Posts tagged credit
By Mac Slavo
Prelude to Economic Disaster: Billionaire Liquidates All Real Estate Ahead of Crash
If you were to contact a real estate agent in any major market today they’d likely advise you the market is so “hot” that if you intend on purchasing property you’d better be prepared to act fast. They’ll adamantly point out, contrary to reality, that the housing market has recovered, available inventory is dropping, prices are rising, and they can only go higher from here.
But if you’re paying attention to what’s happening around us, and not just with our own economy here in the United States, then you’d likely have noticed that while many Americans are flying high on hopes of change and recovery, there is an economic disaster of unprecedented scale in the making.
First, we know that the third largest economy in the world, China, is going through a massive credit crunch as bad loans there have soared to near all time highs, meaning that loans are quickly becoming non-existent and credit markets are now frozen. This means that no one is going to be building ghost cities and empty malls in the Peoples’ Republic again any time soon. Moreover, it means no more easy cash. We know what happened in the United States and the rest of the world when the last credit crunch hit.
Second, as Sovereign Man points out, the richest man in Asia Li Ka-Shing (their version of Warren Buffet or Bill Gates with a reported net worth of $30 billion) has rapidly liquidated his real estate holdings and is existing the market as quickly as possible.
Here’s a guy you want to bet on– Li Ka-Shing.
Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor.
Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it.
Since August of last year, he’s dumped billions of dollars worth of his Chinese holdings. The latest is the $928 million sale of the Pacific Place shopping center in Beijing– this deal was inked just days ago.
Once the deal concludes, Li will no longer have any major property investments in mainland China.
This isn’t a person who became wealthy by being flippant and scared. So what does he see that nobody else seems to be paying much attention to?
Simple. China’s credit crunch.
But Li Ka-Shing isn’t the only one bailing. Luxury real estate investors are unloading their real estate assets as well in an effort to raise cash and not be the last one holding a dead asset. For all intents and purposes, the music in China has stopped:
Cash-strapped Chinese are scrambling to sell their luxury homes in Hong Kong, and some are knocking up to a fifth off the price for a quick sale, as a liquidity crunch looms on the mainland.
On the domestic front we’ve seen stock markets drop a fairly significant level in recent weeks. So much so that company’s hoping to launch new IPO initiatives have chosen to just sit this one out as they are worried that investors are running out of money to help fund their operations.
You wouldn’t know that, of course, because mainstream media pundits like Dennis Kneale continue to sell Americans on the notion that we’re in a robust recovery:
Yet the economy, both locally and globally, is in vastly better shape than it was when we took that terrible tumble, down to Dow 6,800 in March 2009.
Americans have cut back on debt, and so have companies.
Karl Denninger of the Market Ticker calls this one what it is – a complete lie – and points out that we are nowhere near cutting back on our debt.
I Despise Liars
“Cut back”? Really? Worse, ex mortgages this is not true at any level; there is $3,733.5 billion in non-mortgage consumer debt outstanding. That is an all-time high; in Q4/2006 (just before the crash, remember?) that stood at $3,047.2 billion or nearly $700 billion less.
An awful lot of that increase since 2007, incidentally, is student loans — exactly where it cannot be for sustainable economic progress since the younger generation has to eventually take the reins from us older folks. This is nothing more than an economic Ponzi scheme with its cheering section led by people like Dennis who refuse to look at and argue from facts.
As for corporate debt it never decreased at all.
Something is amiss, and the fact that no one in the mainstream, which is where tens of millions of Americans get their “facts,” is really talking about it should be a blaring alarm.
There are, however, some Americans paying attention. As in China, it’s the billionaires and elite who have direct access to the puppeteers pulling the strings, and like Li Ka-shing, they have been quietly and rapidly dumping millions of shares of stock:
Despite the 6.5% stock market rally over the last three months, a handful ofbillionaires are quietly dumping their American stocks . . . and fast.
In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.
Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.
Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.
The big money, often referred to as the smart money, is getting out of the game and they are dumping these assets on unsuspecting investors.
They know, for example, that earnings growth has now plunged to its lowest levels since 2012.
As these in-the-know elites unload their positions, average investors depending on their financial advisers to tell them the truth are slamming money into these stocks and paying, in some cases, 500 times earnings. Real estate investors are, likewise, overpaying for homes based on the idea that markets are “hotter” than they’ve been in years.
It’s a recipe for disaster and it won’t end well – at least for 99% of people who blindly believe the opinions of their favorite “experts.”
Image credit: http://www.shtfplan.com
Jim Grant: Fed Insists On Saving Us From ‘Every Day Low Prices’ (Video)
Why are falling prices bad? The Fed does everything it can to avoid “deflation.” But we have “deflation” in electronics every year, every month, and this increases our general quality of life. Why can’t this happen in other goods?
Prices don’t have to increase. They can stay steady. They can fall. In a healthy economy prices move.
Thing is, the banks don’t like falling prices because falling prices generally mean a reduced need/desire for credit. Can’t have that.
Image credit: http://www.againstcronycapitalism.org
The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?
Did you know that financial institutions all over the world are warning that we could see a “mega default” on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in “sky-high interest rates” and “a precipitous plunge in credit“. In other words, it could be a “Lehman Brothers moment” for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that “hot money” has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014.
Over the past several years, the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have all been criticized for creating too much money. But the truth is that what has been happening in China surpasses all of their efforts combined. You can see an incredible chart which graphically illustrates this point right here. As the Telegraph pointed out a while back, the Chinese have essentially “replicated the entire U.S. commercial banking system” in just five years…
Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. “They have replicated the entire U.S. commercial banking system in five years,” she said.
The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.
As with all other things in the financial world, what goes up must eventually come down.
The trust firm responsible for a troubled high-yield investment product sold through China’s largest banks has warned investors they may not be repaid when the 3 billion-yuan ($496 million)product matures on Jan. 31, state media reported on Friday.
Investors are closely watching the case to see if it will shatter assumptions that the government and state-owned banks will always protect investors from losses on risky off-balance-sheet investment products sold through a murky shadow banking system.
If there is a major default on January 31st, the effects could ripple throughout the entire Chinese financial system very rapidly. A recent Forbes article explained why this is the case…
A WMP default, whether relating to Liansheng or Zhenfu, could devastate the Chinese banking system and the larger economy as well. In short, China’s growth since the end of 2008 has been dependent on ultra-loose credit first channeled through state banks, like ICBC and Construction Bank, and then through the WMPs, which permitted the state banks to avoid credit risk. Any disruption in the flow of cash from investors to dodgy borrowers through WMPs would rock China with sky-high interest rates or a precipitous plunge in credit, probably both. The result? The best outcome would be decades of misery, what we saw in Japan after its bubble burst in the early 1990s.
The big underlying problem is the fact that private debt and the money supply have both been growing far too rapidly in China. According to Forbes, M2 in China increased by 13.6 percent last year…
And at the same time China’s money supply and credit are still expanding. Last year, the closely watched M2 increased by only 13.6%, down from 2012’s 13.8% growth. Optimists say China is getting its credit addiction under control, but that’s not correct. In fact, credit expanded by at least 20% last year as money poured into new channels not measured by traditional statistics.
Overall, M2 in China is up by about 1000 percent since 1999. That is absolutely insane.
And of course China is not the only place in the world where financial trouble signs are erupting. Things in Europe just keep getting worse, and we have just learned that the largest bank in Germany just suffered ” a surprise fourth-quarter loss”…
Deutsche Bank shares tumbled on Monday following a surprise fourth-quarter loss due to a steep drop in debt trading revenues and heavy litigation and restructuring costs that prompted the bank to warn of a challenging 2014.
Germany’s biggest bank said revenue at its important debt-trading division, fell 31 percent in the quarter, a much bigger drop than at U.S. rivals, which have also suffered from sluggish fixed-income trading.
If current trends continue, many other big banks will soon be experiencing a “bond headache” as well. At this point, Treasury Bond sentiment is about the lowest that it has been in about 20 years. Investors overwhelmingly believe that yields are heading higher.
If that does indeed turn out to be the case, interest rates throughout our economy are going to be rising, economic activity will start slowing down significantly and it could set up the “nightmare scenario” that I keep talking about.
But I am not the only one talking about it.
In fact, the World Economic Forum is warning about the exact same thing…
Fiscal crises triggered by ballooning debt levels in advanced economies pose the biggest threat to the global economy in 2014, a report by the World Economic Forum has warned.
Ahead of next week’s WEF annual meeting in Davos, Switzerland, the forum’s annual assessment of global dangers said high levels of debt in advanced economies, including Japan and America, could lead to an investor backlash.
This would create a “vicious cycle” of ballooning interest payments, rising debt piles and investor doubt that would force interest rates up further.
So will a default event in China on January 31st be the next “Lehman Brothers moment” or will it be something else?
In the end, it doesn’t really matter. The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years.
It is just a matter of time.
This article first appeared here at the Economic Collapse Blog. Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.
Image credit: http://theeconomiccollapseblog.com
By Greg Hunter
Dr. Paul Craig Roberts-U.S. Markets Rigged by its Own Authorities
Economist Dr. Paul Craig Roberts says, “We have a situation where all the markets are rigged. All the markets are manipulated.” As an example, Dr. Roberts points to the stock market. Dr. Roberts contends, “We have a stock market at all-time highs, and where is the economy? There’s not one. There’s no recovery.” Dr. Roberts goes on to say, “53% of Americans earn less than $30,000 per year. Well, the poverty rate for a family of four is something like $24,000. . . . If there is no income to drive the economy and there is no credit expansion to drive the economy, then how does it go anywhere? You can’t possibly have a recovery.”
Shadows falling in China? Credit tightens, desperate municipalities seek funding from “alternative” sources0
Shadows falling in China? Credit tightens, desperate municipalities seek funding from “alternative” sources
This could be a good thing overall for China as the “alternative sources,” trusts, what is often called the “shadow banking system,” might actually be a stabilizing and limiting force in the economy. The rates of interest on loans through the shadow banking system are much higher than what municipalities can obtain through traditional lenders, and probably more accurately reflect the real risk of loans. (Which are considerable it appears.)
Economic information coming out of the ultimate crony capitalist state should always be taken with a grain of salt. If the official numbers say Chinese municipalities are in trouble and scurrying around for credit which is drying up, the unofficial numbers, the real numbers, the shadow numbers, probably tell an even more troubling story.
But to date the Chinese have been able to avoid going off the rails despite what appears to be widespread malinvestment spurred by a stimulus happy central bank. Maybe they can keep the balls in the air for a bit longer.
Why should we be concerned about widespread municipal defaults in China, aside from the general impact on the world economy anyway?
Because both China and Japan are facing serious economic challenges right now. Both countries don’t like each other and both have rising domestic social unease. Also both countries are looking beyond their post World War II spheres of influence.
When normally inward looking Asian countries start looking abroad for political and economic “solutions” bad things often occur.
“As banks tightened their purse strings, local governments had no choice but to resort to shadow banking and incur more expensive borrowing costs,” said Tang Jianwei, a Shanghai-based economist at Bank of Communications Co., the nation’s fifth-largest lender. “That will further constrain their repayment ability and eventually overwhelm some lower-level entities which have borrowed way beyond their means. I won’t rule out some defaults in 2014.”
Image credit: http://www.againstcronycapitalism.org
Illogic in Fractional Reserve Banking
If there was one business venture the leftist and forgotten “Occupy” movement was right to distrust, it was the banking industry. In the wake of the 2008 financial crisis and subsequent bailing out of the world’s financial system by fascist states, taxpayers – especially the progressive types – were correct to feel amiss. But rather than take a scrutinizing look into the privilege afforded to the banking class, the outraged took to political action in the callow hope of correcting a wrong.
Like any popular uprising, the goal was quickly smothered in favor of further rent-seeking. Instead of aiming consternation at the incestuous relationship between government and the money-changers, occupiers wanted the quick-fix of redistribution. The cries of “this is what democracy looks like” might as well have been “this is what panhandling looks like.” Centralized banking went unquestioned. The nature of fractional reserve practices was ignored – or likely not understood by the pea-brained philosophers. Still, the radical levellers who set-up camp in Zuccotti Park were on to something by asking why their precious public officials voted to shore up the balance sheets of a disproportionately small member caste.
Banking is, to put it bluntly, a strange and unique business. The industry is centuries-old, and the legality of its operations has been questionable since inception. I am referring specifically to the practice of bankers lending out claimed reserves – a contentious issue among libertarian theorists. If the larger public were to become privy to this business model, it may spark a troubling curiosity in the less-moneyed class. But then again, this author never ceases to be amazed by the bounds of common apathy.
In banking, certain legal doctrines have guided the trade since antiquity, including the nature of contracts. The violation of these distinct forms of lawful guarantees once carried the weight of justice. But no longer; as the deliberately obscuring practice of loaning out deposits meant to be available on-demand has created such instability in the banking system, the incessant teetering on the cliff of insolvency remains an ever viable threat to economic tranquility.
Libertarians – specifically those schooled in the Austrian, causal-realist tradition of economics – are intellectually miles ahead of the Occupy folks when it comes to the study of currency. And while the students of Mises and Hayek are fervently opposed to any central bank management, there remains a sharp divide on the ethics of fractional reserve banking. In a recent missive in the Freeman, economist Malavika Nair questions the Rothbardian ethic that finds the practice of banks creating credit out of thin air fraudulent. The piece, which deconstructs the dean of the Austrian school’s original argument, frames banking away from the supposed cut-and-dry thinking model of anti-fractionalists.
Nair begins with a false choice by asking: “Would fractional reserve banking exist in a world without a central bank? Put another way: Is fractional reserve banking inherently fraudulent?” These statements are not one in the same; they reference two separate conditions. Absent central banking, unbacked credit expansion could still exist. Back in mid-to-late 19th century America where the Federal Reserve was still a twinkle in the centralizers’ eyes, fractional reserve banking and pyramiding credit were common practice. The question at hand is whether such business is based on a fraudulent understanding of the nature of goods.
Nair finds issue with the essence of contracts and how they relate to the duty of those individuals entrusted with safeguarding money. The contract – an extension of humanity’s self-ownership and free will – has been a recognized covenant enforceable by compulsion for as long as man first conceived of himself as an autonomous being. It finds legitimacy in the human understanding of bonds and keeping one’s word. The evolution of common law has dictated that any activity stipulated in a compact cannot entail unlawful activity. To enforce an illegal activity would thereby be a crime in itself – an ipso facto contradiction in reason.
The contract is key for banking operations. Nair argues that bank functions, both deposit and lending, are plainly justifiable; the discrepancy arises in the manner that customer funds are utilized. Currently, bankers freely lend out money that is available on command by both the borrower and depositor. In practice, this is the creation of two goods from one ex nihilo. In a totally isolated instance where a bank were to service only two patrons, the act of creating what Mises called “fiduciary media” would appear as the very perversion of intuitive law it embodies. It would simply come off as no more than a violation of the known rules of the world.
Nair counters by asserting that a “claim to money is not the same thing as the money itself.” This is a confusing affirmation as antagonists to fractional reserve banking hardly make that claim. The point of contention is that promissory notes for bank deposits represent real money, though they may circulate as mediums of exchange and fulfill the role of currency. Should two or more of these “I owe you” certificates be created to represent one unit of bank reserves available on-demand, there is a direct and unquestionable inconsistency. It is certainly true, as Nair points out, that the fungible quality of money dictates it be treated differently than non-substitutable goods. However, the fact that cash is interchangeable does not dismiss its limited character.
If the principle of unbacked expansion of credit were applied to other industries such as automobiles or condominiums, titles to the same good could theoretically be multiplied, but not without controversy. Having two titles for one car is not based on logic or a firm understanding of universal law. You simply cannot create real, definite material by declaration. Nair asserts that this is not true when it comes to the market of money. In his words, the over-issuing of redeemable bank notes “does not mean one thing is in two places at the same time” but that “two different things are in two places at the same time.” This is only so much sophistry, as the claims to bank reserves are still representative of real goods. There may be multiple slips of paper representing one unit of money-proper floating around in the economy, but that does not dismiss the plain and true fact that there are more claims than what is available.
As economist Jesús Huerta de Soto documents in his tour de force Money, Bank Credit, and Economic Cycles, government has played a leading role in fostering this banking fraud for centuries. The state is forever on the search for more resources to carry out its bidding. Cooperation with the leading money-lending institutions was an obvious route for subverting the moral means to wealth creation. Since the days of classical Greece, it was well understood that transactions of present goods fundamentally differed from those involving future goods. In practical terms, deposits for safekeeping were of considerable difference to those made for the strict purpose of lending out and garnering a return. Bankers who misappropriated funds were often found guilty of fraud and forced to pay restitution. In one recorded episode, ancient Grecian legal scholar Isocrates lambasted Athenian banker Passio for reneging on a client’s depository claim. After being entrusted to hold a select amount of money, the sly banker loaned out a portion of the funds in the hopes of earning a profit. When asked to make due on the deposit, the timid Passio pleaded to his accuser to keep the transgression “a secret so it would not be discovered he had committed fraud.”
The underlying chicanery behind fractional reserve banking has existed since the days of Plato. Modern technology has not negated the rationale used to discover and affirm natural law. Binary codes on a computer screen do not create a new reality. The governing doctrines of humanity are, in de Soto’s words, “unchanging and inherent in the logic of human relationships.” While fractional reserve banking could exist in a free market environment and regulate itself through vigorous competition, that theoretical scenario does not prove the entire fulcrum of the business rests on solid ground.
The truth remains, and will always remain, that an organic product is not replicable through any kind of witch doctoring. A thing is a thing is a thing. Any money substitute that represents a real piece of fungible currency cannot pertain to that which is not in existence. Such is the lawful understanding that goes back to the time preceding the Hellenisitc period.
Malavika Nair offers an interesting argument by trying to justify the practice of creating something out of nothing; but it ultimately fails. The free lunch of artificial credit creation is nothing more than slipping out of the baker’s shop without paying. It would have served the Occupy crowd well to have recognized this shaky foundation upon which the modern financial system rests. Perhaps their message of widespread corruption would have been better received – at least more so than by creating shanty towns and defecating on the street. Instead, we were gifted with a muddled and confused political message made by an irate minority who hadn’t a clue of the forces that govern their own lives.
James E. Miller is editor-in-chief of the Ludwig von Mises Institute of Canada. Send him mail
Image credit: http://mises.ca
Thank You, TSA, NSA, IRS, FBI and CIA!
By Bill Bonner
It’s been “Bureaucrat Appreciation Week.”
Just when we had lost all respect for them, we notice a countertrend. It’s time for us to get in step. So, today, we take time out from our regularly scheduled programming to thank the people who rule us…
To the TSA agents at airports… to the IRS agents who audit our tax returns… to the NSA agents who read our emails… and to zombies everywhere…
To all of you, we’d like to say a heartfelt “Go f***k yourself.”
No… no… no…
We meant to say THANK YOU!
Yes, dear reader, we’ve got to bring our thinking in line with the prevailing trend. And today, the US is developing a real affection and respect for authority!
Americans seem to like to have people rifle through their luggage and pat down their grandmothers at airports. It makes them feel safer.
The Fed’s Dirty Little Secret
Americans want someone “in charge” of the US economy too. That’s why the new chairman of the Fed is so important.
What are the requirements for the job? It has to be someone who can keep a secret and tell a joke with a straight face.
The secret is that the Fed can’t really control the economy. It can influence it. But the influence it has is all negative. That’s the joke.
Fixing interest rates at any level other than that chosen by willing borrowers and lenders, the Fed distorts the price of credit… and the price of just about every other financial asset that is priced off interest rates.
And distorting prices always leads to problems – either shortages or surpluses.
Also, by fixing rates at ultra-low levels, the Fed is stealing from one group and giving to another. The middle class, savers and working people lose wealth. Hedge fund managers, bankers, zombies… and, of course, those lovable feds… gain.
That’s why the rich are getting richer as everyone else loses ground. They call it a “stimulus” program. And they’re right: It’s very stimulating for those who get the money.
As for the rest – well, the joke’s on us!
Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
The above article originally appeared at www.billbonnersdiary.com.
Image added to original post, credit: https://wikimedia.org
Billionaire Issues Chilling Warning About Interest Rate Derivatives
Will rapidly rising interest rates rip through the U.S. financial system like a giant lawnmower blade? Yes, the U.S. economy survived much higher interest rates in the past, but at that time there were not hundreds of trillions of dollars worth of interest rate derivatives hanging over our financial system like a Sword of Damocles. This is something that I have been talking about for quite some time, and now a Mexican billionaire has come forward with a similar warning. Hugo Salinas Price was the founder of the Elektra retail chain down in Mexico, and he is extremely concerned that rising interest rates could burst the derivatives bubble and cause “massive bankruptcies around the globe”. Of course there are a whole lot of people out there that would be quite glad to see the “too big to fail” banks go bankrupt, but the truth is that if they go down our entire economy will go down with them. Our situation is similar to a patient with a very advanced stage of cancer. You can try to kill the cancer with drugs, but you will almost certainly kill the patient at the same time. Well, that is essentially what our relationship with the big banks is like. Our entire economic system is based on credit, and just like we saw back in 2008, if the big banks start failing credit freezes up and suddenly nobody can get any money for anything. When the next great credit crunch comes, every important number in our economy will rapidly start getting much worse.
The big banks are going to play a starring role in the next financial crash just like they did in the last one. Only this next crash may be quite a bit worse. Just check out what billionaire Hugo Salinas Price told King World News recently…
I think we are going to see a series of bankruptcies. I think the rise in interest rates is the fatal sign which is going to ignite a derivatives crisis. This is going to bring down the derivatives system (and the financial system).
There are (over) one quadrillion dollars of derivatives and most of them are related to interest rates. The spiking of interest rates in the United States may set that off. What is going to happen in the world is eventually we are going to come to a moment where there is going to be massive bankruptcies around the globe.
What is going to be left after the dust settles is gold, and some people are going to have it and some people are not. Then the problem is going to be to hold on to what you’ve got because it’s not going to be a very pleasant world.
Right now, there are about 441 trillion dollars of interest rate derivatives sitting out there. If interest rates stay about where they are right now and they don’t go much higher, we will be fine. But if they start going much higher, all bets will be off and we could see financial carnage on a scale that we have never seen before.
And at the moment the big banks have got to behave themselves because the government is investigating allegations that they have been cheating pension funds and other investors out of millions of dollars by manipulating the trading of interest rate derivatives. The following is from an article that the Telegraph posted on Friday…
The Commodity Futures Trading Commission (CFTC) is probing 15 banks over allegations that they instructed brokers to carry out trades that would move ISDAfix, the leading benchmark rate for interest rate swaps.
Pension funds and companies who invest in interest rate derivatives often deal with banks to insure against big movements in the ISDAfix rate or to speculate on changes to interest rate swaps
ISDAfix is published each morning after banks submit bids for swaps via Icap, the inter-dealer broker, in a number of currencies. The CFTC has been investigating suggestions that the banks deliberately moved the rate in order to profit on these deals.
Given the hundreds of trillions of dollars worth of interest rate derivatives trades that occur annually, even the slightest manipulation can have a substantial effect. The CFTC, which started to investigate ISDAfix after last summer’s Libor scandal has now been handed emails and phone call recordings that show the rate was deliberately moved, according to Bloomberg.
Essentially they got their hands caught in the cookie jar and so they have got to play it straight (at least for now).
Meanwhile, it looks like the Fed may not be able to keep long-term interest rates down for much longer.
The Federal Reserve has been using quantitative easing to try to keep long-term interest rates low, but now some officials over at the Fed are becoming extremely alarmed about how bloated the Fed balance sheet has become. For example, the following was recently written by the head of the Dallas Fed, Richard Fisher…
This later program is referred to as quantitative easing, or QE, by the public and as large-scale asset purchases, or LSAPs, internally at the Fed. As a result of LSAPs conducted over three stages of QE, the Fed’s System Open Market Account now holds $2 trillion of Treasury securities and $1.3 trillion of agency and mortgage-backed securities (MBS). Since last fall, when we initiated the third stage of QE, we have regularly been purchasing $45 billion a month of Treasuries and $40 billion a month in MBS, meanwhile reinvesting the proceeds from the paydowns of our mortgage-based investments. The result is that our balance sheet has ballooned to more than $3.5 trillion. That’s $3.5 trillion, or $11,300 for every man, woman and child residing in the United States.
Fisher has compared the current Fed balance sheet to a “Gordian Knot”, and he hopes that the Fed will be able to unwind this knot without creating “market havoc”…
Image credit: http://theeconomiccollapseblog.com
Posted by Robert Wenzel
Student Loans Now Have the Highest Delinquency Rate Among All Major Consumer Credit Asset Classes
File under: Getting kids hooked on debt and irresponsible, early in life.
There is about 1.2 trillion dollars worth of student loans outstanding with all but 15% of that owned or guaranteed by the government. The chart below shows the student loan amount held directly by the federal government. That balance is rising at about $110 bn per year, reports Sober Look.
A Political Problem-Not an Economic Problem-Catherine Austin Fitts
By Greg Hunter, USAWatchdog:
Investment banker Catherine Austin Fitts sums up the historic global financial problems by saying, “We have a group of people who have the power to act with impunity.
They are above the law. They are centralizing and consolidating economic and political power. We have a political problem. We don’t have an economic problem.” Fitts’ analysis shows, “We’ve been on a debt model, and now we’ve got to get the planet on an equity model. . . .You are going to do everything you can do to get people into equities. Slamming precious metals down helps do that.” But Fitts says that won’t stop the gold bull because China and the rest of the world are buying the yellow metal. Fitts contends, “What that means is there is going to be a much more broad-based bull market in gold. . . I think it’s going to more of a sound money system, and gold is going to be a part of that.” Not everybody wants to be brought into the so-called new world order. Fitts predicts, “Remember, to come out with a one world currency, you need everybody. There can be no leakage. There can be no exceptions. The Russians are determined to be the stinker at the party is what I think.” Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, founder of The Solari Report.