Welcome to the United Socialist States of America
It is said that the events of 9-11 will define American foreign policy for a generation. Well why not put your feet you, pour yourself a gentleman’s measure of single malt, spark up a smoko & consider this; the events of 9-15 will define American domestic policy & how it relates to a formerly free market for a generation & possibly forever.
The Financial Era, heralded by Regan, Thatcher & the deregulation of financial services on both sides of the Atlantic at the end of the 1980’s is dead. It has ceased to be. Last week the USA took huge strides towards to the European socialist socio-economic model that the Democratic Party loves so much. In November, if the American electorate returns Obama to the White House, the United Socialist States of America may well be born soon after.
Over the last few days not only have investors lost hundreds of billions of US$s but now the increasingly few remaining independent investment banks are being forced into consolidations with Main Street banks. That way the publics’ savings accounts can be used to underwrite losses on complex smoke & mirrors financial products that it now transpires, no-one ever understood in the first place.
Whilst these mergers might provide some short term respite, the separation of so-called i-banks & commercial banks arose from the banking collapses that heralded the Great Depression of the 1930’s. Once stability returned, the US Federal Government deemed quite correctly that it was way too dangerous for investment & commercial banking activities to be co-joined, hence why they were separated & indeed that degree of separation was enforced by the Glass Steagall Act: that act has been repealed.
Where i-banks & other financial institutions can’t be forced in mergers, the American public is buying back in their broken remains a la Freddie, Fanny & AIG. In fact the US Government isn’t just propping up failing financial institutions,
it has begun a programme of economic interventionism more typical of socialist governments in moments of utopian zeal.
With the creation of a ‘recovery vehicle’ using US$750m of the publics’ money, the nationalization of large parts of America’s financial services industry has commenced on a scale not seen since a bankrupt Great Britain, having spent the accumulated wealth of 400 years of Empire to fight two World Wars, went socialist in 1945. It is worth remembering that
the significance of socialism in the first British nationalisations after the Second World War was is that they involved the engine of the domestic economy (coal) and the repository of the nations wealth (Bank of England). What is the engine of US economy? Financial services. What is the main repository of American wealth? Housing
Politicians have been ever quick to blame someone else for current financial woes branding hedge funds & short sellers as the fifth & sixth horsemen of the (financial) Apocalypse, blind as ever to the truth that short selling is nothing new. In fact the first recorded short seller in history was one Issac Le Maire, a ship owner from Amsterdam who in 1609 didn’t just short sell stock, he shorted his own stock. Imagine what the SEC & FSA would have to say about such a trade these days?
So without public consultation/scrutiny, in America the laws governing short selling were changed & the New York Attorney General has commenced an inquisition investigation into the activities of hedge funds. Now ask yourself this when you next have a quiet moment & you are refilling your glass – what sort of laws are they that can be arbitrarily changed in the dead of night? Eurocrats delight in such behavior.
Actually in the finest traditions on the Turkeys/Christmas Paradigm, the irony about the whole short selling of Lehman Brothers, Morgan Stanley & Goldman Sachs stock is that in order to short these stocks, amoral hedge funds needed to borrow stock through the mechanism provided by their so-called ‘prime brokers’. Now a starter for US$ 750 billion or so: See if you can name the biggest players in the prime broking market? Yes that’s right, the biggest players were Lehmans, Morgan Stanley & Goldman Sachs.
Now couple the nationalisation of the financial services industry with new SEC arbitrary regulations to contain the workings of a formerly free market & consider how America (& indeed to a slightly lesser extent, the UK) got to where it is today – not even a free market or cabal of evil Jewish bankers can do that – no, that takes a government & out of control government spending to be precise.
Whilst some or the current financial woes can be laid on the doorstep of the wider market & some young men of marginal intellect who simply didn’t understand what they were buying or selling – the US Federal Government must also shoulder a large portion of blame for the current woes.
George W Bush’s sins may be myriad, but his single greatest failing hasn’t been to fail to curtail government spending, it is in fact to oversee a massive increase in the amount the American Government spends & because governments always live beyond their means, the amount that it owes. This has grown significantly under GWB, currently topping out at US$ 9 trillion … !
This increasingly massive government debt has started to be coupled with a loss of appetite for US$ denominated investments. If the Federal Government has been profligate, the American public has been even worse with its insatiable appetite for cheap imported products. This has given exporter nations (e.g. China) the liquidity to buy US Government paper which the US Government has in turn used to fund its bloating spending. However that is starting to change.
Last week, 3 month US Treasuries, previously considered to be the worlds safest paper, were trading at their lowest level since 1941. Why? Because purchasers (foreign governments) tired with loosing money on US Treasuries because of a weakening US$ are starting to consider to moving their holdings into Euros or indeed their own currencies causing a vicious spiral of further US$ depreciation leading to further sell offs of US Government paper. What exactly is the imperative for the Chinese Government to hold US Government paper when the US$ is devaluing against the RMB at the rate of approximately 6% p.a.?
Now does the US Government have the money to service these debts, let alone repay them? Of course not. To date they have managed to by borrowing even more in the form of … yes you guessed it … even more US$ denominated Government paper. The analogy here is that this isn’t paying off one credit card with another credit card; this is making the minimum payment each month by raising the credit limit on the same said credit card. Each month.
But what does that mean? An already bloated Government that is in the process of having to borrow even more to support its nationalisation programme won't be able to borrow to even service its existing debts let alone pay off the portion of debt that is maturing. So will a USSA go bankrupt? No, but it will have to raise additional funding i.e raise taxes & that is never & has never been a formula for long term economic growth.
Now dear readers let’s one last drink & bolt all of the forgoing together. Laws are being changed without real political oversight. Couple that with the nationalisation of the financial services industry & the Democratic Party’s nominee’s promises of taxpayer provide healthcare, US$ 25 billion of bail out payments to American carmakers & US$ 50 billion in "transfer payments" to the poor. Does any of that sound familiar to anyone? It does on this side of the Pond. Welcome to the United Socialist States of America. Maybe.
Comments
If you think that the recent turmoils in US banking were caused by short selling by speculators rather than the naked greed of non-regulated bankers you are not only a twat - you are an idiot. I see you have quite a verbose blog with lots of entries. This first post was all I needed to read. Have another brandy, old boy. You are a dinosaur.
Posted by: ho-hummer | September 22, 2008 5:43 AM
Personally I think you have misread the post, if anything its the other way around! Tosser.
Posted by: TimC | September 22, 2008 9:09 AM
ho-hummer,
I can get around your rude name-calling of our
host, and I can almost forgive your myopic views
of our economic troubles. What I can't forgive,
though, are your horrid bartending skills: the
man was drinking a proper single-malt scotch
whiskey, not brandy. Heavens, man, learn how to
comprehend when reading! (And when calling somebody an "idiot", make sure you don't end up
looking like a horse's arse)
-BushRat-
Posted by: BushRat | September 22, 2008 10:00 AM
International Socialism is the ultimate aim of the super capitalist. Them thar Rockefller boys have funded just about every think tank and tax-exempt Foundation going to bring the US into a condition of socialism. How they must be smiling these days. This latest market madness is just another, possibly the ultimate or penultimate, stage in their push for control of all markets and life.
And what about the poxy money we are compelled to use? This is surely at the root of this and any and all other market shakedowns. Interest bearing credit money, created out of thin air by the priveliged few, ensures an aberrated form of economic gigantism. Every one has to continually run their wheel ever faster to meet the mantra of economic growth when in fact all it is, is the chasing of money to pay off interest.
If we continue to use this type of money, no solution to this sort of shite is ever possible. In simple terms, the amount of money owed to the banks is always greater than the amount that exists in the economy because when they issue a loan (ie create new money out of thin air), they fail to also create the 10% interest (or whatever rate they happen to be using at the time). So £1 million requires the repayment of £1.1 million but the £0.1 mill doesn't exist. The only way to get the £0.1 is for another interest bearing loan to be created to put the money into circulation so that it can be "earned" (ha) and then used to pay back the interest. Shell-game-tastic.
All the financial power gets driven into fewer and fewer hands. This is systems engineering. As soon as you put interest on money, BUT FAIL TO CREATE THE INTEREST AMOUNT NEEDED, you put a feedback loop in the circuit that builds pressure relentlessly. And then markets go pop.
The scale and complexity of the current financial markets is a tell tale sign of bullshit. And it's a form of bullshit that arises purely because the "type" of money we use brings that sort of behaviour about on a systemic level. No corrective measures will or have ever worked because the measures taken never change the money. If you put an engineer in charge of engine design and he failed to take into account the fact that the oil for the engine degraded at too high a rate for the engine to maintain its ability to "engine", then he wouldn't be an engineer would he. He'd be a wanker. And that's what we've got for economic gurus and the like.
It's the emperors clothes and cognitive dissonance all rolled into one. Get the world running on honest money and the scale of the financial services industry would be massively reduced. This would be a good thing as all those brilliantly smart people who work there and currently contribute zilch to real wealth could bring their brains to bear on matters of real value such as clean drinking water planet wide and how to stop TV stations peddling low grade dreck as entertainment.
Greed exists at varying times and intensity in all people. Learning to master that is one of lifes neat little challenges. The type of money we have exacerbates greed on a systemic level and drives so-called civilisation to the brink. Honest money breeds honest people, bent money bent people. And socialism is the ultimate expression of bentness and that "The road to hell is paved with good intentions".
I recommend "The Lost Science of Money" by Stephen Zarlenga for anyone wanting to ruminate on this matter further. Credit crunch willing of course.
Posted by: Paul | September 22, 2008 10:49 AM
Great post! Thank you,and hope that you are incorrect in your forecasting (I fear that you are not). Jim
Posted by: Jim | September 23, 2008 2:06 AM
Worse than useless behavior.
These days, anyone can play the markets electronically, and trade on a foreign exchange ... restrictions on short-selling failing banks have no effect on them.
The only thing this stupidity will cause is flight of capital out of the US.
Hoover tried to save banks from their own goofs as well ... and managed to make a bust draw itself out long enough for FDR, a socialist/fascist lunatic, to get into the White House and really screw things up ... a two year bust stretched out into the 1940's.
Posted by: Kristopher | September 23, 2008 6:15 PM
Fiat money has always been the downfall of governments.
However, if one must pay in fiat money (aka legal tender) then by all means, eradicate your personal debt using same, getting notes of the debt being discharged by your lender, and pay cash from now on.
Part of the crisis that has the libtards ticked off is the predatory lending. Now, I can say no. Practice it with me boys and girls: When some telephone marketer calls you, after reading your publicly available records and sees that you owe no taxes, that you own your house and you are not encumbered otherwise, you are 'easy prey.' So they would think.
They will call and ask you what your future plans are, inquiring as to whether or not you have children, (college being a big thing) or if you are planning to retire soon.
The answers to those questions is a polite but firm 'None of your business.'
Should they ask if you are interested in a home equity line of credit, thus putting your house at risk, say 'No.'
See how easy that is?
'No.'
Libtards are furious at people who know how to say no, because it means that individual responsibility is being taken by smart people and not lazy stupid ones who are greedy and want to live beyond their means and have others pay their bills.
I am totally opposed to the bailout.
But I guess I am in the minority here.
Posted by: Cricket | September 23, 2008 8:12 PM
I see that I am not in the minority after all.
I also forgot to tell you: Hanging up on predatory telemarketers is much more to the point and effective, but for those of you who are polite, the above is the recommended course of action, in addition to taking your name off the direct marketing lists. Unfortunately you can't do anything about auto-dialers.
Posted by: Cricket | September 23, 2008 8:16 PM