan 16 = 207
Jan 30 = -8749
Feb 14 = -18009 all in millions of US$
I still do not know what kind of mechanism the FED uses to estimate the reserves of the commercial banks, some use the off balance things others don’t.
But given the fact that the FED even does not report M3 money growth any longer it is rather likely the off balance items are not within the official reserves…
It is now 22.41 local time and the funny 18 billion of negative combined reserves is now about six minutes out…

Posted on 14-Feb-08 at 4:40 pm | Permalink | Quote

The Gambler wrote:

#30 Yellen recently remarked that a slowing of our economy may help reign in inflation. 4 of the 5 past recessions prove her assumptions misguided I feel as inflation continued well into the recessions. A link I provided on yesterdays thread shows the inflation adjusted CRB peaked around 1974, it took 5 years for that commodity boom to feed into core CPI. I have read the saudi’s are not going to let oil go back to under 80. Stagflation like the 70’s then? Russ sold his gold around 760 if I remember correctly. I have little faith in shiny metal myself and feel it is for weak willed emotional drama queens. As you point out, the sniper teams with automatic weapons that back the gubbmint can and will do what is required regarding gold. Did your father or grandfather raise up with rifles and kill the gubbmint when the gold standard was altered in the 1930’s or the 1970’s? Nope, and you won’t lift a gun to the government today when they do more funny business. Quit being a drama queen, accept your slavery, exist within the poker deck that god has dealt you, and don’t get roped as badly as the other dopes, but we all getting roped somewhat. Gold is a silly relic and even our gracious host sold that junk.
Lula in south america, and now perhaps Obama in USA, the populist movement is sweeping the globe. These leaders are a far cry from Jackson however:
President Andrew Jackson. He vetoed the first central bank of the united States. His epitaph was “I killed the bank.”
The bank is not going to die, the bankers are not going to vanish in a rapture, and trading gold for your hamburger at mcdonalds in MAD MAX land is silly if it comes to that.

Posted on 14-Feb-08 at 4:47 pm | Permalink | Quote

Moe Gamble wrote:

The pirates/natives metaphor is brilliant, Russ.
Gregor, yes.

Posted on 14-Feb-08 at 4:55 pm | Permalink | Quote

Reinko Venema wrote:

Oops! As usual I forget to place the link that says it all, here it is:
http://www.federalreserve.gov/releases/h3/Current/
Lets do some simple math:
Money auctions have a timespan of 28 days so the last 30 billion goes back in four weeks.
Standing out was 50 billion, after this new 30 billion total is 60 so 20 billion was going back to the FED.
Therefore at least 30 billion will go back in the next auction and if you look at the figures it looks like the FED has a ‘policy’ of sharing the pain.
That means for every dollar more auctioned the reserves of the commercial banks also glide one buck more in the negative zone.
I estimate the next auction to be about 40 billion (with this I presume there is one acution every two weeks, I have not checked out that detail).
At last: Because we have 60 billion of auctioned money right now, a more realistic estimate of the combined reserves of depository institutions is minus 78 billion and declining at 10 billion a week…

Posted on 14-Feb-08 at 4:55 pm | Permalink | Quote

tj & the bear wrote:

With less OTP coming in, already the states are feeling hunger pains.
Given that most of them have ramped up their future obligations based upon projecting boom-time receipts out into the foreseeable future, that hunger pain is more likely stomach cancer.

Posted on 14-Feb-08 at 5:04 pm | Permalink | Quote

Obfuscation wrote:

Here’s a fun read from USA Today: http://www.usatoday.com/printedition/news/20080214/1a_lede14_dom.art.htm
“The cost of government benefits for seniors soared to a record $27,289 per senior in 2007, according to a USA TODAY analysis”
“The average Social Security benefit per senior in 2007 was $13,184″
“The federal government spent $952 billion in 2007″
“The cost of senior benefits is equal to $10,673 for every non-senior household”
I can’t wait to get old. I’ll be getting $209746 worth of medical care a year! Yippee!!!

Posted on 14-Feb-08 at 5:35 pm | Permalink | Quote

Reinko Venema wrote:

To: The gambler @ #42;
When I click your ‘website’ I get weird stuff like:
http://www.ndparking.com/deleted.nl
Can you explain please? Why place advertisements around here?
Now?

Posted on 14-Feb-08 at 6:09 pm | Permalink | Quote

Reinko Venema wrote:

The same goes for gregor @ #19, when I click your website I get this:
http://hober.com/
Is this correct???

Posted on 14-Feb-08 at 6:12 pm | Permalink | Quote

Darth Toll wrote:

#44 Holy Crap! Can you say death-spiral? My god that is a huge vortex, a massive sucking sound where our banking system used to. Bank runs are right around the corner.

Posted on 14-Feb-08 at 7:28 pm | Permalink | Quote

Obfuscation wrote:

re: bank non-borrowed reserves
I think this means that banks have borrowed ~$20 bil in the last month (total reserves are not down much). Maybe that’s why banks don’t have money to bid on the short-term muni bond auctions.

Posted on 14-Feb-08 at 7:39 pm | Permalink | Quote

Stuart wrote:

re: #50… that was my reading as well. Evidence by UBS no longer supporting the bond auctions. Lucy, u got some ‘xplainin’ to do….

Posted on 14-Feb-08 at 8:19 pm | Permalink | Quote

rapier wrote:

Russ, the funny thing is your not missing a thing being down there. There isn’t one man out of a million on the street who thinks anything is particularly bad about the economy. Sure a sense of unease is there among many but it’s not something anyone talks about. Firstly because so few have any knowledge of things financial and if they do they keep it too themselves. It is verboten in America to be negative in almost all public and most private speech.
All talking in the US on such matters is done by the main stream media, and we know the score there. The sense of living in an Alice in Wonderland world might be slightly stronger here but it’s only that, a sense. Otherwise life goes on as normal.
If there is a point of recognition being here should not be missed if one cares to witness and experience history in the way that Americans almost never do. In the way that great historic events powered by great forces toss people into crisis and trouble.

Posted on 14-Feb-08 at 10:06 pm | Permalink | Quote

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