Another Year, Another Set of Last Year’s Problems



While nobody was looking, a new year snuck in and took over. What do we get, besides older?

How about a free lunch?

Welcome 2,017.386. Are we having fun yet?

Nothing much has changed since last year, nothing much from the years before that. Life appears easy because we don’t have to do anything but sit back and let the days spool out one after the other; mad, bad and dangerous to know, like Lord Byron. The physical becomes metaphysical under our noses: we inhabit both the ‘Age of Less’ and the ‘Age of Nothing Less’ at the same time. “Impossible,” we cry but think of the convenience efficiency!

The driving concept of twilight industrialism turns out to be nothing. It’s the perfect crime; after all, what can ‘nothing’ be charged with? A: nothing, that’s the beauty of it. We are uneasy about ‘nothing’ because we understand the blind-alley-ish implications, because we can get away with murders we are soon enough infested with them. With nothing in hand the detectives have just that to work with. What can anyone do? Boiled down to its essence nothing … is semantics: a roman à clef, the void, a ‘kinder, gentler’ death, something like ‘compassionate conservatism’.

Meanwhile, in its artless manner, ‘less’ advances relentlessly without attention behind the blank veneer of pillow talk, public relations, marketing non-sequiturs and random violence.

Problems, problems; nothing is fixed. The difference is the fresh coat of invisibility paint like something out of a Roadrunner cartoon. The new paint allows us to pretend progress is finally working after centuries of demonstrable … um, something or other? Because the emergencies that concerned us as recently as last year are now a decade safely past, we get to pick and choose exactly what we will forget. Economists declare the US economy has hit its stride at last! Nobody asks questions because everyone knows the answer is a shrug.

You have to wonder how guys like John Hussman keep going month after month, year after year. David Rosenberg switched to bullish years ago and never looked back …

Last week, Investors Intelligence reported the most lopsided bullish extreme in over 30 years, with 64.4% of investment advisors bullish and just 13.5% bearish. Likewise, the Daily Sentiment Index for both S&P 500 and Nasdaq futures reached the most extreme levels in their history.

Hussman weeps bitter tears of free lunches not eaten:

In hindsight, the stupidest thing I ever did as a professional investor was to imagine that there was some limit to the stupidity of Wall Street.

How could the smartest people in the room repeat the same errors that blew up so badly not quite ten years ago?

The answer blows in the wind …

That comment may not seem terribly humble, but as a dear friend and mentor once told me “There’s a difference between humility and false humility.” Sometimes you have to speak your truth if you believe it will be helpful to someone, even if others don’t want to hear it. I’ve got no antidote for those who believe that the dot-com bubble, the housing bubble, or the current “everything bubble” are more than a salad of reckless speculation, herd mentality, and fear of missing out. Having anticipated the collapse of the other two bubbles, and correctly projecting the extent of those losses, it’s clear that my error in this bubble was to underestimate the tenacity of blind speculation (and fail to take advantage of it). The error wasn’t overlooking some kind of justified or durable legitimacy to this madness. As I wrote at the March 2000 bubble peak, just before the S&P 500 dropped by half, and the Nasdaq lost four-fifths of its value, “On Wall Street, urgent stupidity has one terminal symptom, and it is the belief that money is free.” Here we are again.

Here is the ‘Son of Housing Bubble’, a monument to forgetfulness:

Figure 1: The S&P CoreLogic Case-Shiller National Home Price Index from Wolf Richter, (click for big). As Andy Xie pointed out a few months ago, these are the same houses that were worth a fraction a few short years ago. What has changed are the numbers and nothing else.

What is said about it or done? A: nothing. Having burned through a large percentage of our non-renewable resource base (wealth), asset price inflation is about all we have left. We Americans live for the bigger number. When our numbers shrink we can blow our brains out or get drunk. Or we go to the government and demand bigger numbers as our birthright.

What Happens When Your Number is Up?

“Deja Vu all over again,” said Yogi Berra: because nothing changes, nobody can tell if the recession is really over or if it has just started.

– Public corruption and the purchasing of influence by corporations and special interests = nobody cares as long as the numbers go up.

– The ‘revolving door’ of officials taking jobs with companies that they formerly regulated = the normal course of business.

– Unprincipled partisanship.

– Undisciplined populist style pandering to extremists = these are some very fine people (if you squint).

Corporate welfare, including:

– “Too Big To Fail’, public support for monopolies and cartels = citizens are compelled to compete against their own government!

– Accelerating concentration of wealth and resources in the hands of the (inept) few: the widening gap between rich and poor and the erosion of the middle class = good for elites and a handful of economists, an unsupportable burden for everyone else.

– Uneducated policy makers = ignorance is bliss.

– Bottomless conflicts of interest = it isn’t a conflict if it’s part of a business plan.

– Election processes corrupted by private funds and advertising = a little whining but nothing that would make a change.

– Erosion of Constitutional protections limiting intrusions of state power into the lives of the citizens; a little whining but otherwise = nothing.

– Creeping privatization; the rise of ‘Shadow’ states- within- the- state such as private militias and security departments, the transfer of public assets to private interests for private gain.

– A wasteful and incompetent military establishment which is rewarded for failure after failure => the absurdity of a US ally by treaty bombing a US ally in fact = who cares?

– The shift from a public military to a mercenary military = not a topic of discussion.

– ‘The Untouchables’: unquestioning support for the defense/security industrial complex and its excesses = platitudes as a substitute for strategy.

– Unaccountable intelligence services and opaque intelligence gathering activities, including torture, domestic spying and detention- without trial.

– The explosive expansion of liabilities

Figure 2: – Add the red and the blue together = near $70 trillion in credit market debt excluding retirement- and pension obligations, public sector compensation and medical care programs = you can’t freak out about a problem if you don’t see it.

How does the amount of credit market liabilities square with the notion of a ‘sustainable’ industrial economy? The Western economy is really a debtonomy’ where the primary function is to borrow; all else is window dressing. Is there a discussion about any of this?

Figure 3: Bond ‘bubble’ by way of Bloomberg. Again, people on the economic fringes complain – including opportunistic politicians – but nothing is done.

– A rising and general sensation of high- level public lawlessness, that invariably translates into private lawlessness at all levels.

– The failure to formulate a population policy or even discuss one other than to proclaim, ‘it doesn’t matter’ … includes the failure to discuss any other policy: the ‘strategy of nothing’!

– The failure to discuss the material requirements and costs of lifestyle: meeting the ever- expanding marginal costs against ever- shrinking marginal returns. When is this topic ever heard about or seen in print?

– Commercial imperialism and the hegemony of commercial interests at the expense of all else, including longer term US political and security interests. What’s good for JP Morgan-Chase (Citigroup, Boeing Aircraft and Facebook) is good for America!

– The privatization of business profits along with nationalization of private losses: ‘Socialism for the bosses, capitalism for the workers!’

– The institutionalization of impunity and moral hazard: that select individuals and firms can do as they will without regard for any consequences. What is ever done about this? A: nothing …

– Failure of the Establishment to prepare the country to withstand economic hardship = because economic hardship is never going to happen. Right?

– Reliance on propaganda – lies – as a primary policy tool (non-policy tool): ‘Potemkinism’.

– Structural impediments to productive employment and failure on the part of the Establishment to create effective employment strategies … outside of shipping high-paying US jobs overseas and relying on ‘illegal aliens’ for cheap labor.

– Pandering to religions, religious interests and cultists.

Stupidity Scales.

– Policy horizons are too short: the crisis of the next five minutes overrides the challenges of next week. Borrow short, lend long. Make that quarter. What about five years from now? You’ve gotta be kidding!

– The erosion of (true) capital as the byproduct of short-termism: eating the seed- corn. What do we hear about gobbling up our (sole) basis of support? A: absolutely nothing.

– Fraudulent accounting at all levels: the wilful ignorance of externalities as well as off- balance sheet manipulations, ‘extend- pretend’ and ‘mark to mockery’ control frauds.

– The tolerance of finance- level black markets: the shadow banking system.

– The rejection of economic restraint or self-discipline. “If I don’t do it, somebody else will.”

– Willful failure to restructure bankrupt firms that make ongoing claims against the public!

– An economy based on the monetization of waste, speculation and rent-seeking. Again, there are a few economists who complain but otherwise = nothing.

– The declining national level of critical thinking, skills and artistry. America, has become a nation of boobs fucking morons!

– Refusal to include natural resources and carrying capacity in policy level economic discussions = more ‘Strategy of Nothing’.

– Refusal to understand the fundamental nature of money and credit! This is mind- boggling in an establishment that claims to gain wealth by the manipulation of money and credit!

– Conflicts of interest involving economists and the agencies (central banks) which employ them.

– A multi- decade malinvestment in a physical and social plant that is stranded by its material and credit inputs.

– A multi- decade malinvestment in an economic metric that requires the constant input of new funds to pay returns – the ‘Ponzi economy’.

– Over reliance on automation and technology = smart machines, stupid humans.

– Industry- assembly line modeled social infrastructure such as education and ‘wellness’ systems which have all failed except as sinks for borrowed funds.

– A physical plant that is over- leveraged to the automobile.

– A counterproductive ‘War On Drugs’ (non-)policy.

– A perverse trade policy which depresses American business profits by means of ‘wage arbitrage’ = cheap labor, domestic or otherwise, cannot earn enough to support high- cost US businesses.

– Governments depend upon an accelerating levels of consumer waste which leads to repeat cycles of subsidies, failures and more subsidies.

– A cavalier disregard to the consequences of pollution and resource depletion.

– Public ignorance of the exponential function and thermodynamics.

– The elevation of fantasy and wishful thinking to equality with scientific facts as an element of the public policy discussion.

The (Fiscal) Policy of Nothing

– Mal-investment in unproductive enterprises = the endless bailouts and ‘key man propping’.

– Inability to hold finance accountable for its actions and/or negligence.

– Inability to enforce laws on the books against theft, influence peddling, racketeering, corruption and fraud.

– Inability to reject useless and counterproductive initiatives – ‘picking winners’.

– Top- line support for monopolies and foreign business interests.

– A government fiscal policy that is dependent upon bank credit.

– The absolute lack of any energy policy (other than using the military to steal consumption from other countries!)

– A ruinous and counterproductive tax ‘system’.

– Incoherent public accounting.

– Misleading, manipulated and inaccurate economic data = something else very few bother to mention.

Figure 4: Is there inflation or not? Velocity of M2 money stock says ‘no’. Meanwhile, prices of everything rise. Who are you going to believe?

– The abdication of serious economic policy making: deferring to a pretend ‘free market’ which doesn’t exist, kowtowing to the corrupt finance/banking apparatus.

– The shift away from the fruits of labor toward gambling and speculation;

– The uncontrolled expansion of uncollectable claims against productive labor: even if labor is granted unlimited amounts of time, it cannot retire finance level debts, even at the exorbitant wage rate of $15/hour.

– The politicization of regulation; regulatory capture as the means to advance partisan interests.

The Central Bank Illusion

– The over- reliance upon monetary policy to effect economic output, even when it is clear policy does … wait for it … almost nothing.

– Central Bank look to gain more authority = what they have now- plus what they might gain adds up to … nothing!

– Central banks are opaque, they do not allow audits of their activities or those of their clients; instead, obfuscating jargon.

– An inflationary bias to Fed monetary policies despite claims to the contrary. Because the economy is a debtonomy, it is dependent on new credit to service and retire loans already made. The addition of new credit depreciates the credit stock. The diminishing worth of credit over time is how the ‘real cost’ of lending is reduced, hence the desire for 2% inflation.

– A reliance on ‘carry trades’ — forex arbitrage — as a source of credit.

– This follows along with the abdication of monetary policy to ‘outside’ interests.

– The false premise of Fed effectiveness regarding deflation = you mean the deflation that would immediately appear the second banks were unable- or unwilling to lend?

– The general acceptance of questionable central bank activities because the ‘end justifies the means’.

– Manipulation and interference by the central bank in non-money markets.

– Ignoring bank crimes: substituting liquidity for oversight; aiding and abetting Wall Street crime as a form of monetary policy.

– Liquidity malfeasance; finance starving the Main Street economy while flooding finance; the bankers’ left hand lends to the right hand.

– Failing to recognize the deflationary implications of oil price upper bound and peak oil = not part of the discussion.

– The seemingly endless negative- or near zero real interest rates: punishing the prudent while rewarding gamblers. Meanwhile, central banks have been trying for the past several years to ‘jawbone’ market rates higher as the only tool bankers have to ‘fix’ the inevitable crisis is negative real interest rates.

– Currency and forex imperialism including flooding the world with dollar credit. = This is never even discussed except in the most general terms.

Americans believe they are entitled by divine right to free lunches, a kind of superstition. When leadership fails to provide the lunches = new leadership is found. After several rounds of replacement leadership it is hard to avoid the conclusion that the entire free lunch idea is obsolete. Where do we go from here?

Back to sleep!

Wake me up when ‘nothing’ is over.

63 thoughts on “Another Year, Another Set of Last Year’s Problems

  1. Bachs_bitch

    Hi Steve and thanks for another great article! I can think of ‘nothing’ to say about it except two questions:

    A) How much longer can the economy/ies possibly go on like this?

    And more importantly B) when they can’t go on like this, will the change be irreversible?

  2. Front Range Mike

    A nice, thorough list. When I have mentioned some of the items on the list to others they look at me as though I am Rip Van Winkle. Been asleep for the past 20 years and need to get with the program. You know, technology, progress, the future and all that. I can just the look on their face, “go have a $20 cup of coffee at a cyber cafe, old timer, and try to catch up.”

    As an old fart (56) who left behind office work to now do property maintenance (at least I own my business and don’t sit in a cube anymore), I can say there are a lot of people who are in serious trouble if this system encounters a slight blip. People who can’t reset a tripped breaker, unclog a sink, or jiggle a key slightly in a loose lock to unlock and open the door, erc… Too busy looking at the phone.

    The one constant in nearly all apartments I work in is some form of escape. Here in Colorado that often means all kinds of pot smoking implements and devices on the coffee table, and/or, tons of empty alcohol containers in the recycling bin. Cigarette butts everywhere. Most of them are decent people. They’re just caught up in a nightmare that they can feel makes no sense at a base level, yet they cannot escape it either. Every day they wake up, they are here again. Groundhog day again.

    I just keep watching and waiting for the next shoe to drop. There’s much built up potential energy awaiting release. Couple that with a general decline in the quality of leadership across the board in this country and we have a spectacular epic awaiting its unfolding. 2018 appears ripe for the story to kick it up a few notches.

    1. Mister Roboto

      Coming at this from the perspective of a “woo”, it’s clear to me that a lot of negative, imbalanced, staticky spiritual energy is building up on the lower astral plane. It’s getting so thick, it really has to discharge, even if it does so explosively.

      If something is going to happen in the early part of this year, I would say keep an eye on the period between March 27 and May 3.

  3. Ken Barrows

    3. Once the UST 10 year exceeds that rate, markets get interesting. Will the Trump tax cuts make this threshold irrelevant? Doubt it. The 10 year hit 3 for a quick second about four years ago but eventually fell back to under 1.5%. Borrowing from the Triangle of Doom, I see 3 as a point where all central banks can do is get it back down. Or try to.

    1. steve from virginia Post author

      If longer Treasury rates increase so will mortgage rates which will crimp real estate speculation. Also, the burden of interest payments will increase particularly to the US government. Also, private sector lenders (they lend when they ‘buy’ Treasuries) will lose money (of course they can hedge themselves).

      Meanwhile, short term commercial rates are rising b/c banks are borrowing more. There is only about a half- percentage difference between 1 year LIBOR and 10 year, a bit close for comfort.

      What are the short rates pricing? Inflation … or risk?

      http://www.businessinsider.com/flat-bond-yield-curve-signals-weak-economic-prospects-if-not-recession-2018-1

      Of course, ‘Brand X’ economist tells us everything is fine! Don’t worry, be happy!

  4. dolf is back

    How old are you, Steve?

    I’m guessing that you are starting to understand that doom as you and I understand it isn’t going to happen. Rather, America, and thereby the world, has shifted to a corporate/entertainment model. It’s remarkably successful. It works like this:
    -keep the people working and consuming; convince people that the highest form of human activity on this planet is to work like a dog and then buy stuff; if you convince people of that, they will enforce the rules amongst themselves without ever raising a fuss; keep the part timers, contractors, socialists etc. marginalized so they can never change the rules
    -keep the people entertained; at all costs, the tv, movies, sports, etc. have to be maintained, because people need a spectacle to discharge their pent up energy; what better way to provide this than to have beautiful people paid to read lines, and have the athletic men paid to compete against each other

    Provide these two things, and everything is solved. Nobody will notice anything. They will just go to work, eat for a bit, then finally die of something or the other, and all the better, because you can then replace them with an immigrant pool, consisting of hustlers picked from amongst the 7.5 billion humanoids scattered throughout the planet, who want to come to America to realize the dream.

    Nobody will notice the trillions of dollars trikling up, nobody will notice resource depletion, nobody will notice the steady erosion of civil liberties, of justice, of morality, of honesty, or any of these things. And besides, if anything goes wrong you can always blame the negros and jews. Isn’t there a bit of truth to that, just enough, to make the strategy successful. And of course, get the people to go to church and believe Jesus will save them.

    Nobody, and I mean nobody, reads this blog. Tv shows, music videos, movies, get millions and millions of viewers. Millions and millions of teenage boys and girls know, by heart, the lyrics to rap and pop music. They can name movie stars and athletes off the top of their heads. Not a single one of them gets educated on resource depletion or the money system, or even the salient fact that America is an empire.

    If you are one of the, oh, 5 to 10 people reading this post, you have two options: join the circus or leave for a “shithole” country. That’s it. America isn’t going to be reformed. You know this is true, you know every word I’ve typed above is true. Accuse me of many things, but you can’t accuse me of lying.

    1. 1wayticket2thesunplease

      Hey Uncle Dolf, new fan here – just came across this blog.

      Late 20s Canadian child-free/broken idealist/goldbug WASP on an SSRI with chronic lethargy/non-fully disabling health issues – with decent fiat savings.

      For awhile now I’ve been telling myself I would gladly trade 10-20+ years of the average NA male lifespan for even just 15-20 more years of “wits-retained” equanimity before punching out and going back home to comet dust where I apparently belong – perhaps Rx stimulants if I can keep the BP and panic attacks down. Terence Mckenna once said guys like me might have a really, really bad time on psychedelics so I’ve yet to dip my toe there, if I ever will.

      If you’re at all able/willing to elaborate on your last paragraph I’d be quite grateful – I currently think I any further talks with shrinks is just a cat playing with expensive yarn.

      Cheers.

      1. lateStarter

        He is simply suggesting that you make your preferences known with your feet. Move to another country. The less infected by Western media/culture the better. Hard to do anymore, but even a few years outside the matrix is worth it. Medicating yourself to cope with a sick environment is not the best solution. If you have some money saved up as you indicated and have some useful skills, it should be possible.

    2. Front Range Mike

      Valid point Uncle Dolf. It does make you wonder if the people in Pompeii we being entertained right up to the explosive end. It didn’t matter either way as nature was going to do whatever it wanted regardless of whether any humans were paying attention or not.

      While listening to Chris Martenson’s podcast with Art Berman yesterday it did hit me that the puppeteers can play this game until the energy inputs won’t allow it. At that point all bets are off on how things go down.

      On another point, over the past few months I have encountered a couple who lost their apartment in December and are now living in their car. As well as two to three others who are facing the same kind of fate if their income situation doesn’t change soon. Also still more people holding up signs asking for help at major intersections. New faces joining them on a regular basis. It doesn’t appear that the endless entertainment model is working too well for those people. I guess it’s not a real decline or collapse to most people until they are the ones holding up the sign on the street corner.

  5. ellenanderson

    Hey Steve – nice post. I think I am one of your first readers going back to 2009 but my guess is there are many more. I would guess that a lot of people are at least taking a look because of your Twitter comments.
    As I go about seeing people and talking to some of them I am struck by how many are becoming aware of the injustice that exists in our system. I think that fewer of them are really aware of the horrendous environmental consequences of what is going on and that the industrial system, especially industrial agriculture, is incompatible with life. Something may happen that will unleash all of the revulsion that is simmering under the surface of our organized society. When the student is ready the teacher will appear? Or not. But everyone who understands has the duty to try to teach.
    Maybe time to do another podcast?

  6. Tagio

    Hi Steve, nice list, I like this much better than the typical new year predictions. Kind of a “let’s get real” list.

    Dolf, always enjoy your comments, even though they have a bit of chip on the shoulder aspect to them. I am not sure whether Steve actually thinks that reform is possible but despite the possible misplaced implied accusation, I like your description, to which I would add, however, that it’s not just the mindless addled citizenry who make reform impossible. The financial wizards who no doubt know better have been equally bought off by their own greed and are eagerly playing the let’s pretend game because never before have they seen their “wealth” accelerate this much. It’s not clear to me that they actually have any idea what to do with all that money, it all seems driven by some conviction that somehow, having more financial chits when it all falls apart is going to be better than trying to figure out what to do with all that money now or reforming the system so that they continue to live in a semi-functioning society. Doubtless “more” is the only thing they know how to do.

    Be that as it may, I agree that reform is not possible. This has been clear to me for a long time now, ever since I read Morris Berman’s “Why America Failed,” a book that has brought peace of mind to me and many others formerly wasting energy railing against the system, advocating for reform or playing the election “HOPE”/”CHANGE” game. In that vein, MB describes a third option besides the two you mention (continue to play in the circus or migrate to a “shithole” country). He calls it “internal migration,” and he not only describes what it is but cites numerous examples of people doing it. You can find this in that book or, easier, just watch a few of his youtube interviews and podcasts.
    https://www.youtube.com/results?search_query=morris+berman

  7. Eeyores enigma

    It would seem that central banksters have figured out that they can create unlimited amounts of money and still not have an inflation problem. All they have to do is make sure the lions share of that money goes to the wealthy 1 to 10% and keep it out of the hands of the other 90%. Voila! No inflation and deflation is masked just enough so that no one recognizes her.

    Still, there has to be a limit to how long this can go on.

    1. steve from virginia Post author

      Central banks cannot make ‘new money’ that is, they cannot offer unsecured loans, they don’t ‘create’ anything. The security for central bank loans are bonds — IOUs for loans already made by private sector lenders.

      New money comes from finance, whose business IS making unsecured loans. Finance lending tends to stay ‘close to home’; from finance firm to finance firm and back.

  8. Eeyores enigma

    Is this secured?

    “The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).”
    https://www.zerohedge.com/news/2017-07-01/swiss-national-bank-owns-80-billion-us-stocks-heres-catch
    or
    “80% Of Central Banks Plan To Buy More Stocks”
    https://www.zerohedge.com/news/2017-01-23/80-central-banks-plan-buy-more-stocks

    Not to mention the billions they loan to all those corps listed so they can buy their own stocks too.

    I guess my point is that of the 10s or 100s of trillions pumped into the economy by banking/finance that would have caused inflation has not because of the reason I stated above.

    1. steve from virginia Post author

      You are right about the flow of credit being stuck at the elite levels of the economy. However, central banks don’t ‘print money.

      Banks — including central banks — do four things and four things only, (besides rent office furniture):

      Lend
      Not-lend
      Borrow
      Not-borrow

      That’s it.

      Commercial banks make loans (lend) but inevitably do so without collateral (credit cards, personal loans, loans against re-pledged collateral or against over-priced/misrepresented collateral). Unsecured lending is where ALL our ‘new money’ comes from. Consider the trillion+ spent every year on gasoline: the funds are borrowed but the gasoline cannot possibly be collateral for anything, it gets burned up. Loans for fuel are by their nature unsecured. So are loans for services, also lending within finance because the ‘collateral’ often winds up being sleight of hand.

      Much of the commercial lending in places like China are also unsecured to the degree that collateral represents 5% or less of the aggregate worth of the loans. Eventually, all commercial banks make unsecured loans, by doing so they become insolvent. This is simply how our precious debt-money system works: most commercial activities are unproductive and offer no returns. Particularly during boom times like we are enjoying now, there is massive lending for absolutely nothing useful. Insolvency is a component of capitalism, its end-game. There is no way around it.

      Unsecured lending is the lead-in to your Minsky Moment(s). Why? Servicing loans and rolling over maturing debts is done by borrowing more.

      Commercial banks have a capital structure: a percentage ownership ‘stake’ in the bank that acts as a forward reserve. In the BIS ambit the capital requirement is an ownership stake equal to 10% of assets. That means if net asset losses amounting to less than 10% would fall to the owners of the bank. However, if the loans in question are secured the bank can move to seize collateral in lieu of the payments and not take a charge against capital. However … when there is inadequate collateral the pressure on capital becomes fierce and the bank capital falls to zero, which is what was happening w/ Deutsche Bank a couple of years ago. Bad loans matter, bad unsecured loans are fatal.

      Central banks are reserve banks, they have no capital structure, only a ledger or balance sheet. The Fed w/ its multi-trillion assets on its books has about $60 billion in capital. This does not matter, whether the bank is profitable also doesn’t matter. The central banks’ job is to be the lender of last resort, to offer loans in lieu of the money markets, when commercial banks are not worthy of credit and cannot gain liquidity. Under this circumstance (a money panic), the collateral and/or assets are deemed by the market to be worthless. In this case, the central bank offers loans against the collateral at the originating price of the asset, ignoring the misjudgement of a panicked market.

      In a crisis, the commercial banks offers collateral and the central bank lends against that collateral until the panic subsides. Afterward the loan is reversed and the asset returned to the commercial bank.

      In all instances, the central bank lends against collateral, it does not make unsecured loans. In fact, it cannot. The reason commercial banks fail is because they make unsecured loans. In order for them to be ‘bailed out’ it is necessary the reserve bank be foundationally different than the ordinary commercial banks. Insolvent commercial banks cannot bail out other failing banks. Because the central bank does not make unsecured loans it is presumed to be solvent at all times, it can rescue troubled commercial bank or banks and by doing so quell the panic.

      If the central bank was to offer unsecured loans, it would be the same, perhaps larger than the other commercial bank … it would fail and for the same reason. Not only would the commercial banks fail; the entire system would become insolvent. The outcome would e a banking collapse then a run as there would be no institution able to act as lender of last resort.

      That the Fed and other central banks ‘print money’ is one of these durable myths that never seem to go out of fashion. But, that’s what it is, a myth. It’s an attempt to fix blame away from finance itself which lacks the means to control its own excesses or absorb any pain.

      1. ellenanderson

        If the Central Bank acquires assets at inflated prices how does that really differ from printing money?
        BTW in my constant search for some new political narrative I have found an interesting de-growth site. I will link it down at the bottom of the comments. I haven’t started reading the links yet.
        Cheers, E

      2. Usman

        If the central bank makes loans against collateral deemed worthless by the market, isn’t it effectively making an unsecured loan?

      3. steve from virginia Post author

        The market sometimes is illiquid. The absence of readily available funds sets the price rather than fundamentals.

        W/ bonds the fundamental is whether the borrower is up to date w/ interest payments and has funds (borrowing capacity) to retire the principal when it becomes due and payable.

        Money panics are when multiplier effect runs wild. The multiplier effect is price setting at the margin. An example would be when you sell your house for $500,000, all houses similarly situated are deemed to be worth $00k. It isn’t necessary to sell all the houses to determine the price, a sale here and there is all that is needed, only a sale here and there keeping supply and demand in line.

        Houses are illiquid assets: if everyone for some reason wants to sell their houses all at once (or are sold out) then the price is set by the available stock of funds, which in a panic are in short supply. Instead of $500k each the home sellers might collect $50k each or less.

        The central banks assures everyone their houses are worth $500k by purchasing enough of them to put a floor under prices: the marginal house always has a buyer, the central bank. When the Fed lends from the discount window this is all it does: it buys bonds instead of houses: they buy almost entirely Treasury bonds, these bonds themselves are IOUs for loans made by 3d parties.

        Even when central banks ‘monetize’ (Treasury issues IOUs w/ the purpose of sale to the central bank which ‘buys’ them), the IOUs are deemed to be good. Why? The alternative is for the government to be declared by the establishment itself to be worthless. In the event of monetization as seen in Japan the increase in central bank internal balances does result in more currency in circulation; it’s a sleight of hand and in fact cannot be anything else. Because the Bank of Japan cannot print oil or other real capital it can only make avatars which are little more than clever fictions: clever because the perceived audience is fully invested in them before they are offered.

        To the drowning man the straw looks like a life boat, as long as the straw is a little out of reach the man will never know …

        Same is true with regards to QE. The credit issued by the central bank is really a ledger entry on the banks’ reserve account. By the time the ‘excess reserves’ are set to be circulated … they aren’t! The bank is shut down by regulators and its lenders converted into new owners of the bank, the excess reserves are never touched. More straws just out of reach.

        Seeing as how industrialization itself has proven to be of little worth outside of its ability to provide entertainments and murder, the larger question is the one that matters: does the system even if it is internally consistent, have any true usefulness or is it a well-run form of suicide?

  9. ggodmuls

    Doom and Gloom is everywhere – and the Nonsense can’t continue on Forever! Even the Dinosaurs met their day of reckoning.

    Choose your death –

    http://dematerialism.net/onjayhanson.htm
    Finally, I have this to say to the people I leave behind having done the best I can do for them. Things are not what you think they are, namely:

    1. Conservation within Capitalism could make the Die Off much worse if it postpones it while the population grows.

    2. People who don’t want a state-planned or consumer-planned economy (with equal shares of emergy for all) probably consider themselves superior to some other people and don’t want to jeopardize their eminence and other advantages. A physics professor confessed, “I’m afraid you’ll take away my money.” This is part of the authoritarian or Type Z personality. This characterization does not apply to the many losers in the Money Game who are hopeless victims of authoritarian propaganda, such as the anti-abortion zealots who are convinced that communism is the same as abortion.

    3. Capitalism is like Rock and Roll. The vast majority would reject both unless they had been subjected to merciless brainwashing. If you are susceptible to Rock, Country, Rap, or any of the other popular products that masquerade as music, you are probably vulnerable to anti-communist propaganda – especially if you have not yet recognized that every school curriculum, every major sporting event, and every television program – not just the commercials – is anti-communist propaganda.

    4. It’s too early to plan on what to do to save yourself and your loved ones from the coming Crash, Ochlarchy, and Die Off as in “Children of Men”, which was based on a different etiology but the same prognosis. You must know where the bomb will land before you know which way to run.

    5. We should all support the Bolivarian Revolution until we have a chance to go a little further along the path to a Natural Economy. Hugo Chavez will not oppose this process, the name of which is Dematerialism – not to be confounded with the Ideal represented by the Natural Economy.

    But HEY! – SE Wisconsin is about to miraculously rise out of the Ashes of Ruin – like a Phoenix.

    https://concernedracinecountyresidentsjustsaynotofoxconn.wordpress.com/2018/01/20/foxconn-costs-escalate-to-4-5-billion-while-wisconsin-residents-say-no-to-republican-sponsored-corporate-welfare-and-hand-governor-walker-a-stunning-defeat/

    Of course, The Hills Group claims that depletion – without securing the resources of another Planet – might result in scarcity – which will limit human beings ability – to rule a small blue/green Planet.

    http://www.thehillsgroup.org/depletion2_002.htm

    Extinction – Looms – or Sucks – depending upon your future investment in maintaining the current paradigm.

  10. Being Frank

    It is clear to me that what you have are 320m Americans all “Pursuing Happiness”. Unfortunately for most people that translates as avoiding unhappiness mostly by endless, mindless, travel, work, shopping, religion, big sports events, recreational drugs, etc. etc.

    Like a lot of people I’ve no idea how on earth I’d pursue happiness so it is probably just as well I wasn’t born in the USA as I feel I would have been committed years ago. IMO living in a world where everyone is distracted out of their minds keeps most people as small children, which of course is very convenient for anyone who might want to run the country.

    Looking into my crystal ball 40 years ago I could see it would all end in tears before bedtime as your Empire collapsed – it was always going to be entropy that brought you down in my book.

    What’s that sound I can hear? Someone is running a bath. Bedtime isn’t that far away now.

  11. Creedon

    This argument about the central banks, not lending but only borrowing seems a bit tedious. If the banks lend money to build a highway and then lot’s of folks are employed to build the highway, those said employees get paid and money goes into their pockets. Money has in a way been printed. Sure the government has to pay it back, but obviously the government is not going to pay back all the money that has been lent. The velocity of money is slowing down. Who cares whether you call it money printing or not. I would not care to be called an apologist for this system.

  12. dolf is back

    I am not trying to sound overwise with my comments. I’m simply trying to figure out why things are the way they are. Which is an important topic, right? We can debate endlessly about what will happen going forward, but equally important is asking how did we get here in the first place.

    Won’t babies being born right now have to figure all of this out for themselves in 20, 30 years time?

    So any reflective person simply must ask themselves:
    -how did America come to dominate the world, and how did everyone come to follow its model?
    -what makes Americans tick? If it’s true that America dominates the world, one must get into the minds of the actual people of this empire. This is more important right now than asking what makes Europeans or Chinese or whoever else what they are, let alone a small, peripheral nation somewhere.

    Which brings me back to the point that Americans don’t understand or concern themselves with resource depletion. It is simply not part of the vocabulary of the denizens of the current dominant empire, whether the politicians, businessmen, entertainers, cultural leaders, the average worker, etc.

    My own perspective is middle class professional and I can report that nobody, literally nobody, who swims in my circles understands any of this. It’s the good life and blue skies forever.

  13. ellenanderson

    https://entitleblog.org/2018/01/25/the-shitty-new-communist-futurism/
    I have put in the introductory paragraph in its entiry:
    Editors’ note: This is the first in a series of ENTITLE blog articles that critically engage with the ongoing discussions about “eco-modernist socialism” and “communist futurism”, projected in Jacobin magazine’s climate change issue ‘Earth, Wind, and Fire.’ Our series continues the debate with critical insights that question the foundations of these proposals. In particular, whether they imply a substantive transformation of current capitalist socio-ecological regimes, or their continuation and even expansion. The series will also feature contributions by Stefania Barca and Emanuele Leonardi.

    Why languish in despair? After decades of neoliberal cutbacks and in the face of climate disaster, something new is appearing on the horizon: the willingness to think big. With the rise of Jeremy Corbyn and Bernie Sanders, the Left has caught on to a wave of hope and humor, rejecting self-flaggelation and hand-wringing to sincerely embrace positive visions of the future. There’s a new kind of socialist futurism in the air, best encapsulated by memes like ‘Acid Corbynism’ and ‘Fully-Automated Luxury Communism’.

    What unites such visions of the future is that they do not seek to reject modernity, as is often done on the left. Rather, they fully embrace its possibilities. Many adherents view themselves as properly Marxist. As the Communist Manifesto points out, while capitalism continuously tears us apart, it also creates an awesome global infrastructure and culture that offers the conditions of its own destruction.

  14. ellenanderson

    Can Marxists ever look at ago-ecology without seeing the grumpy conservative peasants so despised by its founder? Small scale non-commercial agriculture is still viewed as a. regressive conservatism or b. primitive romanticism.
    Right now it looks to me as though socialism/communism and capitalism are still two sides of the same waste-based industrial coin. Heads or tails nature loses.
    Grumpy peasants defending their commons are not that easy to displace by the use of force alone. You have to lure them away with the promise of a bright shining future and eventually you have to keep that promise.

    1. steve from virginia Post author

      In northern Syria the Turks are promising to annihilate the entire population of grumpy peasants defending their commons, we’ll see how that one works out.

      Words on the screen do not do this generalized madness justice. An entire country has gone insane; this is beyond the reach of economic analysis (but not economics, generally as Turkey must borrow from Wall Street to fund its assault.)

      This is the problem w/ ideology in general, it shifts from being a road map to something else – to idiology.

  15. Tagio

    ellen, usman,
    I have beat my head against Steve’s wall for many moons now on this topic – that CBs only make secured loans – without getting anywhere. Steve insists that this is all that CBs do. No doubt it is what they are supposed to do in order to maintain the illusion and confidence trick of system solvency, and no doubt that that is what they will publicly state is all that they are doing (and controlling the interest rate at which this CB lending occurs), but in the absence of an audit, which the CBs do not and cannot allow, no one knows what they are actually doing except those inside the CB.

    Plus the whole point of having a fiefdom is so that one can do what one wants. Unaccountably. What organization does only what it is “supposed” to do?

    Awhile back I cited an article that pointed out that, instead of the ECB doing its usual thing of buying financial instruments of banks that had made loans to companies, the ECB was bypassing this process and buying corporate loans directly from the issuing companies – private placements. I don’t believe that the article indicated whether these were secured loans or not. In either event, it does not square with Steve’s assertions.

    The CME has a special discount rate for CBs. https://www.cmegroup.com/company/membership/files/CBIPFAQ.pdf . Why, if CBs can only make secured loans to client banks for the client banks’ financial instruments?

    Steve is definitely right about the importance of the myth of money-printing, though. This myth gives us all hope that Someone is there Who can bail us all out. The Capitalist or, same thing, Mammon Idea of God. If CBs can only save the banks by lending against their bad financial instruments at par or close to it, if that is CBs’ sole role, which they religiously adhere to, how does saving the banks save the economy? All they can save is the payment system, hardly the same thing.

    1. steve from virginia Post author

      Congratulations, Tagio, you are now the ‘Tagio National Bank’. Because you are a bank you are now free to borrow from the Fed (or ECB or Bank of Japan). In the amazing unsecured loan universe you go to the central bank and ask to borrow $100 billion … and the central bank lends it to you, just like that! You might post your own self-created bonds as collateral or you might not. In any event you walk out w/ $100 billion, to spend (squander) as you like, no questions asked. If the collateral you post is your own bonds you can simply issue more of them when time comes to repay your loan, otherwise you simply go back and borrow more … after all, without security you can do so without limit.

      ‘Steve’s National Bank’ comes in behind you, observes your transaction and asks, “HEY! Forget billions, I want to borrow $5 trillion!” Why not? The central bank ‘prints money’ so $5 or $100 billion cost the same. Ditto $5 trillion. In a no-collateral zone the cost of credit cannot matter, how could it?

      Meanwhile, the guy bank behind Steve & Tagio demands to borrow $5 billion-gazillion. Why not? It’s simply made-up zeros in a row. In the space of three transactions the borrowing regime collapses because there is nothing the borrower needs to offer to gain whatever treasure he wishes: if not billion-gazillions, how about ponies?

      In the real world, anyone (any bank) looking to borrow from the central bank must post collateral that is worth somewhat more than the amount of the loan being sought. Some ‘dynamic’ is required to keep borrowing capacity in check, something that does not require a judgement process (which would take too long). What is followed is the pawnshop model: the Tagio National Bank turns over a Rolex and borrows $500 instead of $100 billion. The Rolex is worth $600 so the Tagio Bank has an incentive to return the funds. This is accessing the discount window: it does not occur all the time, only when funds on the money markets are unavailable or too costly. During normal times the central banks only lend the amounts needed to keep currency in circulation, the discount window is closed and the governors have little- or nothing to do. Even here, the collateral for circulating money is government bonds held by the central bank. These bonds are IOUs for loans made to the government by 3d parties.

      Since 2009 the central banks been performing ongoing discount window operations, this is extraordinary but the ongoing recession is likewise extraordinary. The idea behind QE (continuous discount window operations) is to raise the ‘floor price’ of bonds high enough to maintain dollar carry trades (by way of negative real interest rates). The reason for this is the number one US export is dollar credit.

      Keep in mind, bond prices and rates rise and fall inverse to each other. Pricing bonds is a marginal business: it takes a bid but not much of one to keep a floor under bond prices (and a lid on interest rates). In effect, the central bank looks to ‘front-run’ the credit market.

      As far as saying ‘this collateral’ or ‘that collateral’ is over- underpriced is an irrelevant argument. The establishment — in this case the treasuries and central banks — are arbiters whose duty is to maintain the status quo, as such they have been ceded the final word on collateral worth. We might not like their decrees and may have good-excellent arguments to the contrary based on fundamentals and market indications, but acting out the arguments would be far more costly than the status quo alternative, nobody wants to think about bearing them at this time.

      The economy is in many ways a lot simpler than economists let on: it has to be because it’s run by gangsters.

  16. Tagio

    Steve,
    I don’t disagree with anything you say in re: the Tagio National Bank comment. I certainly am not lobbying for CBs to make unsecured loans. If I want “free” money to flow, my preference would be to argue that we should switch to sovereign-issued currency (as the Constitution provides) and the MMT understanding of money. That way, politicians can decide who wins and loses, instead of banks (or just banks) via their credit making decisions. Won’t that be awesome?

    I appreciate your explanation that the CBs have the final say over the value of collateral, and no one wants to worry too much about whether their collateral valuations are spot on because it’s all about saving the system. Great insight and comment, I never thought of it that way. But that doesn’t mean I, personally, have to accept this as reality because the CB says so, anymore than I have to agree with the Plessy v. Ferguson (separate but equal) or Korematsu v. U.S. (Japanese internment) Supreme Court decisions just because the Supreme Court is the final word on the Law. Despite the reality; (that) we as a society are just going to go along with it for a few decades (for the sake of System Integrity!) until the evolving societal Overton Window permits the view they espouse, at which point actual real justice can be done or recognized, because the Supreme Court is a reactive institution, and only progressively leads if they are talking about something systemically inconsequential, like the Constitutional right to buy condoms.

    Land of the Free, baby!

    My only point was that we don’t know what, if anything, CBs are doing in addition to making collateralized loans and setting discount window borrowing rates, and I expressed extreme skepticism that the CBs are actually adhering to the limits of what they are supposed to do, including two data points that suggest that they are not. I really don’t like it when you say that CBs can ONLY do 4 things. You mean, maybe, “can only legally” do four things? Or they can only do four things if they want to maintain their legitimacy and power.

    (Edited)

    1. steve from virginia Post author

      The system’s customers eventually come to their own conclusions about the commercial banks as well as the central bank that intends to backstop them in an emergency. It takes time to figure out the solvency of the whole. Fakery is built into the system, to keep the customers quiescent, this is made easier because the customers generally want to believe, they don’t want a rocking boat.

      Central banks have convinced a lot of people they are powerful, but that power lies in the convincing rather than their operations as reserve bankers. The central banks advertise the system when they hand out those discount window loans. Ultimately, you can believe in them; you can hate them or rail against ‘market manipulation’ but by doing so you are believing in them and giving them power they really don’t have.

      Everyone hates the devil, few bother to ask, “What IS the devil”? By not asking, the devil takes monstrous form and gains potency within the people’s imagination. When enough people ask, they discover there is either no real devil or some devil in every person, hating a myth or everyone is a waste of time. Asking the question by itself is like turning on a light.

      The sound you hear in the background is narratives ripping apart and crashing down; people are asking and turning on lights which accelerates the process. That’s why it will be hard to pull out of the dive when the big asset price ‘bubbles’ start to deflate. The internal narrative logic that supports the status quo is already too compromised.

      1. Eeyores enigma

        Steve – Your comment implies that participants in the banking/ finance fandango want to, or are concerned with the truth or reality. The opposite is truthier. Everyone wants the lie. Everyone does everything they can to perpetuate the lie. They want desperately to passionately love the lie. Give them even the smallest excuse and they will become born again invested in the lie…… and make billions in the process but the way.

        Nothing in banking/finance works like it should.

  17. ggodmuls

    Conservation Sells – But who’s Buying?

    State legislation that provided the incentives also exempted the company from a variety of environmental requirements, such as disturbing wetlands and building in stream beds, that other companies have to follow.

    But the company must get approval for air, wastewater and storm water permits — and approval to tap water from Lake Michigan.

    The first, 128-page application from an affiliate, AFE Inc., for an air permit indicates Foxconn will start with the construction and assembly of flat-panel displays, including televisions. Later, it will proceed with a fabrication plant and a glass manufacturing plant.

    Company officials have said it plans to have the flat-panel plant up and operating by January 2019.

    DNR spokesman Jim Dick said the agency hopes to complete work on the first air permit in April. Before then, citizens can file comments and ask for a public hearing.

    Together, the three plants will produce enough air pollution to qualify Foxconn, in regulatory parlance, as a major source emitter. As a major source, the company must install air pollution control equipment that costs more and removes more air pollutants than other control equipment on the market.

    Foxconn says it will produce gases such as nitrogen oxides and volatile organic compounds, which are sources of ozone pollution. Ozone is primarily a summer problem.

    The plant will also produce particulate pollution — tiny particles that are smaller than a human hair that can cause respiratory problems.

    Foxconn will also produce carbon dioxide, a greenhouse gas, and must limit emissions of CO2, according to the DNR.

    The company has faced criticism for its environmental record, especially in China.

    https://www.jsonline.com/story/news/local/wisconsin/2018/01/29/foxconn-provides-details-first-environmental-permit-request-submitted-wisconsin-officials/1070747001/

    In addition:

    Over the last 20 years, Racine has lost one quarter (nearly 7,000) of its manufacturing jobs. Due to this loss, Racine has seen a 47% decrease in its industrial water sales. In 1995 Racine sold, on average, 22.1 million gallons of water per day. By 2015, Racine water sales had dropped to an historic low of only 13 million gallons per day.

    The City of Racine’s application for water diversion is a signal of the return of manufacturing jobs to the region.

    https://www.foxconnracinecounty.com/single-post/2018/01/30/Racines-Water-Diversion-Application-Signals-Return-of-Manufacturing

    The question now is if this projected increase is achievable, sustainable, and at what ultimate cost.

  18. Tagio

    https://www.commondreams.org/news/2018/02/01/latest-giveaway-polluters-trump-epa-suspends-clean-water-rule
    We have clearly arrived at the point where all of the protections enacted while cheap-to-get energy and ores were plentiful are going to be reversed in an effort to maintain profit margins and stock returns in industries that have fewer and fewer full-time employed customers and customers with ever-shrinking incomes, also as a result of squeezing labor ever downward to maintain profit margins and stock returns.

  19. Creedon

    There is one difference between the finances of the average Joe and the Federal reserve. Our finances are a public record and the Federal reserves finances are not. A lot of problems in our world are due to the lack of transparency. Witness the controversy over the Numes memo. Witness the lack of transparency over a huge amount of what occurs in government and the military industrial complex.

    1. steve from virginia Post author

      Both. The Fed would be a conduit between finance and … (wait for it) … finance! Left hand to right hand, like Three Card Monte!

      I always thought TARP was funny b/c the money the Treasury handed over to the banks to bail them out was borrowed from the very same banks!

      Where else would that money come from? The US government didn’t have a room full of cash somewhere, it would have been looted already.

      🙂

  20. Eeyores enigma

    Steve – I really appreciate your patience with all of us on the central bank thing. I for one am having a real hard time wrapping my head around it.
    Perhaps one way to illustrate would be to explain what would happen if we didn’t have a federal reserve, how would it be different?

    1. steve from virginia Post author

      We can look back and find clues:

      In 1907 there was a money panic that grew out of the failure of the Knickerbocker Trust in New York City. The causes would be familiar to anyone in finance today: an attempt to corner the market in a copper company’s shares, an unregulated share market outside the NY Stock Exchange, a failed short squeeze followed by a drop in the target company’s share price followed by loss of confidence in the entire banking system. Depositors had good reasons to remove their funds from accounts ‘at the drop of a hat’, if they were too slow they could lose everything.

      Other important factors were rising interest rates in the UK, (the world’s credit provider at the time), regulatory constraints on railroads, the Teddy Roosevelt anti-trust initiative, a general decline of business during the period, the great earthquake in San Francisco in 1906 and the unregulated supply of currency that rose and fell with the seasons – America, after all, was largely an agrarian nation with bits of industry here and there.

      Read about the Knickerbocker panic on Wikipedia!

      Without a lender of last resort, banking troubles propagated rapidly through the entire system as ‘difficulties’ w/ one bank suggested similar problems in others. Over the course of a couple of weeks following the collapse of United Copper shares on October 16, 1907, brokerage houses, trusts, speculators, state banks and insurance companies were emptied out of funds, meanwhile, currency needed to bid up price of plunging assets vanished from circulation. As a result, dealing with panics was often a game of ‘whack-a-mole’ as emergencies followed in regular procession: one failing company causing other failures with creditors and customers alike.

      The panic began to recede after JP Morgan organized trust- and banking executives into a quasi- central bank that worked with the Treasury to float funds to institutions in trouble. Famously, Morgan locked trust company executives in his famous library until 4 am on November 3d, until they agreed to kick in the $25 million needed to bail out weaker trust companies, to meet depositor demands for funds, to prevent the ongoing runs from destroying the entire system.

      After the panic subsided, Congress and the other bankers complained of Morgan’s outsized influence, both Treasury officials and Morgan himself agreed that the current public-private cobbled together lender of last resort was both unwieldy and inadequate. The country’s finance system was becoming larger and the demand for funds in an emergency was increasing beyond what the private sector felt comfortable providing on a patchwork bases. Over the course of a few weeks banks and the Treasury had nearly run out of money! It was deemed better for the US to have a central bank that could provide funds to banks on demand, to manage panics or prevent them from occurring as well as even out the money supply.

      In addition, a central bank would allow the dollar to to compete with the British pound as reserve currency for the US to accompany (or supplant) the UK as a credit provider. In addition, the Americans could look forward and see the increased likelihood of a big European war. The combatants might include the US: we would need money and lots of it: the Treasury would be given more power including the ability to collect income tax. A new central bank would help assure the government could be supplied with funds as needed.

      Because the tendency of all creditors is to become insolvent (Minsky). the banking system suffered without a designated lender of last resort. After the Civil War, the US had been visited by a series of destructive panics and depressions. A central bank would act as a governor on the flow of funds, mandating that all the banks possessed enough reserve outside their own vaults and accounts to withstand a demand for deposits.

      To see what would occur without a central bank it is easy to look back, to imagine a regime of bank uncertainty and periodic runs. A central bank also facilitates foreign exchange: to gain- or maintain a trade advantage a way to ‘sop up’ excess foreign reserves or distribute them is necessary. Until it fell apart, that bastion of Communism the Soviet Union had one bank: a central bank to manage foreign exchange.

  21. Creedon

    Sorry, I meant for the above to be a link. In the article Mish Shedlock, cynically suggests that the bank of Japan buy 100 percent of the bonds, cancel all of the debt and then start giving out money to citizens as it seems to be impossible to destroy the currency or to create inflation.

  22. Creedon

    In a way Steve, it seems that you are always arguing that the system is legit, even though many of us out here in the hinterlands think not. If all the central bank does is give secure loans why is it that they can not allow their books to be audited. If all the central banks due is give secure loans, why do you yourself call them gangsters. What is gangster about providing secure loans.

    1. steve from virginia Post author

      Central banks are system regulators. When they allow commercial bankers commit crimes they are complicit.

      As for audits: think of a central bank as a kind of pawn shop. Not too complicated: the risk of an audit is that it might demystify central banking and reveal the managers as both ordinary and phony.

      … like the Great and Powerful Wizard of Oz!

      https://www.youtube.com/watch?v=NZR64EF3OpA

  23. ellenanderson

    Hi Steve – FYI my browser tried to stop me from viewing comments by saying that your “certificate expired” on February 17th. I was able to override via “an exception” whatever that is.

    1. steve from virginia Post author

      I got the same message … then it went away.

      I dunno, I’ve had my issues w/ the current web host, maybe it’s time to look elsewhere.

      W/ Google it was the constant accusations of being a spammer. There wasn’t a real spam problem though.

      W/ WordPress it’s the constant fiddling, adjusting and upgrading. There has also been a massive spam problem. Ugh.

      Now there are security issues (and finding the time to write which has nothing to do w/ WordPress). Maybe I should go somewhere else. I need to do a refresh of the whole thing.

      Meanwhile, I’m moving so that is an incredible distraction.

  24. ellenanderson

    I wonder whether anyone is discussing the environmental consequences of our constant wars. I see the battles and the body counts but I wonder whether anyone is documenting the resources that are being consumed, the water that is being wasted and the non- human species that are suffering. The banksters, the central banksters and their usurious activities enable all of this to continue.
    Suggestion for the Undertow book list: Charles C. Mann’s new book ‘The Wizard and the Prophet’ published in 2017 traces the intellectual history of the environmental preservation movement vs the technological utopian movement through the 20th century. I highly recommend this book.

  25. ellenanderson

    Yes – Steve Kinzer’s ‘The True Flag’ is another mainstream author whose work is very accessible. I have it and Mann’s books on Audible to spare my eyes.
    Are you going to be more rural? Hope the move goes well.

  26. Creedon

    The wizard has become very huge, very complex and hugely divorced from reality. I don’t really buy what Steve reads in
    his books. To just say that the Fed issues secure loans does not get it for me. As long as the Fed does not allow anyone to view their balance sheets the whole discussion is academic. The credit bubble is getting old and weary and a little more volatile and absolutely nothing is to be trusted because they want it that way.
    Because Russia now has weapons to counter our attack on their country one would think that the American military industrial complex would have to back off a bit. Yesterday’s news said that we were stationing an aircraft carrier in Vietnam to posture against China. The worlds powers seem to have grown up enough to not destroy ourselves, at least not yet. If the wall street debt system can not find new ways to grow, (issue secure loans) in Steve’s language it will have to begin collapsing.

  27. ellenanderson

    @Creedon Do you listen to podcasts? If so, I suggest the most recent podcast from Jeremy Scahill at the Intercept. He has an interview with a professor from the U of Wisconsin discussing our current foreign policy.
    My internet went down for a day or so and I was forced to rely on NPR and worse for news. It made me realize how their intellectual level has fallen. The variety and diversity of blogs and podcasts emphasizes the dreadful and dreary results of the corporate take over of our mass media. We could have had so much better. The FCC let us down for sure.
    For the moment, on the internet, we have a wide choice of books, podcasts and blogs. Otherwise we get Fox, CNN, and NPR. I, for one, am grateful that Steve and thousands of others are willing to share their thoughts and research with us for free.

  28. Creedon

    I appreciate your comments Ellen, and I also appreciate Steve’s efforts to maintain a forum where truth is pursued. It seems that the information we are getting is more and more suspect and hard to trust all the time. It’s either, try to glean what is going on from the corporate press or listen to the anti-corporate voices on the internet which can be hard to trust also. I’ve heard that the CIA hires trolls to mess with internet web sites or media shows that would voice truth or opposition. They have unquestioned control of mainstream voices like CNN, the New York Times, NPR and the like. I learnt to distrust the world when I learnt a bit of what happened on 911, however to say anything about it puts one in danger. The world trend is probably moving more and more to right wing tyranny. Witness the Italian elections for example. Unions are being destroyed. Good paying jobs are being destroyed, while the stock market sky rockets and the masses living paycheck to paycheck and on credit cards are brain washed into believing that the world economy is doing great and all the workers are getting rich. Where is hope, sanity and truth located exactly.

  29. Creedon

    There should be a list of websites that actually tells the truth. I would say that the Credit Bubble Bulletin is fairly good. What I am currently seeing is that what we would view as collapse is actually going to be a sea change in the credit system. It may be that contrary to the wisdom of the last ten years the central banks are reaching their limits world wide. Consumers are reaching their limits world wide. Wall street has not yet figured this out, but it is probably why we are seeing the beginnings of volatility. The central banks are going to have to begin to control debt. They have maxed out, so to speak. Consumer lending is maxing out and the default rate is increasing. I think the default rate at small banks may be
    7.2 percent or there nearly so. As the reality of all of this sets in there will be a new reality in the world that will evolve. It will be called austerity. The world will more and more realize that the world is not it’s oyster and actually as this takes place the world will get meaner and meaner; more tyranny; more right wing fanaticism; more cut backs and poverty of all kinds. As the austerity increases there will also be options that previously would have been unacceptable, but because of increasing poverty will be more and more acceptable. Welcome to the world of the 2020s.

  30. Eeyores enigma

    From my observations and research of central banks;

    Central banks (CBs) actions follow the economy more than leading it. When the economy is on an up-tic CBs goose it a bit with lowish rates but only when the potential for growth is obvious and will therefor easily absorb debt. Once the economy is really rolling along they can raise rates steadily increasing the profits for lenders and shareholders. They can actually be fairly aggressive with this “goose and reap” process because hey…”it’s only money”, especially when potential for growth is massive as it has been in the past, “the hay days” and in the end the winners end up with the assets anyway.

    This system has worked extremely well and enriched many for over 60 years with only a few temporary glitches.

    All of this changed with Peak Everything and the end of growth. Now all the CBs can do is create bubbles in areas where infinite growth are assumed to pop-up but it is still the “goose and reap” only within a very narrow subsection of the economy. There was some talk in the beginning of the end of growth that the only problem was that everything will be more expensive so get more money out there to the public and they can afford the future, “the new normal”. The problem is that the CBs are highly limited in their ability to get money out there. They tried for a while to tie all 401Ks to the stockmarket. That failed for various reasons then lehmans but just think how much money CBs have pumped into the stock market since then, that would have been quite a goose and been spread a lot wider. CBs wish they could create inflation but try as they might it only goes to 10 to 20% of the population so no more “goose and reap”.

    Without acknowledgement of end of growth all CBs can do is fan the flames of massive inequality and trick the general public into believing that growth is right around the corner so they go even deeper into debt.

    Trump admin believes the only limitations to growth are those imposed on ourselves through Gov regulation, remove that and growth happens. Unfortunately an awful lot of the gen pop believe him and CBs are saying sure, give it a go, if you fail then the crash is on you instead of on us.

    Just some random thoughts.

    Peace out!
    Jef

    1. dolf is back

      Interesting to see the comments still going on here. Yes I check in from time to time. Yes, most of our money comes from private bank lending, and if need be, the central banks can act as the lender of last resort.

      What this means: we will never run out of credit, or the flip side of debt, in any major currency. There will never be debt write downs or restructuring at any significant level.

      So what will happen? Basically, at some point in the distant future, and nobody knows when…could be next year, could be decades, but my vote is on 2030s at earliest, and beyond 2050 is possible, the entire world will undergo terminal inflation. They will keep the credit spigots open, even as all resources are in depletion. What will happen to you? You will be old, broke, your money worthless, and there won’t be much in the way of good energy to be extracted. People will just die and die and die….children, adults, elderly, doesn’t matter, until our species reaches some sort of new post industrial equilibrium, and by that point there won’t even be a global credit system anymore.

      1. Eeyores enigma

        Dolf – I think it is a big mistake to assume that since debt creation in all of its latest manifestations has put off collapse that it can go on for several more decades.

        I have yet to hear of one single plausible scenario/mechanism that generates inflation on an economy wide basis. This would mean that the average citizen would need to increase their debt load 10 times…20 times…100times.

        Not going to happen.

  31. ellenanderson

    @Dolph
    I guess that is called “letting nature take its course.” Something like that must have happened long ago or the desert religions would not have considered usury to be a mortal sin nearly equivalent to murder. Allowing debt bubbles to blow up will lead to the destruction of the natural world and current civilization on a massive scale if you are correct. If you borrow from the future too heavily at some point it simply ceases to exist.

  32. Creedon

    You all should read Paul Craig Roberts latest blog. Inflation is not 1.5 percent as the government statistics would have you believe. Unemployment is not 4.1 percent. Approximately 62 percent of us work. What is happening is that 30 years of lower and lower interest rates is beginning to reverse. The interest rates are reversing because we are maxing out on debt of every kind and on every level world wide. I did not think this was possible but it is happening. It is going to take some time for this to sink in with the world wide culture and people like Dolph, but it will. Interest rates of 4 percent are going to take a toll on government, not to mention the stock market. At the same time we are seeing greater and greater creeping inflation. The inflation data is not reported because the press lies about it. They lie about just about everything by the way. People actually believe that we are in a booming economy because we are told that we are. What most people are doing is working pay check to paycheck and accumulating increasing amounts of credit. As wall street investment begins to draw down and inflation continues the pressures on societies world wide will be enormous. Hint; the earth can not actually support 7.5 billion people.

  33. Eeyores enigma

    Creed – first you imply inflation is much higher than reported and increasing then you imply that more and more people have less and less money.
    Which is it because you can’t have both. Inflation is and will always be increasing amounts of money chasing finite goods.
    There are two ways price increases for something, more and more money being available to people to purchase that item so the price can go up (inflation), or the amount of money stays the same but less and less of that item is available to buy so it becomes precious and expensive (scarcity). Two completely different dynamics.

  34. Creedon

    Eeyores: that is to say that there can be either wage or price inflation or both, which is to state the obvious. To state the obvious, there has been wage and price inflation since the inception of thee country, since the inception of the federal reserve, since the inception of industrial world, whatever. John Williams says that the price inflation rate is at about 7 or 8 percent, contrary to the 1.5 percent rate that the government states. It would probably be price inflation that I’m currently seeing. I recently paid 46 dollars for two wiper blades for my car; anecdotal evidence, but still 46 dollars for what would have cost 10, twenty five years ago. Health care, education, rent, housing, all these costs are inflating, but as long as you listen only to the national press your not going to see it.
    Wages are a little more difficult. The incomes of the top 1 percent are inflating. The incomes of the top 10 percent are inflating. The stock market is inflating. Are the working poor getting poorer, absolutely. Are their wages inflating compared to 40 years ago, yes. Most importantly debt is inflating astronomically and that is beginning to get us. I did not think that there were limits to debt, but it would appear that there are. The current system is essentially inflationary. In a great economic crises things may begin to deflate, but we are not there yet. What I see is that we are on our way.

    1. Ken Barrows

      Taibbi is an excellent journalist, although IMO, David Ray Griffin cleaned his clock in a 9-11 discussion.

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