Monday, April 18, 2011

Discussion of “Keynesian economics”-John Maynard Keynes not as stupid as politicians made him out to be.

This topic is off the topic of the banks- yet I’m still writing and posting it to address the fears on what would happen if we didn’t pass TARP. I’m a centrist republican because that’s my own chosen approach to the fiscal mess. To make this clear, I am NOT a libertarian. Ayn Rand thought that libertarians were wannabe liberals. I’m not writing this to shill for any politician; personally I believe that people, not the politicians will be the ones cleaning up this mess. People who identify with either side of the political fence (or none at all) both want the same thing. We want quality fiscal management, a stronger economy and we want our tax dollars to work for us. I’m not telling the democrats or republicans who to vote for. I’m simply going into a discussion about economics. You (the audience) will use the information as you see fit, and I hope that the democrats use their position effectively to combat the corruption within our government. GOP vs. Democrats- it’s just about checks and balances and we have to make sure it’s effective. Our country is not just in a deep recession, we have many, many opportunity costs to bat.

Ayn Rand is just a philosopher. Even she said that one must not learn economics from politics-and she’s totally right. When Keynesian Economics is mentioned in any political context, it automatically (and erroneously) is taken into context of the Laffer Curve. Which was cited as the printing of money as an economic stimulus. He wrote this in old English terms and politics has taken him out of context.

As a student in Intermediate Macroeconomics course (which I passed by the hair of my teeth); I can honestly vouch that the hardest part of learning Keynesian economics in the classroom was swallowing the subjective use of it. When we look at John Maynard Keynes in context, he’s brilliant. The material that’s taught in college level classrooms is just one of his strategies, not the entire scope of his work. They teach Keynesians as an absolute way of thinking, not as the strategy that it is. The University professors teach only small parts of Keynesian as a major topic without mentioning that Keynes is an entire complex set of strategies built generally around Adam Smith's Model of the Invisible Hand.

This is the way I was taught, and it's probably cause for the masses in the business world to not question the media and their politicians on why a strategy is being used to "stimulate the economy".

Libertarians triumph “Austrian Economics” as the key to economic fundamentals, but Austrian Economics is just that-the fundamentals of Economics. If anyone looks at Adam Smith’s and John Maynard Keynes work, they wrote complex and detailed volumes about economics and strategies. Obviously Public Relations firms and of course politicians have never explored this.

It’s quite verbose and hard to comprehend because it is written in Old English prose.

Those who oppose the Laffer Curve are correct. Even John Maynard Keynes would object to the politically subjective use of the Laffer Curve because we are in a “money shortage”-or what he calls a TRADE DEFICIT. And the Laffer Curve is incorrectly used in this scenario. The Laffer Curve may work well in China, Brazil, India, Australia and other developing countries since they are milking a trade surplus in the global economy. That same global economy that’s causing the money shortage (trade deficit) in the United States.

Laffer was Ronald Reagan’s second Treasury Secretary. Dr. Paul Craigs Roberts was his first.

This is Keynes’ General Theory of Employment, Inflation and Money.

Let’s evaluate what Keynes wrote, see chapter 22 on the Trade Deficit. John Maynard Keynes called trade deficits a “money shortage”.

During a money shortage, Keynes recommended INVESTMENTS, not excessive stimuli or leveraging ourselves to a country that put us in the trade deficit to begin with.

Keynes said much about interest rates, but nothing on taxes during a time of deficits- or a "shortage of money"; which can't be adequately replaced by credit.

See Pg. 196-217.

Underneath the Old School English lies Keynes' stratgies, one involving a combined currency to fix the problem-which didn't fly over well with today's economists.

I'm bringing this up because too many Keynesian hypsters (who never read his writings) parrot the phrase too conveniently erroneously as if the Laffer strategy was the entire scope of Keynesian economics.

Like mentioned before, Keynes himself gravely addressed the issue of trade deficit. Never did he say "tax the people" during this time of wealth depletion from the middle class as Bartlett may lead you to believe. CNN is not a trustworthy site for journalism unless you can calm your stomach during intense vertigo. The context contains way too much spin it's pointless for the articles to exist in the first place.

Keynes never said "create inflation and an unsecured credit market as the new currency- and ignore the trade deficit". The Obama Dream Team should take notes.

Many experts point to the trade deficit plus interest payables, or the current account deficit as the cause for the global recession.

Before we discuss the trade perils with China, we have to look at the oil situation as of now. Personally, I am suspicious that the BP oil spill was caused by eco-terrorism. That’s an entire can of worms, but I know that environmentalists are paid out by oil companies and PR firms to shill against their competition to secure profits for themselves. Some of these oil suppliers are overseas.

Goldman Sachs took the FREE loans from the Federal Reserve and speculated in oil and food in the same way they speculated in real estate (because “there is nothing else to make money off of”)- thus pushing the prices of oil (and food) way above the price equilibrium (where supply meets demand for price optimization for maximum profits). The loans for investing is called “margin” and much of the speculation is through use of margins.

Because the oil in the US is mostly imported from the Middle East, the speculators will make up any excuse to speculate in the commodity to push up prices. It’s bad enough that China (1.3 billion population) and India (1 billion population) will both drive up the prices when Obama’s dream team refuses to sign the permits to drill domestically. No I don’t believe in “Peak Oil”, that’s another excuse to push oil prices up.

The danger of oil speculation is the fact that it’s pushing prices up so more money can go offshore to the middle east. This is dangerous as we are already in a deep trade deficit and will make the deficit grow even further. The US is not creating enough wealth to compensate for the money leaving the country.

"The current account deficit is basically a giant loan made by investors in U.S. Treasury Notes to pay for overspending by consumers (trade deficit), as well as payments on assets overseas and some government spending."

The U.S. Current Account Deficit - - Threat or Way of Life?
Kimberly Amadeo,

The above chart shows the effects of outsourcing and offshoring production in the US. The dot com boom in the late 90's didn't help real wages on the grandscale if more money was being sent to China than the dot com made as a net profit (I believe the gross is $200 billion each year, I have to look at that again).

China bought US Treasuries to keep the value of the Yuan lower than the US Dollar. The U.S. spent way too much on the war in Iraq on top of the extra spending on the stimulus package and the useless bailout. Right now the Chinese hold $700 billion in U.S. Treasuries. The trade deficit hovers around $700 billion plus interest.

See the above pie chart. The US just gave China an a large export market, at our expense. No other country sells it's market out like this. There is a reason why this happened, and that reason is not confirmed.

Now here's an interesting course of events. When Lehman Brother's collapsed, there was an electronic run on the banks worth at least $550 billion dollars. It's suspicious that this was a foreign investor but the identity has not been confirmed. Also, after teh G-10 and G-7 meetings, North Korea was somehow off the hook for having nukes. Not sure how China feels about North Korea but they were allies in the past.

Right after the subprime collapse, Henry Paulson rushed Congress to pass this bailout, at the taxpayer expense. After American bureaucracies were so kind to outsource jobs and factory production to India and China. After Bush borrowed tons of money from them to finance Halliburton, I mean the War in Iraq.

We still don't have transparancy on the bailout or the TARP. There were no auditors hired to investigate the situation with the toxic papers.

Again, I'll explain why the trade deficit is a financial massacre. If the floating net worth of the US is $60 trillion (appx-see World Factbook) and 95% of Americans own less than a liquid 1% of the total net worth (See wealth distribution or wealth inequality), then the majority of Americans are sharing less than $1 trillion between us.

The current account deficit hovered around $800 billion which leaves the 95% of Americans $200 billion (roughly-ball park figure) to split between them. Credit and derivatives was keeping the economy alive and the GDP at $13 trillion last year.

If for anything, not to treat us out here as if we were born yesterday. Americans are not "dumb". We're terribly misinformed.

Stick with fundamental education before you read the news. And never be intimidated or afraid to question your sources. FUD=fear uncertainty and doubt is a too common tactic to cause oppostion/competition to question the legitimacy of their statements.
It's only a tactic, the average person may prove to be smarter than they're made to feel about themselves.

Reagan’s tax cuts encouraged the rich to take their money out of the tax havens- and as a result that money ended up invested in businesses which spurred job growth, innovation and value creation. The Al Gore Act was similar in that it used pork to finance companies. The money ended up in a sector that was already set up to create value and wealth which is why the Al Gore Act was successful.

Like Bush, Obama’s money did not end up in the hands of businesses which is why his stimulus failed. Real estate and banks are a retail sector, their function is to store money and loan it. They are a service sector if you will. Real estate and banks cannot innovate, create, labor, produce or consume for the masses, banks and real estate are just a piece of the pie.

My own argument is that there is never a shortage of demand for money. As witnessed by the subprime scandal, excessive borrowing by individuals and even our governments’ waste of taxpayer money (leveraged by China); as long as people have access to money, they will spend it. The problem is a money shortage; caused by both the credit crunch and the trade deficit (reference
“General Theory of Employment, Interest and Money by John Maynard Keynes” Chapter 22).

So what is the answer?

Well, you have to market where the money is. And honestly this is where Wall Street is failing.

They lobby the US politicians for bailouts, not tax incentives for domestic and foreign investors to buy stock in US companies. Wall Street would rather take bread from the poor through public funds instead of getting commissions. And there are huge commissions to be made in the developing global economy.

As John Maynard Keynes mentioned, currency combinations and investments are the key to resolve the trade deficit. Asia and developing countries need not lose their savings in order to stimulate the economy.

The interest rate for the US dollar is really 0%. The banks love this, Bernanke works for the banks. The Federal Reserve is a privately owned institution. The banks are getting free loans on top of TARP and not lending.

The interest rate in China is currently 5.31%.

And the IMF is pressuring China again to raise interest rates. Does China have a "bubble"? That's their business. They're leveraging our debt in order to keep their rates low.

"The IMF's call for central banks to permanently encourage a higher -- 4 per cent -- inflation rate is a recipe for higher interest rates, according to The Australian.

This would be costly for a capital-importing economy such as Australia's.

And it would risk providing the trigger for the US to engineer a return to 1970s-style stagflation by inflating its way out of its punishing public debt rather than accept the pain of fiscal belt-tightening."

It seems like China wants to keep their rates low.

They're considering a wage hike to encourage their workers to buy more imports (vs. increasing the value of the Yuan).

Here's another problem with this Bubble theory- bubbles being a relative measure anyways...
China saved quite a bit when their interest rates were low. Low interest rates are supposed to stimulate borrowing and create bubbles, if that's the case why have the Chinese saved? I believe aforementioned blog written by Yves Smith was on the money.

"Economists estimated China's savings rates (the percentage of savings in a person's disposable income) remained between 30 percent and 40 percent over the years."

The truth of the matter is that interest rates can't determine market behavior, it's really just a marginal influence. During the dot com boom, Greenspan hiked our interest rates and we still had bubbles on tech stocks. The actual effects on spending and market behavior can't be changed through interest rates.


So what does Carry Trade have to do with any of this?

First of all, what is a carry trade?

"A carry trade is when you borrow from a currency with a low interest rate, and then invest in a currency with a higher interest rate. Say the US interest rate is 3%, and the Chinese interest rate is 5%. Borrow at 3%, invest at 5%, make 2%, because the Chinese yuan is pegged to the dollar at a fixed rate.
Easy! Unfortunately, there's a Peso Problem in this trade, because at any time the Chinese currency could be devalued relative to the dollar, and you can lose years of money in one day."

NOW WAIT A SECOND!!! If people are borrowing money at 0% from the US and investing at 5% from China, why would they call this a bubble? If Soros is invested in a carry trade strategy that borrows from the US and invests in CHina, it looks like Soros is making a very healthy 5% off the deal.

China isn't too happy about this. They want to keep exporting.
In the following quotes, remember that George Soros is a currency speculator.
He remarks about China's bubble, yet he says nothing about Bernanke's interest rates. He does claim that gold is a bubble.

We don't necessarily need to listen to his advice, but watch what he does- or WHY he is saying this. He's an open book.

"China 'should let its currency rise' George Soros ...But there is one issue which still bothers many of China's critics - especially in the US - and that's its policy of keeping the Chinese currency artificially low in value. Which makes Chinese exports more competitive.

"Soros repeated that the Yuan is undervalued and allowing it to strengthen would be a “very appropriate thing” for the Chinese government to do. “If they don’t do it, there will be increasing pressure from the United States,” he said."

Again, China buys debt from the US to purposely keep the Yuan artificially undervalued.

Now that we've discussed how our economic policies are set by currency traders; let's add oil to the equation. China's oil demand increases prices and our trade deficit has already increased thanks to a weak dollar and rising prices- just on oil alone.

A rise in oil prices plus a smaller valued Yuan could put China into a deficit? It would hinder their economic growth as it is.

Dr. Paul Craig Roberts was President Reagan’s first Treasury Secretary and he constantly defends the supply side stance applied to “Keynesian Economics”. They’ve been attacked since the wages didn’t keep up with inflation (yet Laffer was Treasury Secretary at the time, not Dr. Paul Craig Roberts) and they didn’t take into account the growing trade deficit. Dr. Paul Craig Roberts is very vocal in his critism of the offshoring, outsourcing and the trade imbalance.

This is where political bias makes for a huge headache. They’re too busy criticizing their political opposition which is messily laid thick in bias instead of looking at what worked and what will work to stimulate the economy.

The mistake that liberals and democrats make in public relations is that they’re using Saul Alinsky tactics in what is supposed to be a democracy. The goal of a debate is to win the audience (we like money, ask the diehard Clinton supporters in Silicon Valley)-not to beat the opposition. Saul Alinsky is way too concerned about not just beating the opposition, but beating the audience into submission as well: which works with a population that’s detached from their own esteem. (marketing and campaigning works with an element of psychology-ask Edward Bernays)

In reality, people are busy working, taking care of their families and trying to make ends meet. And in the recent economy, people have lost a lot of patience. We want to be won. I’ve supported Senior VPs who are republicans in the Bay Area, yes they do exist. And they want to be won. People want a candidate that they can fall in love with. Patience runs thin on the personal finance and business side, if the candidate trashes the audience- they lose the audience. It’s a huge waste of money pushed into campaign and marketing schemes. I don’t care that Soros paid for it, he never made a cent. He made his billions as a vulture, not a money/wealth creator. That should be a new venture for him, but he’s a little too screwed in the head to reason with.

Nobody mentions the trade deficit that grew exponentially when President Clinton signed a lopsided NAFTA with China. The Gore Act pushed public funds into the private sector (the dot com sector) that created wealth. In the same manner that pushing private investments into the private sector creates wealth. That’s how you stimulate the economy!

But this isn’t the bottom line with Reagan here. I’m trying to point out how Reagan applied his tax cuts so we know what worked.

“The best way to understand this is to compare what's being proposed now with what Ronald Reagan accomplished. In 1980, amid a seriously dysfunctional economy, Reagan campaigned for president on an economic recovery program with four specific components.

The first was across-the-board reductions in tax rates to provide incentives for saving, investment, entrepreneurship and work. The second component was deregulation to remove unnecessary costs on the economy.”

The fallacy of the leftist attack on Reagan is that we are managing a domestic economy in a GLOBAL market. If the Cayman Islands holds a 0% capital gains tax, we have to do something in order to push offshore funds back into the U.S. so it can be used to create wealth. And it worked. When President Reagan cut taxes, the rich pulled their money from offshore accounts into the U.S. they had nothing better to do with their money so they put it in investments (back then-it was in companies so they can expand). THIS saved the economy. I personally attribute this tax cut to Reagan’s economic recovery more so than the Laffer curve because the investments enabled corporations to create wealth. The Laffer Curve was just inflationary. Now if we can get Bernanke to at least match interest rates with China; or increase them…carry trade investors will have incentive to put their money in US stocks. And hopefully it will be stocks, that create wealth. Subprime investments and speculation is just another case for inflation.

But still, I just pointed out evidence that you don’t need to push inflation to create wealth or to stimulate the economy.

And still, the Reagan Administration put much more genuine, detailed effort into economic recovery than the Obama Administration has (the Obama Administration-like Alinsky…just strives to beat the opposition which will lose the voting base).

Huffington again,

“Banks pay an average of about 7.11 percent for equity capital, according to Aswath Damodaran, a finance professor at New York University's Stern School of Business. That's the cost of financing a business in exchange for giving investors a share of ownership.”

What she fails to mention is that the primary dealers are getting free loans from the Federal Discount Window.

And this is of course going to be the Krugman bashing party. Its’ not that Krugman doesn’t know what he’s talking about. As a professor of Economics at Princeton, he is very fluent in the subject. As a matter of fact, the fundamentals that he teaches in the classroom is quite different than what he shills about in the New York Times.

“America Is Not Yet Lost – Paul Krugman
It should be a simple message (and it should have been the central message in Massachusetts): a vote for a Republican, no matter what you think of him as a person, is a vote for paralysis.”

“I do not know whether Paul Krugman has ever read Keynes’s General Theory; but if he has done so, he has mis-understood its message. For what Paul Krugman identifies as a liquidity trap is a supply side, not a demand side phenomenon. There is no evidence whatsoever that the demand for investment at current interest rates (incidentally Treasury notes with more than three years to maturity are nearer to 4 per cent than to zero in nominal terms, Mr. Krugman) is inadequate to move the economy to full employment equilibrium.
Evidence suggests that small firms are desperate for loans from the banks at current interest rates, but cannot obtain them because the big banks will not lend. “

-How does Socialism work without a democracy? Does the 1st Amendment not constitute our democratic rights? What about the right to vote? If we are not a democracy, can we not vote in a manner to fix the Republican Party? Political parties and the separation of powers acts as a form of Checks and balances. Democracy is power to the people. If the Republican Party is “inheritly evil”, then where is the democracy, or the people’s power to uphold the government in a more socialist system that Krugman advocates? And what good is democracy with a misinformed public? What good is democracy if the people choose not to exercise it?

Remember, Krugman taunts the tea party protesters, and in doing so he discourages the use of democracy.

On Bernanke, Federal Reserve policies, Quantitative Easing and the hidden taxes hike.

End the Fed movement was started because it's illegal to encourage a revolution against the US Government. Since the Federal Reserve is supposed to be an independant institution, calling a revolution against the bank isn't illegal.

My main disagreement with Bernanke is that I KNOW we've seen inflation, not deflation. The CPI doesnt' include the cost of gas/food in their calculations, but the talking heads use real estate correction to argue deflation (when real estate was never considered in the CPI index before the subprime collapse to calculate for inflation). Bernanke is going to keep rates at 0% and I think he should raise them. QE1&2 will inflate the economy but our tax brackets will not go up enough to match... the inflation. Which means we pay higher income/corporate/sales taxes.


I do agree with Bernanke, that he can't fix this because of financial regulations/fiscal policy. He's just in charge of the monetary policy. He can't reinstate the Glass Stegall Act, he can't impose a Usury Law, that's Congress's job. Except that Frank and Dodd are letting the banks write their own rules.

Quantitative Easing is supposed to reenact the Bank of England policy in 1825 to save the banks. In short, their central bank borrowed gold from France to liquidate their banks. Their interest rate was high, bank deposits still low... and they lent to their consumers aggressively for any kind of collateral. It didn't say whether or not they used tax dollars to liquidate the banks with.

The reason why it isn't going to work is because the rates are too low and the banks are not lending(which can't be solved by the Federal Reserve). And the collateral issue is another hairy issue, that has to be addressed by fiscal policy.

$1.7 trillion QE can't mask a fruadulent $300 trillion subprime scandal.

per the article: "A 10 percent decline in the dollar in the first six months of next year would push the economy above estimates of trend growth, moving indicators on inflation and employment more rapidly toward the Fed’s policy goals, acco...rding to a simulation run by Macroeconomic Advisers LLC on their model of the U.S. economy. Effect on GDP Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent."

-a 10% decline in the dollar with 0% interest rates (while China's is 5.29%) retains the same effect unless an actual trade policy is changed, ie. change in barriers to US exports to China, etc. The only thing China is going to buy is companies. It doesn't guarentee exports of raw materials.

"In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points." Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast."

-Will the 10% reduction in the dollars' value equate to a 10% rise in the tax brackets for sales, corporate, income and capital gains taxes? Let's say this year somebody made $34,000 (single filer) and is taxed at 15% in 2010. In 201!, they should be making a MINIMUM of $37,401 to be taxed in the higher bracket.

Let's say a company makes $10,000,000 this year and is taxed at 34%. Next year, they need to make a minimum of $11,000,000 (10 million * 1+10%) to stay at the same rate if the dollar devalues 10%. Approximately. If not, that tax hike (inflation) goes to the consumer or leaves the company with less working capital to hire employees (or provide benefits) with.

Because there's no guarentee in exports because of the rates, there's no guarentee in increased employment (vs. decreased unemployment). The employment might go to our Univerisities. But not to the ports. An unknown variable. Btw, it's not a good idea to justify risky plans with the use of unknown variables, that's just common sense.

"The consumer price index, minus food and energy, would rise 0.4 percent and 0.7 percent more each year."

-the CPI should include food and gas, especially gas since that will probably increase more than 10% if the dollar is devalued. Esp. since we import it and global demand is increasing.

"A continuing rally in stocks could also provide an added lift to growth, the firm’s simulation showed."

-fake subsidized rally. Costs much more than America's social services combined.

QE leaves us at a strong risk for stagflation and it weighs on too many unknown variables for a better outcome. Carry traders (those who buy at 0% and invest in China at 5.29% are the ones who lobbied our lawmakers to cling onto currency valuations as "the answer" for our trade issues).

But of course, QE has nothing to do with the Economy... bond buying just keeps the yields low til the end of 2010.

"Overall, though, while more quantitative easing will help to keep interest rates low, primary dealer banks aren't fully convinced that the move will prove to be the U.S. economy's knight in shining armor.

The Federal Reserve just buys bonds from Treasury Secretary Geithner to collect interest/yields from those US Treasuries to make FREE loans to the "bank holding companies". Yield/interest on US Treasuries come from the American Taxpayers.

-Do we get that money back? NO.

-Do we get to charge the Federal Reserve for using our money? NO.

So basically the Federal Reserve uses that money to make free loans to "bank holding companies" many who are TARP recipients (like Goldman Sachs). Who use that money to...

1. buy US Treasuries to get the yield/interest.

So instead of investing in loans, the banks are turning back around and buying high-quality securities like long-term Treasury bonds. Today, a 10-year Treasury is paying a yield of around 2.5%. With a cost of funds of 0.25%, this gives the bank an interest rate spread of 2.25% -- a very nice profit with almost no risk.

2. use with their high frequency trading platform to manipulate a thinly traded market.

3. borrow at 0% then buy in a foriegn countrie (ie. China @ 5.29%)-also known as acarry trade.

"It may help to lower rates temporarily," said Ward McCarthy, chief financial economist and managing director of the fixed-income division at Jefferies & Co. in New York, "but is unlikely to have a significant beneficial effect on the economy."

That is because such a program won't ease credit conditions for small businesses that are dependent on banks for lending, he said, nor will it lower borrowing costs for homeowners who are unable to refinance their mortgages because home prices have f.

Priya Misra, head of rates strategy at Bank of America Merrill Lynch in New York, said, while asset buying will be effective in keeping interest rates down and will prevent inflation expectations from falling much further, the effect of the program on employment "is much slower.""

So how much money is used for a QE?

QE2= $30 trillion

Another source has different quotes:

QE1=$1.7 trillion

QE2=$2 trllion

yet the $30 trillion came up again...

"I am pretty sure he said it would take $30 trillion to do the job – given the scale of wealth destruction from the US property crash and ferocity of debt deleveraging still to come."

“January, 2010 real M3 fell an estimated 5.2% versus January, 2009, following an annual contraction of 3.3% in December, 2009 and 0.3% in November…

Commentary No. 268 of December 30, 2009 discussed the leading relationship between real (inflation-adjusted) year-to-year contractions in the broad money supply (M3 and the SGS-Ongoing M3) and the economy, and a signal for a double-dip downturn. In modern economic history, every time there has been such a year-to-year liquidity contraction, the economy subsequently has turned down, or if already in recession, the economic downturn has intensified. A signal for such an intensification of economic contraction was generated in November and December, and the signal got significantly stronger in January.”

Plunging Inflation-Adjusted Annual M3 Change Generates Intensified Signal of Renewed Economic Downturn. John Williams,

The foregoing indication of a dramatic contraction in the money supply is but one more indicator of looming Armageddon in the Economy and markets.

Consider also the following Real Numbers from which calculates the Real Numbers for the U.S.A. the way they were calculated in the 1980’s and 1990’s before Official Data Manipulation began in earnest.

Official Numbers vs. Real Numbers

Annual Consumer Price Inflationreported January 15, 2010

2.72% 9.68% (annualized January Rate)

U.S. Unemployment reported February 5, 2010

9.7% 21.2%

U.S. GDP Annual Growth/Decline reported January 29, 2010

0.10% -4.62%

In short, the job data published in the news cited an "increase" in 150,000 some jobs. If you look at the actual data, the number of Americans employed in the civilian work force DROPPED 254,000. (that's jobs lost) The "net gain" are from people who are "Not in Labor Force". So much for Quantitative Easing (for the aforementioned reasons, it obviously didn't work), we're looking at a possible stagflation situation here.

Stagflation = unemployment + inflation

Goldman Sachs, Interest Rate Swaps caused Greece, Iceland and State defaults.

What if TARP was never passed? What if the banks were allowed to fail?

Swap cancellations in the municipal market accelerated after Lehman Brothers filed for bankruptcy in September 2008, as the filing triggered the termination of all of its derivative contracts, including hundreds with municipal bond issuers.







What taxes have you paid to your locality?

§ income

§ sales

§ property (and much more than you should have since the real estate was artificially inflated)

§ gas

§ food?

§ fines/penalties

§ license and registrations

Where did all of that money go?

Where the heck is the balance sheet for your locality/muni?

What else are they taxing?

§ NJ is imposing a bike licensing and registration + fees + penalties.

§ Bezerkley is issuing out traffic tickets for bikers.

§ Illinois just hiked their taxes up 66%.

§ Minor traffic violations in California cost $450/ticket

Since we already paid our taxes, we're paying probably more than twice to receive the benefits we supposedly agreed to.

Interest Rate Futures Contract

An agreement to buy and sell a debt obligation at a certain date at a certain price. For example, Investor A may make a contract with Creditor B in which A agrees to buy a certain number of B's bonds at a certain date for a certain amount. The value of an interest rate futures contract varies according to changes in the interest rates. For example, if interest rates rise, the value of the futures contract falls because a potential buyer will be able to buy another interest rate futures contract with a better interest rate. See also: Plain vanilla swap.

Interest Rate Swaps are not welfare. They're not unions.

If anyone remembers the Bush "economy", it was technically stagflation since it was real estate inflation + no job growth. There was no legitimate reason why real estate was that expensive. Inflation and price hikes also adds to the GDP growth which during the Bush presidency, the "$14 trillion" GDP gave a rosier picture of the economy than it really was. It was never there.

Anyone with any clue of econ and finance knew this (like bank execs).

So the predatory banks went after municipalities and localities and sold them these bonds, the politicians who signed the deals didn't think that with no job growth the foreclosures would drag the economy down so hard.

So when the foreclosure crisis happened, real estate values CORRECTED (they were way too expensive in lieu of wages in their areas)... so of course property tax revenue dropped.

Then the income tax revenue dropped when 8 million jobs were lost. Then sales tax revenue dropped. And the rating agencies downgraded the muni/localities- and according to the agreements these localities/munies now OWED on this debt. Which is why they all went into default.

It's not the unions, welfare (although CA is a handout haven)... it was the banks. The republican talking heads avoid mentioning this hoping no-one will notices, the dems keep shilling more reasons to tax and spend.

All of your tax dollars are going to the banks, not for community purposes.

Why do the taxpayers LOSE OUT on the money they invested?

Credit Derivatives, Interest-Rate Swaps

For the past two years, JP Morgan Chase has been the focus of a federal investigation into practices in the municipal swaps business. Most recently, an SEC investigation centered on JP Morgan�s handling of interest-rate swaps for the Bethlehem Area School District.

Interest-rate swaps are complex financial instruments and tied to variable interest rates. If interest rates remain favorable, purchasers like a municipality benefit. If market conditions create an unfavorable interest rate environment, however, the bank responsible for initially selling the swap receives higher payments from the purchaser. Adding to JP Morgan�s legal issues is the Bernard “Bernie” Madoff affair. In January 2009, JP Morgan admitted that it had pulled its own money out of two hedge funds connected to the Wall Street money manager while leaving hundreds of European clients exposed. Ultimately, those clients lost at least an estimated $30 million after news of Madoff�s alleged $50 billion Ponzi scheme came to light.

Of course the states are going broke.

Illinois owed $4.4 BILLION on "investments", most likely interest rate swaps (derivatives).

NJ paid $22,000/DAY on interest rate swaps, $2 BILLION to cancel the agreement

Los Angeles paid $20 million/yr on interest rate swaps

They paid it with public funds, aka. tax dollars. Not that you'll see roads, schools or other services for what you paid...

We know that these products are "complex in nature and difficult to understand", but maybe these idiots called politicians should've considered that before they robbed the taxpayers and tossed that money into a black hole.

Executive Summary

• The notional value of derivatives held by U.S. commercial banks increased $804 billion in the third

quarter, or 0.4%, to $204.3 trillion.

• U.S. commercial banks reported trading revenues of $5.7 billion trading cash and derivative instruments

in the third quarter of 2009, up 11% from $5.2 billion in the second quarter.

• Net current credit exposure decreased 13% to $484 billion.

• Derivative contracts remain concentrated in interest rate products, which comprise 84% of total

derivative notional values. The notional value of credit derivative contracts decreased by 3% during the quarter to $13 trillion.

At least they're not trading unsecured Credit Default Swaps this time. BTW, this is the same @#$* that happened to Greece, Iceland and Ireland. :-)

New Jersey Swap for Unsold Bonds Costs $22,000 a Day (Update2)

"Dec. 4 (Bloomberg) -- New Jersey taxpayers are being saddled with a bill of about $657,000 a month from Bank of Montreal for an interest-rate swap approved by state officials and linked to bonds that were never sold....

...New Jersey isn’t alone. Borrowers from Massachusetts to California are struggling with billions of dollars in swap penalties and losses at the same time that budget deficits expand to an estimated $350 billion in 2010 and 2011, according to the Washington, D.C.-based Center on Budget and Policy Priorities.

New Jersey paid $21.3 million last year to end three derivative contracts connected to bonds for business-incentive grants, the River Line Light Rail project from Trenton to Camden and the New Jersey Sports and Exposition Authority. On Nov. 18, the Delaware River Port Authority, a bistate agency that runs toll bridges and a rail line to Pennsylvania, agreed to give Zurich-based UBS AG $111 million if the authority can’t issue variable-rate debt to make use of an existing swap by February.

The state Transportation Trust Fund Authority is paying almost $1 million monthly to Goldman Sachs Mitsui Marine Derivative Products LP, a partnership of the New York-based bank and Japan’s Mitsui tomo Insurance Group Holdings Inc., under a swap agreement made during McGreevey’s administration in 2003. The derivatives were linked to $345 million in auction-rate bonds sold to finance road and rail projects. "

JPMorgan May Be Sued by SEC Over Alabama Bond Deals (Update2)

The potential sanctions by the U.S. Securities and Exchange Commission, disclosed yesterday in two sentences of a 162-page quarterly regulatory filing, relate to a series of bond and interest-rate swap sales in 2002 and 2003 for sewers in Jefferson County, which covers about 1,125 square miles including Birmingham, the state’s largest city with more than 240,000 residents.

This is fun.

So here's how it started:

"Banks sold as much as $500 billion of interest rate swaps in the $2.8 trillion municipal bond market before the credit crisis, benefiting greatly, according to the article. Banks received fees to underwrite municipal bonds for public projects, and additional fees if the borrower used a swap with the transactions. The banks’ swap fees were not publicly disclosed because the contracts were unregulated and privately negotiated, according to the article.

Wall Street targeted some of the riskiest credits in the municipal market with its swaps pitch, and wrote teaser checks to lure borrowers into swaps according to the article. “The arrangements were akin to Goldman Sachs giving Greece $1 billion in off-balance-sheet funding in 2002 through a currency swap, helping the nation mask budget gaps to meet a European Union debt target,” McDonald wrote.

Banks that sold Jefferson County, Alabama $5.8 billion of swaps in 2002 and 2003 received $120.2 million in fees, as much as $100 million more than it should have based on prevailing rates, according to the article, citing James White, an adviser hired by the U.S. Securities and Exchange Commission. The Jefferson County situation led to a $722 million settlement by JPMorgan with the SEC in November 2009, after an SEC probe and the conviction of a county commissioner who steered business to bankers in exchange for bribes.

Nonprofits such as hospitals also got whipsawed by interest rate swap contracts. "Financial engineering by Wall Street has been a huge part of hospitals’ financial problems and has even translated into a lack of hospital beds," said Brian McGough, a managing director of health-care investments at Bank of Montreal Capital Markets in Chicago. A number of hospitals have filed lawsuits alleging that the Wall Street banks misled them.

California’s water resources department this year paid Morgan Stanley and other banks $305 million to unwind interest-rate swaps.

North Carolina paid $59.8 million, the equivalent of the combined annual salaries of 1,400 full-time state employees.

Reading, Pennsylvania paid $21 million, equal to more than a year’s worth of real-estate taxes.

Bay Area Toll Authority, a state agency, paid Ambac Financial Group, Inc. $105 million to end $1.1 billion of interest-rate agreements, the equivalent of more than two months of revenue on seven bridges the authority oversees around San Francisco.

The New Jersey agency that makes college-student loans and grants paid tens of millions of dollars to canceled derivative agreements with UBS AG and other banks.

The school district in Butler, Pennsylvania paid $5.3 million to exit a swap contract, enough to hire 100 new teachers for a school year.

Harvard University paid $922.6 million to end $1.1 billion of interest-rate swaps with JPMorgan and Goldman Sachs.

Cornell paid $22.8 million exit swap contracts with Wall Street firms, an amount that would cover the annual tuition for 500 students at the university.

The University of California paid $6.8 million to JPMorgan, Goldman Sachs and Merrill Lynch & Co., later acquired by Bank of America, to terminate swaps, enough to cover the annual tuition of 200 students in its public-health program.

Swap cancellations in the municipal market accelerated after Lehman Brothers filed for bankruptcy in September 2008, as the filing triggered the termination of all of its derivative contracts, including hundreds with municipal bond issuers.

"Swap cancellations in the municipal market accelerated after Lehman Brothers filed for bankruptcy in September 2008, as the filing triggered the termination of all of its derivative contracts, including hundreds with municipal bond issuers."

-If TARP never happened and the banks allowed to fail, Greece, Iceland, Ireland, NJ, California... none of these would have defaulted.

EXCELLENT CHART HERE(sorry I couldn't embed it)

When an ailing country becomes over extended and unable to handle its debt, banks and other financial firms that have lent it money could be exposed to major losses. This could unsettle the home country of the banks or even spread the troubles to a third country. That can occur, for instance, because banks may try to cover their losses in one country by calling in loans in another

When a country trades extensively with another, their economies become intertwined. If a financial crisis in one country undermines its economy, it will import fewer goods from its trade partners, potentially crimping their economic growth also.

Your government protected the criminals:

"In a notice recently released by the CFTC, Painter said Judge Bruce Levine, his longtime colleague, had a secret agreement with a former Republican chairwoman of the agency to stand in the way of investors filing complaints with the agency.
"On Judge Levine's first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant's favor," Painter wrote. "A review of his rulings will confirm that he fulfilled his vow," Painter wrote."

Financial contortionism is not wealth creation. The increased taxation will push employers and taxpayers away. Who the hell wants to pay for something and not receiving anything for it?

The banks not only thieved from us-multiple times, they're forcing tax hikes and creating an unfriendly hostile environment to businesses who might get funding from them (the banks' initial purpose?)?

Northern lights- few notes on Iceland's economic recovery with high interest rates & without bailouts from the banks

by on Monday, December 13, 2010 at 11:53pm

Iceland's interest rate up to 18%

Central bank governor David Oddsson said that he hoped the rise in rates would only last for a short time and added that the move was designed to stabilise the currency.

"With the collapse of three banks and the harsh external measures that followed, Iceland's foreign exchange market became paralysed," the bank said in a statement.

The government has imposed strict foreign exchange restrictions on the trading of its currency.

So Bernanke kept our interest rates near 0 to provide SUBSIDIZED free loans to bank/brokerage hybrid TARP recipients, so they can "SAVE THE ECONOMY" by speculating in the thinly traded stock market with thier Algorithmic High Frequency Trading platforms (hoarding 70% of the markets' volume).

Iceland exits recession

"Decision to force bondholders to pay for banking system's collapse appears to pay off as economy grows 1.2% in third quarter.

In contrast to Ireland, Iceland's taxpayers refused to foot the bill for the debts accumulated by the banking sector. Bondholders were told to accept dramatic reductions in the value of repayments on bank debt after the sector borrowed beyond its means to fund ambitious investments abroad.

The return to growth is likely to put pressure on Irish politicians to explain why Dublin rejected a more radical restructuring of its debts and a departure from the eurozone.

Iceland's currency has f by around a quarter, helping its exports.

Economists on the right and left have recommended country deep in debt restructure repayments with bondholders, in effect writing off much of the debt.

Nobel prize winner Paul Krugman (pictured) has repeatedly called on Ireland, Greece and Portugal to consider leaving the euro area and defaulting on debts.

Iceland's recession has proved less severe and shorter than many analysts and the International Monetary Fund had feared....

Last year Iceland's president Olafur R Grímsson said: "The difference is that in Iceland we allowed the banks to fail. These were private banks and we didn't pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.""

We should've done that here!!!

Unemployment rate is now dropping. Excellent news for the small country.

Speaking of which, Iceland is kind of a tax haven. Banks and corporations, including American corporations have held monetary accounts with an Icelandic bank.


"Mrs. Veronique de Rugy of the American Enterprise Institute wrote a thorough article describing how Iceland absorbed the lessons of its tax history and took it into account when the economy was at turmoil. Sagas and stories tell that Iceland was the very first place on earth that could be described as tax haven. This label is characterized in the historical case when king Harold unified Norway in 870 and tried to punish the Norwegians by imposing a vast tax. Vikings refused to pay the tax and moved to Iceland where (as they said) "men are free from assaults of kings and criminals."
5.50 MB adobe

Kaupthing Singers & Friedlander (Isle of Man) Limited is an international tax haven.

A group of depositors who lost savings in offshore accounts with Kaupthing Singer & Friedlander, the failed Icelandic-owned bank, has hired one of London’s top class action law firms to help recover their money.

The group – which hopes to represent the interests of around 8,000 depositors that lost over £800 million – have appointed David Greene, a partner at Edwin Coe, to examine legal options.

Kaupthing Singer & Friedlander’s Isle of Man operations were frozen along with the rest of the Icelandic bank on October 8. But while the Government was quick to guarantee onshore savings, the group of offshore account holders says it was left out in the cold.

So which major American corporations hold accounts with Kaupthing Singers & Friedlander (Isle of Man) Limited?

Has anyone heard of Goldman Sachs International or Hewlett Packard?

Following the adoption of Act No. 125/2008, the Icelandic Financial Supervisory
Authority decided to take over the authority of Kaupthing Bank’s shareholders’
meeting, disqualify the incumbent directors on 9 October 2008 and
appoint a Resolution Committee for Kaupthing Bank hf. that same day. After
the entry into force of Act No. 44/2009, amending Act No. 161/2002, and
upon a written request from the Resolution Committee, the Reykjavik District
Court appointed a Winding-up Committee for Kaupthing Bank hf. on 25 May
2009, cf. Point 4 of Temporary Provision V. of Act No. 161/2002.
The reference date is 15 November 2008, cf. Temporary Provision III of Act No.
44/2009. Kaupthing Bank hf. was originally granted a moratorium, as provided
for in Act No. 129/2008, on 24 November 2008. The commencement date of
winding-up procedures during the moratorium is 22 April 2009, cf. Point 2 of
Temporary Provision V of Act No. 161/2002. The time limit for lodging claims
was set at six months from the first advertisement of the invitation to lodge
claims in the Icelandic Legal Gazette and expired on 30 December 2009."


"Iceland seizes Kaupthing as meltdown continues

Iceland’s banking assets amounted to about nine times its gross domestic product and its current account deficit has billowed to 16 per cent of GDP last year."

Northern Lights

Goldman Sachs is the culprit behind Greece's debt

by on Friday, October 29, 2010 at 7:10pm

"Bankster Hypocrisy Surfaces (Again) Over CDS Contracts"

Wall Street saw nothing wrong with the U.S. government rewriting contracts - to keep the Oligarchs from going bankrupt - but when those same Oligarchs are trying to drive other NATIONS into bankruptcy with their CDS scams, they whine about "the sanctity of contracts"

December 10th


In contrast to Ireland, Iceland's taxpayers refused to foot the bill for the debts accumulated by the banking sector. Bondholders were told to accept dramatic reductions in the value of repayments on bank debt after the sector borrowed beyond its means to fund ambitious investments abroad.

Of course Wall Street did it. How else would we know about PIIGS (Portugal, Ireland, Iceland, Greece and Spain)?

November 22nd, 2010

"European credit is being weighed down...after GOLDMAN SACHS GROUP, INC. raised the prospect of Ireland and Portugal failing under the weight of “oversized” debt burdens.


"...The pressure for a bailout of Ireland did not come from Ireland itself—it came from Eurozone officials. If anything, Irish Finance Minister Brian Lehnihan’s announcement over the weekend that Ireland would seek a bailout was a concession to its European Union friends.

So why would the Eurocrats demand a bailout of Ireland when Ireland insisted it didn’t need one?

The first reason is that much of Ireland’s debt—both its sovereign debt and the debt of its banks—is held by many of Europe’s largest financial institutions.

Many of Europe’s banks had written credit default swaps on Irish debt, which was draining cash. Finally, the banks were finding it increasingly expensive to borrow against Irish debt—that is, other banks would not lend money in exchange for Irish debt as collateral, except at steep discounts—creating the potential for a credit crunch."

October 29th, 2010

"The bank's traders created a number of financial deals that allowed the country to raise money to cut its budget deficit now, in return for repayments over time or at a later date. In one deal, Goldman channelled $1bn of funding to the government in 2002, in a transaction called a CROSS-CURRENCY SWAP. There is no suggestion of any wrong-doing by Goldman Sachs. Such deals are an expensive way of raising money, but they have the advantage of not having to be accounted for as debt."

Der Spiegel broke the story that Greece did a billion-dollar currency swap with Goldman Sachs in 2002 that did not show up on the nation's books as debt.... As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country's airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics," reports the Times.

It walks like a loan and talks like a loan, but because it was actually a complex derivative swap, it was secret, bilateral, and off-book. The people of Greece knew nothing, and at the current moment, no one knows how many of these deals are out there masking EU debt or U.S. debt for that matter.

"In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.

The 2001 transaction involved a type of derivative known as a swap. One such instrument, called an interest-rate swap, can help companies and countries cope with swings in their borrowing costs by exchanging fixed-rate payments for floating-rate ones, or vice versa. Another kind, a currency swap, can minimize the impact of volatile foreign exchange rates."

Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics."

(note: interest rate swaps are the same derivatives that JP Morgan used with LA and New Jersey-costing NJ 5 figues PER DAY)

One time, gigantic military expenditures were left out (2 submaries sold to Greece by the US?), and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.

(note: military expenditures do not have to be recorded in the national reports...because it's regarded as "top secret" info in the U.S.)

Fictional Exchange Rates

Such transactions are part of normal government refinancing. Europe's governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

This credit disguised as a swap didn't show up in the Greek debt statistics. Eurostat's reporting rules don't comprehensively record transactions involving financial derivatives. "The Maastricht rules can be circumvented quite legally through swaps," says a German derivatives dealer.",1518,676634,00.html

The Goldman-Greece deal exploited this loophole by inventing a fictional exchange rate, allowing Greece to borrow billions more and mask the true size of its debt. Greece's deficit problem will become even greater when the Goldman bonds mature over the next 10 to 15 years. Greece's exploding debt is now threatening to bring down the euro.

Throwing money at a financial scandal is like throwing your credit cards at a burglar, then telling him to balance your account.


Was the market hijacked for this bailout? Was it a scare?

Who is embezzling public funds through these bailouts?

Look, the political smoke and mirrors coming FROM THE GOP were a lame, SAD attempt to hide Goldman's dealings with it. If people actually paid attention, you can see the holes in their stories:

let's put Greece into perspective and compare it to Entitlement Haven California.

Greeces' population = 11 million.

Illegals in California = 6 million + (unknown illegals) + anchor babies. Probably safe to say 10 million.

Total California population = 36 million (documented)

Greeces' Gross Domestic Product = $356 Billion US dollars 2008

Californias' Gross State Product = $1.85 Trillion US dollars 2008

Greeces' GDP is 19% of California's GSP or 3% of the US GDP ($14 trillion)

Greeces' bailout =$145 Billion -or HALF OF THEIR GDP.

California's requested bailout = $7 Billion. (barely a percent of our Gross State Product including the entitlements)

U.S. bailout = $700 Billion.

Greece is asking for A LOT of money compared to what we asked for and they're stiffing their people on entitlements (that they may or may not have paid into). That's quite a steep drop for Greece.

The numbers are inconsistent.

California is similar to Greece in the sense of entitlements. California hands out pensions, unions, prisons, heck California even considers heroine a disability and subsidizes that as well!

The illegal immigrant + anchor baby population in California can be compared to Greeks' tax cheats.

The only thing the US and Greece had in common with these bailouts are the affiliations with Goldman Sachs and other banks.

California is not nearly in as much trouble as Greece.

"The yield on the 10-year Greek bond rose to 7.16 percent on Jan. 28, the highest since October 1999, prompting European leaders to pledge aid to the nation."

If Greece is invested in interest rate swaps with Greece, this means that they could be paying quite a bit for the interest now. That's quite a huge expenditure.



We understand the "Counterparty Risk"

But of course the Counterparty Risk occurs only because people don't know what they're buying. Was Greece tricked into debt? We can't confirm it with the information we were given by the press.