Jonponwon

Obama: Rush to Judgment

Financial stimulus, increased borrowing, and continuing bailouts cannot wok. The math is against them. To get a grip on the situation, and to understand what is possible, we need to grasp the extent of the problem.

World GDP is $54.35
World debt is $51.78tr
World debt is 95% of world GDP

GDP in the G8 countries + China is $34.78tr
Debt in the G8 countries + China is $43.5tr
G8 + China debt is 125% of their combined GDP
This amounts to 84% of world debt
That means that the total debt of all the other hundreds of countries is a mere 16% of world GDP

The GDP of EEC countries is $16.71tr
The debt of EEC countries is $40.37tr
EEC debt is 242% of EEC GDP

Total value of world immovable property is estimated to be $75tr
Total value of world stock and bond markets is about $100tr

BIS (Bank of International Settlements) 2002 valuation of world derivatives was approximately $100tr
BIS 2007 valuation of world derivatives was $516 trillion
Given a world population of 6,725,706,900 every man woman and child in the world bares a share of derivative debt alone equivalent to $76,721
World GDP, property, and stocks combined are worth less than half of world derivatives.

Since derivatives are worth more than twice the value of world assets, it is quite clear that derivatives have no real meaning in the world of property and finance. They are the proceeds of gambling, by men and women who became obscenely rich in the process. The proper places for gambling in the western world are licensed casinos and gambling joints, not the financial markets. Gambling outside licensed premises is illegal and the debts unenforceable.

(1) Derivatives are the stuff of toxic assets and the shadow banking system of securitized debt and off balance sheet transactions, more properly called organized crimes against the peoples of the world. They must be swept away completely in the current crisis. And it can be done, though it will mean that the credit contraction is likely to be more severe than otherwise anticipated. But that is the price we must be prepared to pay for to free ourselves from this curse forever. Remember, also, that the alternative is the total collapse of our banking system. It may be that the curse will live on in other jurisdictions, and it may even come back to haunt us as a spectre from time to time. Nevertheless, it must be barred in the US and UK We do that by making the judgments of foreign courts based on such debt unenforceable in the U.S and U.K., and we statute bar actions on such debt in the courts. These financing techniques must become extinct in this jurisdiction.

(2) It is quite clear that the debt due under the derivatives can never be repaid; the numbers tell us that. The governments of the world combined could not pay it. No attempt whatever should be made to pay it; it must be dealt with as set out in (1).

New Mark-to-Market Rules: Playing Pretend

It is difficult to know why the only rational option is not being followed. The derivatives out there may exceed $500tr, which is many times the total value of world assets. They are not financial assets or documents, they are gambling debts, and they should be treated as gambling debts are in the western world - unenforceable. By legislation they should be made unenforceable by any American Court, and foreign judgements arising out of such debts should be barred. Only when these toxic assets are out of the way can any fiscal action be meaningful. What is the point of a quantitative easing of $1tr if the debt out there is actually $500tr. NOTHING but this logical solution can end the crisis

An Economic Nightmare Before Christmas

Peter is, of course, quite right. The US $ has long been the world's reserve currency and the east has not yet truly realised that the centre of gravity of wealth in the world has shifted to it. The result is that a herd spooked by a pride of lions has taken off in a familiar direction (dollar territory) without realising that it is a path that leads to a cliff.

The truth of what Peter says can be judged against events on a smaller scale, those now taking place in the UK. There the until recently phenomenally high flying pound has plummeted to earth as a result of a fiscal stimulus conceived in an economic madhouse, and which threatens to raise debt to £1tr within a year. The UK government is making debt the country cannot hope to repay without hardship that a democratically elected government will not be able to impose. It raises the spectre of nothing less than dictatorship. If we are fortunate (a word I use advisedly) we will get a Pinochet who will restore the fortunes of the commonwealth. If not, sic transit gloria mundi, and the UK will follow the Ottoman Empire into international obscurity.

The UK 's ill-health is so severe and its depth so unrealised that it has not even been diagnosed. Its manufacturing base accounts for a mere 18% of GDP and the country relies on invisible (and illusory) exports like financial services to bolster the economy. Since its entire banking service almost totally collapsed recently, none but the bravest will rely on it for a long time to come. The result is that the UK finds the pound without friends and it has sunk to humiliating lows.

The UK is probably now in irretrievably bad economic health and must be regarded as the sick man of Europe, a desperately sick man, who will live on as a severely handicapped invalid. And all because it has already done what Peter is trying to prevent the US from doing.

Why Bailouts Are Not the Answer

What makes it all worse is that Bernanke has now got the printing presses running to 'monetise' America's debt because they've lost control over credit. Has no one in Washington heard of the South Sea Bubble, the Weimar Republic, Argentina or Zimbabwe? In the light of all this one can only marvel at the strength of the dollar and the gerbils at international economic helms.

Obama Summarizes Economic Policies, Misses Several Key Points

You and Obama have the same goal in mind - re-starting a cycle of growth that will make Americans rich. You disagree only on how to get there. Both of you believe in an illusion. The planet cannot take any more getting and spending. It's all over bar the shouting.

Fed Watch: Starting the Year on an Ugly Note

Your article highlights three areas of importance. The first is the illusion of a global economy. That is one of the most potent reasons we are in the economic mess that surrounds us. The global market must be seen for what it is – a scam by the greedy and powerful to make more money. The idea was to move manufacturing away from places where legislation made it expensive to be, and into areas of cheap labour. Those who did so stood to benefit from cheap labour in the manufacturing economy and expensive sales into the American economy. The ruse worked for a time because the expensive US sales were nonetheless cheaper than the prices would have been if the goods had been manufactured in the domestic market. The real benefit was to the domestic economies of Asia. The US had to borrow ever increasing amounts of money to pay for the manufactured goods so that the benefits flowed out of the US domestic economy and into the domestic economies of Asia. I defy you to point me to a model of a global economy. There is not such thing. There is only a gigantic fraud perpetrated on the people of America, whose personal cupidity meant they greedily embraced the concept of cheaper goods without understanding what it meant for the domestic economy.
The second is that a fiscal stimulus is needed to get the economy going. Are economists and politicians totally divorced from the real world? Do they not understand what is going on here? As the saga of what happens unfolds, Americans are beginning to see that their entire economy is based on the smoke and mirrors of the Wizard of Oz. Their money is worthless because it is backed by nothing. Their wealth is fictional because it is locked up in investments that have sunk into a pit, or is in property which in many cases is worth less than they paid for it. Their economic pre-eminence in the world is a chimera, for all they have to show for their leadership is a national debt of $13tr+ which Mr Obama is proposing to grow by another trillion or more. And when they ask what the way out of the mess is, they are told “Take on more debt. Spend more.” They might have been duped in the past but they have had a shock like none ever before administered to them. They have awoken to the horror of their situation and they are not going to fall for ‘easy options’. They have gotten in touch with someone deep within them who cannot be fooled. And that is why fiscal stimulus will not work – not in the US and not in the UK. These politicians and economists fail to take into account the psyche of the people. And the people realise their life is based on a lie and they are not about to be fooled again any time soon. We need a new model of political, economic and social life. Obama saw that change was needed, and so did the people and that is why they gave him a chance. But for the time being at least it seems like he is offering nothing but more of the same.
The third area of importance is related to the two others: it is the role of government in our lives. Over the last three decades of the 20th century there were politicians who realised that government was the problem and they promised to take the axe to government. They lacked the ability. The people were ready for it, but the power-possessors were not and the power possessors won. We need an entirely new model of government, which reduced it to a wraith of what it now is.
Economics and politics do not exist in a vacuum. They grow out of the society of which they are part. We need a new model of society – the elimination of the feral, the building of worth-while values, a struggle to the death with pride and greed and vanity and self-love and all the ‘celebrity’ values. We need a moral rebirth. Will it happen? Extremely doubtful! Instead we will sink into a morass in which we will be submerged.

In Madoff We Trust

A brilliant analysis, and something I certainly did not think of. even though I knew that here in the UK the Government is operating a civil servants' pension fund it can never hope to finance in a few years time. And why? I now realise it is because of the Madoff principle. Moreover the Government is as culpable as Madoff because it knows it can never hope to fund these pensions. Collectively they belong in gaol. What is more they do in fact do it to enrich themselves. Is not their re-election by a duped populace a form of enrichment?

The U.S. Economic Stability Plan: Glimmers of Hope Fading

Everyone seems to see what is happening as part of a cycle. No one seems to realise that they have never seen anything like this before and that it has not happened in our historical period. Does no one realise that we are witnessing the death throes of centuries and even millennia of culture and civilization?

Making Sense of Bond Yields

Thank you for a helpful article, but as I see it the problem of value goes deeper. If the Fed goes the route of printing money to buy Treasury debt there will be hyperinflation and all the bonds on the market will become valueless. Enter this market with caution.

Why Bailouts Are Not the Answer

Chairman Bernanke has said he may use less-conventional policies, such as buying Treasury securities, to revive the economy, and "that is going to help the U.S. to be the first major economy to recover from the global recession", enthuses one of the experts. Bernanke can only buy Treasury securities by putting the printing presses to work. Has no one heard of France when the South Sea Bubble burst, the Weimar Republic after World War I, Argentina after the Falklands, and Zimbabwe? With all this in the pipeline it beggars belief that the dollar is so strong and says little of the pygmies at economic helms worldwide.