6 replies to this topic

[mannfm11]

This is in response to something Soros wrote:  Soros doesn''t even hint at the truth.  

I keep seeing things that just don''t make sense. Our problem is a worldwide debt bubble. The idea is being blamed on the US, but the bubble is global. The US made the mistake in the mid 1990''s of letting its Government sponsored mortgage operations run rampant, then Robert Rubin decided to swing US trade overseas, enhancing the stock bubble in 1998. All policy makers are making the mistake that the way to solve a debt bubble is to keep it from collapsing. The problem following the healing of the debt bubble is we still have a debt bubble. They aren''t going to fix this thing because in order to keep it intact, we have to return to the era of subprime financing and lending money and capital to areas where it cannot ever be paid back. Keynes said in the long run we are all dead and we have reached the long run of this current economic system. The rich need to lose their assets, the poor and other rich need to default and the governments of the world need to concentrate on the structure of the next credit system. As much as I hate to admit it, the idea of insured private banks is probably a thing of the past. The gold standard worked on a national basis, but not on an international basis over the long run. Socialist governments are so pain adverse that problems in finance are never solved.

The public needs to be educated as to how banks work. I believe that if they were, banks probably wouldn''t be allowed to exist as private, but public institutions. Mr. Soros knows how banking works, but gives not a hint in his article how it works. He is right that over the short term, the capital problem could probably be fixed with $500 billion, but banking would quickly consume the wealth of the world. Banking is as speculative as investing in stock and both are closer to zero sum games than their proponents propose. Generally the more speculative one becomes, the more speculative the other becomes. There is a huge link between the inflated level on the stock markets around the world (todays prices aren''t beaten down, but in regard to the US market, still at a long term record level in comparison to past markets, including 1929)and speculative lending. Mortgage lending was made speculative through the GSE''s then through Wall Street and hedge fund speculation. There were 25 people that made near $1 billion last year running hedge funds. Is there something wrong with that picture?

The problem that isn''t being faced is we have created a modern Mississippi, John Law bubble. The only way to keep that bubble in one piece is to go back to the speculative lending we are passing the buck to in the first place. The problem wasn''t the speculative lending, but in reverse. The speculative lending was the solutioun to a system that had run out of collateral in the 1990''s. What we are trying to do now is pay ransom, but remain in the hands of the kidnappers with a promise from them that they won''t beat us up for a period of time, but only for that undefined period.

I would like to say that I could pinpoint when this mess started. If one wants to look for an event, the Viet Nam war would probably be a good place to start, but it really only accellerated a process put into motion after WW II. The GSE activity and the Rubin bailouts around the world probably only accellerated the tech bubble and the subprime crisis. Any politician worth his salt knows that creating a financial bubble is the way to appear prosperious, but those that have had to clean up after the bubble remember the ramifications of a bubble. Our problem is that the politicians that had to do the cleanup are all dead. The S&L bubble of the 1980''s was blamed on crooks, but it was nothing more than an early echo of what we have now.

[cobben]

"The gold standard worked on a national basis, but not on an international basis over the long run."

You are generally mostly right I think, but not in this particular:

The ducat is a gold coin that was used as a trade currency throughout Europe before World War I.

Ducat

The first issue of this coin is thought to have been under Roger II of Sicily, who, in 1140, coined ducats bearing the figure of Christ
.  .  .
Ducats became a standard gold coin throughout Europe, especially after it was officially imperially sanctioned in 1566. The ducat remained sanctioned until 1857.
.  .  .
The production of ducats as trade coins continued after World War I by some nations, namely Czechoslovakia and The Netherlands.

[5to12]

actually, the commercial revolution was very much more dependent on bills of exchange (some of which became negotiable) than physical coin.

[bearking]

borrow and spend has met its end.

[WANBLI2]

This post will most likely be seen as financial and economic heresey and not readily believed because interest rates are so intermeshed with fiat money policy, that interest rate manipulators loose sight of its capital destruction power. Regardless, here goes.

Interest Rate Variability Increases Risk & Destroys Capital

In a fiat money system there is no redeemable standard of value for money or credit and the velocity and quantity of money is ‘supposedly regulated'' by interest rate changes. Changes in rates of interest have direct and immediate effects on the value of currently issued financial assets. Rising interest rates force bond values to fall, and falling interest rates forces bond values to rise. Variation and instability, as opposed to stability, in the rate of interest in turn directly destabilizes the value of underlying capital. This is the greatest cause of the present US centered and growing global financial crisis – NO PREDICTABILITY IN INTEREST RATES..  

Interest rate instability (rising and falling cycle of interest rates), opposed to stable rates, cause capital destruction. Many people even many economists falsely believe when the FED reduces interest rates new wealth is created. A big mistake.

Interest rate variability increases RISK in the financial system because any current change takes effect immediately on newly issued debt instruments, but all outstanding debt instruments are disproportionately equally impacted.

The US has been in a declining interest regime, a dampened oscillation pattern the past 30 years.  
(http://www.icmarc.or...erestrates.html )
and this means greater amounts of higher liquidating value of outstanding debt already deployed continually lags behind the next round of interest rate decreases.

Downward trending interest rates diminish capital, as this increases the liquidation-value on the outstanding earlier contracted debt at higher rates. Increased debt service is due to the fact that debtors with outstanding prior debt can not or are not readily able to refinance at lower rates. Ergo the long-term debt payer for myriad of reasons, cannot automatically refinance the debt and continues to remit the maturing debt payments on outstanding debt at higher fixed payments relative to falling rates of interest. This leads to capital deterioration.

In excess of 50% of the US wealth is held in real estate mortgages and substantial numbers of the debtors do not or cannot easily refinance at the falling lower rate of interest. This causes impairment of the capital holders of real estate As capital impairment worsens bankruptcy deepens.

Capital holders are advised to make up for losses of capital due to falling interest rates. But they don''t or maybe they can''t, due to the time and cost to renegotiate the debt terms. Rather than reducing the nations borrowers exposure to capital impairment by reducing new cheaper credit expansion the opposite occurred, banks expanded borrowing..

Risk reduction falacy

Opting out of stable interest rate policies and disregarding the effects of long-term downward fluctuating interest rates and consequent capital deterioration driven by expanded borrowing, has driven all debtors (banks not excepted) to seek other forms of deluded risk reduction behavior no matter how illusive and deranged – securitization, derivatization, credit default insurance, off-balance sheet financing, unregulated credit creations, etc. Such misguided synthetic credit creation schemes are not substitutes for predictable stable constant interest rates. Increased risks introduced into financial capital markets by fluctuating and unpredictable interest rate policies have been created by the Central Bank actions the past 30 years. Values of bonds, mortgages and debt and their underlying assets have all been destabilized and there is no derivative vehicle that can offset the risk of this interest rate destabilization.

The current major nations monetary system authorities are operating under the false assumption driven by a fiat money system, with no standard foundation of value, that they can control economic financial affairs by manipulating interest rates. This has absolutely no basis in fact, but is taken a matter of faith where no objective proof can be offered.

What is needed is stable and not fluctuating interest rate policies. Of course such policies will reduce certain sectors of the economy from being able to profit from such delusional behavior, ie. investment and some commercial banks. But the cost of not reducing such calamitous behavior is unthinkable.

[mannfm11]

CApital is the question on one end, but the interest equation is the other question and it is the stronger answer.  Soros makes no mention of the credit bubble, because he is a banker and people are supposed to not know how banking works.  I believe we eventually run into the international problem we had in the first Great Depression, which will actually cause a change in behavior in the US and turn us into savers and collapse the rest of the world.  There are a lot of paradoxes in times like these and you need to look at form and forget statistics.

[Pulp_Cutter]

Like the statement that Clinton, Rubin & CRA were, in the 1990s, somehow responsible for the banks, in the 2000s, taking on 30 & 40/1 leverage.  WallSt''s wild party took place under Bush 2000-2008, who (obviously) appointed the Treasury secretaries & the entire current Federal Reserve board.  The GOP had majorities in both houses of Congress, 1994 - 2006.  To imply that the CRA & Rubin''s actions had even minor causality, compared to the credit orgy that''s taken place under Bush, is naive.

The simple facts are that govt got smaller (fewer employees) under Clinton, crime went down, employment was up, and Clinton ran a surplus.  Argue with his bookkeeping if you like, but compared to Bush keeping the Iraq war off the budget, your case is weak.  Under Bush & the GOP congress, the size of the federal government has soared - much of it domestic spying and domestic "security" folks, who should bother any American paying attention.  Crime is up, unemployment is up, the deficit has soared to mind-boggling levels - and neocon talk radio continues to talk about Clinton & Carter ruining America.

The current set of American leaders is (despite their rhetoric) not interested in freedom, patriotism, protection people from "Islamic terrorists", or spreading democracy.  They are using those as distractions, while they steal everything that isn''t nailed down.