June 17, 2013

The height of foolishness

Posted in Banks · 140 comments ·
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The only thing keeping Irish bond prices from collapsing is the assumption that Germany will eventually pay.

The young woman in a burka is clutching a Fendi handbag in one hand and an iPhone 5 in the other. She is surrounded by five friends, who are also in burkas. They are hovering at the entrance to a shoe shop in one of Abu Dhabi’s many large shopping centres. What has caught their eyes is a pair of shoes by Salvatore Ferragamo.

Does the name Salvatore Ferragamo mean anything to you?

If not, he was an Italian shoemaker who understood that there had to be some design in between high heels and flat shoes and, borrowing from the ancient Greeks, came up with the enormously popular and original concept of wedges in the late 1930s.

Obviously the wedges make women (and some men) look taller than they are, without the feeling that they are on narrow stilts. I suppose, at the end of the day, the taller you are, the more attractive you feel. Height allows you to wear different clothes, and you will tend to look slimmer.

By driving a wedge between actual height and desired height, the shoe can improve your overall image, making the best of the material, making wearers feel better about themselves and looking better than would otherwise be the case – or than actually is the case.

As a result, Ferragamo’s wedges were (and still are) huge all over the world, and his basic designs have been copied and re-worked by other shoe designers down through the decades.

As I walked by the crowded shoe shop in Abu Dhabi last Wednesday, a large TV screen tuned into some 24-hour financial channels turned red as stocks across the world plummeted. Just then, the similarity between the wedges and the world’s central banks struck me.

The world’s central banks have been injecting money into the global economic system and, in so doing, driving a wedge between the actual performance of the world economy – which is weak and risky at best – and the observed performance of the world’s financial markets, which are behaving as if the world’s economy is strong, risk is minimal and everything is rosy.

By injecting so much liquidity into the financial system, the world’s central banks are helping to push asset prices way above what is justified by the faltering performance of the underlying economies.

This is obviously a very dangerous game because, like someone wearing wedges to attain a desired height, that person has to keep wearing wedges just to stay there. Similarly, the central banks, led by the Fed, have to keep injecting more and more liquidity simply to keep asset prices where they are.

All across the world, from the Gulf, to China, Europe and of course the US, asset prices have risen and risen, but the old economies in Europe and in the US have not recovered in any material way. In fact, European economies are now going into reverse.

The central banks also know that, quite apart from this wedge between the asset prices and the real economy, if there were to be a crash with investors selling because prices are too high and can’t be justified, the impact on the underlying economy of yet another financial meltdown would be atrocious.

Thus, they are in a monumental bind – they are damned if they do and damned if they don’t. They have to keep printing money to avoid a crash, but the more they print, there is a greater risk of that crash they are trying to avoid.

In the Gulf, everything is jaundiced by oil. The economies here are booming, and the fact that the Etihad flights from Dublin are almost always full is yet another signal of the disparity of opportunity between Ireland and certain other parts of the world.

All over this city, Irish accents can be heard, so much so that one lad approached me on the street about an hour ago – a fella I’d never seen before – and asked me what I thought of the performance of the Irish soccer team against Spain.
His story is like that of hundreds of thousands of Irish people, and millions of others in our developed economies. Since 2007, the economies of the west have not been able to hit the reset button. We are unable to emerge from the depths, and unemployment remains far, far too high.

All the while, the emerging economies of the world continue to catch up, and a bigger and bigger proportion of the world’s economic activity is migrating towards east Asia.

Technological changes are also undermining job opportunities in the west and, clearly, paying back ludicrously huge debts is sucking the life out of local demand.

Significantly, the country that appears to be worst affected – and whose predicament the west wants to avoid at all costs – is Japan. Not surprisingly, given Japan’s deflationary slump, money-printing by the Bank of Japan has been more aggressive than in any other country. The Japanese quantitative easing experiment is three times bigger than that of the US.

Because of the sheer size of the Bank of Japan’s money-printing initiative, it is in Japan – still the world’s pre-eminent manufacturer – where the monetary conundrum between asset prices and the real economy is most evident. The higher prices go, the more stretched valuations become, and the greater the risk of a sell-off.

Japan’s demographics have swung against the country and, without local demand, the implication is that Japan has to rob other people’s demand through exports spurred by a much weaker currency.

All this was too much for investors to take last week, and the Japanese financial markets took a hammering. This slump has spread contagiously around the world. People see that the Japanese authorities are in a sort of trap, and the question is whether what started in Japan will end in New York.

Risk has returned and, therefore, risky assets have been sold off. Such risky assets also include government bonds on Europe’s periphery, such as Irish government bonds, because there can be precious few other assets where the disparity between the expensive prices and the stagnant underlying economy is more stark.

The only thing keeping Irish bond prices from collapsing is the assumption that Germany will eventually pay – something the German constitutional court in Karlsruhe, not the Dáil, will decide.

But we’ve been here before. There have been rallies and setbacks in financial markets all the time over the past few years. That said, maybe this time it is different, because there is no escaping the fact that the central banks have driven a wedge between soaring asset prices and the anaemic economy underneath.

Can they do this indefinitely? Or are we, like a woman in Salvatore Ferragamo’s highest wedges, flattering to deceive; knowing full well that, at these ever-elevated heights, the risk of tottering over at a party just keeps on increasing?


  1. Good morning all
    Enjoy the day

  2. markodxb

    Hi David, if I saw you in Abu Dhabi I would have asked where are the safe assest these days? is there such a thing?

    • michaelcoughlan

      The assets which are most important are your skills to add value to a good or service. Farm land is still a very important assets and will be somewhat shielded from what’s coming.

      • markodxb

        someone told me to keep a diversified portfolio. The actions of central banks are creating great and unprecedented uncertainty. I was advised a diverse portfolio can help protect your money and maybe grow it.

        its a crazy world…

      • rebean

        Please tell me whats coming. For the last number of years I have been hearing about storms brewing. what will happen and when and what way can one prepare. Regards

        • michaelcoughlan

          Hi,

          What’s probably going to happen is that all the major asset class’s will collapse in value simultaneously: bonds, equites, property, cash.

          The petro dollar will cease to be the worlds reserve currency with it replaced by a consortium of bric countries basket
          of currencies backed by gold.

          Peoples pensions and savings will be wiped out. There will be an enormous increase in the number of people employed. There will adlo be an escalation in world wide regional conflicts in the ensuing rush for natural resources.

          Assets which will hold or increase value include investments in water, agriculture, better quality gold miners, bullion both gold and silver.

          The most important thing to invest in is your own knowledge to acquire a skill which will be in demand in this new changed environment.

          Hope this helps. See my post below for how to manage your cash. If I have made a mistake please correct me so that I can learn. The time line has started already and will accelerate after the German elections in

        • michaelcoughlan

          Hi,

          What’s probably going to happen is that all the major asset class’s will collapse in value simultaneously: bonds, equites, property, cash.

          The petro dollar will cease to be the worlds reserve currency with it replaced by a consortium of bric countries basket
          of currencies backed by gold.

          Peoples pensions and savings will be wiped out. There will be an enormous increase in the number of people employed. There will adlo be an escalation in world wide regional conflicts in the ensuing rush for natural resources.

          Assets which will hold or increase value include investments in water, agriculture, better quality gold miners, bullion both gold and silver.

          The most important thing to invest in is your own knowledge to acquire a skill which will be in demand in this new changed environment.

          Hope this helps. See my post below for how to manage your cash. If I have made a mistake please correct me so that I can learn. The time line has started already and will accelerate after the German elections in September.

          • Adelaide

            “The most important thing to invest in is your own knowledge to acquire a skill which will be in demand in this new changed environment.”

            Perhaps Killing Zombies would be a useful skill in this nigh Armageddon. If things truly do turn as sour as you say then perhaps surviving in this new Planet of The Apes environment is a no-win situation. Personally if I wanted to thrive in THE COLLAPSE I’d be stockpiling cyanide pills in the meantime and then I’d get the last plane to USA where I’d sell the pills to End OF Days believers for all their worldly possessions, maybe set up a Jonestown venue, for convenience sake, and then with my booty sail back to Ireland which will be by then uninhabited which I rename Ghost Ireland and spend my remaining days repeatedly watching Reelin’ In The Years while counting my gold and howling at the moon, obviously, while fending off zombies.

          • Well said Michael.
            If you have the time I will pop by your place and take you for coffee/beer.
            tony@tonybrogan.com 087 389 7787

          • michaelcoughlan

            Are you in Ireland Tony and if so when you around limerick city? I live about 10k or so away?

            Michael.

          • Hi Michael
            I Greystones to the end of the month. I can be anywhere by train and bike. So give me the word and I will be there for a chat and a little fun too!
            Take care, All the best
            Tony

    • This and the replies it solicited cracks me up.
      Be a man.
      Pay your filthy lucre and take your choice.

    • Fuck me sideaways and slowly!

      Did you HEAR about the Abby Babbie thingy?

      Sounds like a bunch of old tarts. Sure it’s all over the internet

    • Walked right past him on the way to the airport.
      She asked ‘did you see who that was?’
      I said ‘no – I am busy catching a plane’

      Grow up ffs.

  3. Lius

    As yer mammy used to say:-

    “Where will it all end David?”

    :-)

  4. Good article David
    There is no reversing course of the monetary expansion without a monetary collapse. It is the inevitable ending to a credit fueled boom. This boom in financial assets. The mother of all bubbles , the bond bubble.

    On the other hand, continued expansion of the money supply will stave off a disaster a little longer until people loose faith in the value of the currencies and the currencies are abandoned for a stable money.

    Jim Sinclair, http://www.jsmineset.com is urging everyone to remove all assets from the bankers clutches. That is stocks, bonds, investment portfolios and contents of deposit boxes.

    Stagflation rapidly approaches. High ((anything over 6%)) interest rates with a declining economy.

    One way to clear the books is for an overnight revaluation of gold that will balance the books of the debtor nations and the process is reset for another spell of the same money printing. That is the debts are inflated away. Do not be surprised to see gold at $20,000 an ounce or higher to accomplish this.

    Sinclair is urging all to get out of the bond and stock markets except for very specific types of mining companies, and to use private storage facilities. Also diversify geographically if possible. Have more than one place to live.

    • michaelcoughlan

      Hi Tony,

      The price of gold will hardly go that high. What’s more likely to happen is that gold will remain in permanent backwardation meaning the futures markets in gold will cease as people will hoard gold meaning it will be impossible to buy gold for delivery at any price.

      This means gold will have a price equal to infinity and gold will only be available to get through the use of barter.

      Interesting times ahead.

    • michaelcoughlan

      “everyone to remove all assets from the bankers clutches. That is stocks, bonds, investment portfolios and contents of deposit boxes”

      Done already Tony thanks. Bonds and stocks held through Crest in a designated account and NOT a nominee account, gold in a Canadian vault through goldmoney, hard currencies and bullion in my own safe, and a small among of money in a Northern Ireland and Swiss bank account.

  5. michaelcoughlan

    Hi David,

    When I read this article the thought crossed my mind that finally the article I have been waiting to read from the floppy haired one who must be obeyed has been written.

    You have waxed lyrical (bonbon like) about speculation in housing but until this article was written I had not read anything from you re speculation and bubbles in bond and stock markets.

    Finally a very important article makes it onto the blog.

    You could have added that the increasing size of the bubbles is achieved through increasing the money supply with money borrowed into existence for which the taxpayer will be responsible for paying back and NOT the hedge funds using the money to speculate with.

    We are nearing the day of reckoning now.

  6. onq

    What a great time to be in debt, waiting for the banks to fail all around the world! Seriously, though, let’s be clear on this.

    The world has been in a False Debt + War Recovery Mode since the 1800′s at least. This suits one class above all others. The very rich, most of whom can stand to see 99% of their wealth wiped and still live comfortably, with capital to buy up the ruins at rock-bottom prices. This is starting to happen in Ireland since the World War of 2008, which has resulted in the greatest transfer of wealth from the people to the 1% ever seen, even allowing for past World Wars. Assets have been devalued, people have committed suicide, there has been and continues to be suicide, but in general there have been few deaths, and the infrastructure has not been destroyed, although much of it is rotting for lack of investment e.g. the water pipelines in Ireland and much of the electricity grid in the States, never mind their oil pipelines.

    Wars are a great source of amnesia and confusion. People blame the main actors in the wars for their predicaments, instead of the people who created conditions for war. In peacetime,there are great conditions for PR and deception. Economists write articles about every subject under the sun except what is really going on at the macro scale. Governments stage false flag attacks by their pet terrorists to accrete wealth, raw materials and influence. National carriers like RTE do ANYTHING but report the truth or the underlying trends in a criticla light. They are neutered.

    How do we know all this? Because Journalism is about exposing knowledge somebody wants to be kept hidden. That is why whistleblowers get such acreage of news reports. But its becomign clear that such “revelations” are themselves designed to distract and mislead. There is a reason for this. Our ability at seeing through deception has improved

    People cannot conceive of what goes on in a war, and in a war, people cannot discover what went on in peacetime to lead to war. Even now, people do not see the repeal of the Glass Steagall Act of 1933 and the deregulation of the financial markets as an Act of war. A war! As if! Who got killed!!? Hah! But my second paragraph already dealt with all of those questions. I took a leaf out of the PR creatures book. Insinuate answers into the narrative before people have even framed the questions. Its a clever trick, and easy to do. Even I can do it.

    - – - – -

    But that raises awareness another notch for both the narrator and the listener. So this awareness must be countered by conflicting information. How many papers of record carry stories which directly contradict one another in the same issue? Left or right? Up or down? Black or White? Who can tell what to believe anymore?

    And so we approach the rapids of disinformation behind which lies the great falls of information overload. However in financial markets the disinformation can be sorted a little.

    Now there is so much information available on who has profited from past wars and the machinations that led to them that it is a matter of criminal negligence in government if heads of state do not appraise themselves of this current toxic financial environment. The Big Boys vie amongst themselves and the Baton of Power looks like it has passed from London to Washington with control of money held between The City of London and Wall Street. That is how it appears at least on the surface.

    We know about the bond markets. We also know about the 33 Trillion Dollars held in offshore bank accounts. Both are mere distractions.

    The overhang from the derivatives market is 1.2 Quadrillion Dollars, a number so vast that it is inconceivable to ordinary mortals. And this figure is only the *overhang*, in a market in which options are supposed to be balanced so that a call against one contract be balanced by a counter-party offer so the whole “collapse” will resolve into a relatively small “hit” one way or another.

    At least, so they say. Don’t worry about it. We know what we’re doing.

    Well, that might be true on the bond markets or the futures markets, where the products are well known and reasonably well-regulated. But this level of regulation does not apply in the derivative market and over the counter trades are largely unregulated.

    SO what?! I hear you say. Here is what. In a well-regulated market where the parameters are known you can predict the market. In an unregulated market this becomes impossible, even in theory. This 1.2 Quadrillion is a guesstimate.

    A guesstimate on the fall out from a market conservatively estimated to be 14 Quadrillion Dollars.

    - – - – -

    In a world where a concept like Bitcoins has become a popular subject for discussion, how have people not guessed that the world is floating on a sea of unknown dimensions?

    Not on the known knows, as Donald Rumsfeld might opine, which are comprised of the monies in the day-to-day domestic and commercial banking sectors, riddled with corruption and debt.

    Not on the known unknowns, the derivatives and over the counter trades markets, which, if a significant trade is unbalanced will swamp the world economy as countries rush to support the PRIVATE LOSSES incurred by gambling by Too Big To Fail BANKS and INSURANCE COMPANIES. The support for these is being set up between governments at this time.

    I’m talking about the unknown unknowns. I literally don’t know what I am talking about. I suppose this might damage my credibility in the eyes of some readers. But people didn’t need to understand electricity to know what a lightning bolt could do, or have an idea of where you should NOT be standing during a thunderstorm. I beleive we are are in such a storm now.

    We don’t know what it is made of. If normal banking is the universe of matter, and shadow banking is Dark Matter, we are talking here about Dark Energy something which dwarfs both of them.

    We can see the currency markers, the things of value to the most powerful corporations. Tax avoidance. Copyright. Patent Protection. Industrial Espionage. Control of Emerging Markets. Intellectual Property. Human, animal and plant genotypes. Control of raw materials. Poisoning of the environment. People trafficking. Torture. Private Prison Systems.

    All to limit the people they want to control. The 99%.

    We know some of the players who game this system. The Central Banks. The transnational companies who pay no tax.

    We know some National Entities controlled by them, the Rogue States. The United States of America. The United Kingdom. Israel. “By their fruits shall ye know them.”

    We know some of their agents. The so-called *security services” and “economic hitmen” who tilt entire countries and their economies in their favour.

    We know their primary agenda. Control. Control on an economic, conceptual, biological, ideological and military level.

    - – - – -

    We can say one thing with utter certainty.
    We live in interesting times.

    • cooldude

      Very interesting piece ONQ in fact even more interesting than the article which was quite good. I believe you are correct that practically everything that is going on is about centralized control and increasing that control to even greater levels. The role of the mainstream media in all this is to just spread the propaganda that they are fed from Reuters and other centrally controlled news agencies. An example of this is the ridiculous story about the US going to arm the “rebels” in Syria because the Assad regime has used chemical weapons on it’s own people. This story is just trotted out as if it is fact. Well the actual facts are the US (CIA) created the Free Syrian Army and funded and trained them from the very beginning. These guys are mainly foreign mercenaries, many of whom belong to Al Quaeda which was also founded by the CIA but thats another story, whose job is to overthrow the Assad regime by ANY means. They are armed, trained and paid for by Western agencies like the CIA and are absolutely ruthless killers. The main reason they have had so little success is because they have very little support from the Syrian people the majority of whom support Assad even though he is far from perfect. This line that all of a sudden the US is going to help the rebels is pure nonsense. Also why would Assad use chemical weapons on his own people in a conflict he is winning when he knows this will upset the US? All very fishy especially after the UN reported last month that they had evidence of the rebels using chemical weapons.

      All of that is just an example of how the media just trots out whatever bullshit story it is fed and very rarely analyses any facts or asks any tough questions. This goes right across the board in all areas like GMO’s, vaccines and a whole host of other areas where control of the media is required.

      The main players are the shareholders of the central banks, which are all private organizations, who also happen to be the shareholders of the largest corporations on the planet. Have a look at the article 147 companies that rule the world. Al these companies are interconnected with the same shareholders who are shareholders of the major banks. Control is the big agenda.

      • onq

        Hi Cooldude,

        Thanks for your comments and just to note I am a fan of the Big Ginger Mac (!) both here and on Facebook and no-one communicates economic theory better, IMO, although Constantin makes a number of valid points. I don’t always agree with him, but I agree more than I disagree and I try to support his blog with comments now and again.

        The purpose of my comment above was to step back from the detail and look at the biggest (not the bigger) picture we can – the multi-Quadrillion Dollar Derivatives Market. I have read of estimates of total Global GDP is of the order of 60-70 Trillion Dollars. That is the current value of all the goods and services produced annually.

        It is quite clear that the entire world cannot support the banks and the gamblers if the derivatives overhang finally lands on top of us and we need to call “nonsense” on the banks and their stress testing.

        Even the most conservative reviewer would be blown away by that perspective on something so big.

        I take a pragmatic approach. We’d like all out money back please.

        If you think I am joking consider the case of a mother with twelve kids surviving on the “Mickey Money” – the children’s allowance. Her occasionally employed alcoholic husband keeps getting her pregnant so there is a rising population but he is also addicted to gambling and is abusive.

        One day he comes home and says he has run up a gambling debt of a multiple of her yearly income and she has to sign over her Children’s Allowance books to his debtors.

        Is it morally right for her to continue to support her husband at the expense of her children’s and her own future? Never mind the practicality of being unable to keep her children in the home or alive to allow them to keep getting the children’s allowance for the future with no money to live on?

        That is where the Irish economy is at the moment and where the world economy soon will be.

        This amounts to a monstrous transfer of wealth in all the developed nations of the world using Federal (in the States), Global and supra-National (in Europe) agencies, which in Ireland is presided over by our current “little baldy fellah” Michael Noonan.

        A man to whom this Oireachtas has just given an unwarranted amount of power in terms of indebting this state without reference to the Dáil.

        This was supposedly done to retrospectively cover the state’s ass over the promissory note case taken by David Hall.

        But I think the real reason was to give our Finance Minister the power he needed to drain our exchequer dry should Europe call for it under the terms of the EMS treaty.

        A Treaty (see the A Tale of Two Treaties website), which exposes us to unlimited liability. No, not a misprint. The €700 Billion limit can be increased and we are expected to cough up OR FACE PENALTIES!

        That act alone affects our treasury adversely and should have required a Referendum IMO. Mind you, the Gombeens running this country are supported by like- minded eejits so I’m not sure if that would have done any good. “Lisbon for Jobs” anyone?

        Now we have signed up to it under this stupid, fascist-capitalist-supporting government and we have a Finance Minister who cannot be halted under the powers of the Oireachtas. Am I the only one who realizes this? FFS!

        We are supposed to be an educated workforce. Is work all we are educated for? It seems so.

        Well, let’s at least spread the news and we’ll see if we can wake some people up, ehhh?

        I think that’s the least we’ll want to say to the next generation.

        “We tried to wake ourselves up before it was too late.”

        • “The only thing keeping Irish bond prices from collapsing is the assumption that Germany will eventually pay – something the German constitutional court in Karlsruhe, not the Dáil, will decide.”
          Baldy Noonan keeps spinning about “returning to the markets soon”
          If the Germans do not-or cannot-meet the bills for the rest of Europe what hope is there of Ireland ever returning to the Bond markets.??

          • bonbon

            See below on Germany’s dilemma, Deutsche Bank.

            DB cannot be saved, is problem number 1. Enda has seriously miscalculated, been weighed, measured and found wanting. He makes Balshazzar look like a genius!

        • cooldude

          I’m afraid work is all we were educated for and deliberately so. The whole Leaving lark was and is all about regurgitation of facts and nothing else. Critical thinking is not just discouraged it doesn’t even enter the equation. If someone goes slightly off the “curriculum” he/she is quickly put back in their box and told to stick to the agenda. As George Carlin said the last thing they want is a properly educated people capable of critical thinking on any issue. This is why we accept this debt based monetary system which is designed to enslave us in debt and to lead to an economic mess a bit like the one we are going through.

          You are right about the banks.. simply stop supporting the greedy bastards as much as possible. As for the derivative timebomb they should simply be banned and all existing ones declared null and void. Ain’t going to happen though because these guys run the whole show.

          • George Carlin is on the button and he should be part of the curriculum.

          • onq

            I’m interested in the effect alternative forms of currency will have, not on the transnational merchant banks, but on everyday transactions.

            The idea of a currency that does not flow from or through the banks is revolutionary.

            The idea of a currency that arises from the efforts of the people (bitcoin mining) and does not rely on the smoke and mirrors of government intermediaries is a paradigm shift.

            The facility offered by a currency that people can carry with them in a digital wallet and doesn’t need an international bank transfer will eventually mean the power of the banks – their power that arises from sucking a drip out of every river that flows through them and controlling the direction and flow of those rivers – will erode.

            This is one of the things I am interested in.

  7. 5Fingers

    David’s argument is merely an illustration of a positive feedback loop that is gaining momentum and energy from the damage being wrought. It’ll stop only where is there is no more to destroy.

    Woe woe and loads of same…hum dee dum. Yes, we know where its headed and it’s not pretty. We are just witness to a collapse of all we value materially and nothing will stop it.

    My own view is that the western judeo-christian (I am sure there is a more academically correct term for same) dominant way of thinking has run its course. Like all organisations and ordered things e.g. life, they tend to fall apart to make way for the new. Old ways tend to hang on very dearly. Indeed I would say, it is dead already… and we are just mistaking rigor mortis for life.

    Lim dem Paddy Ashdown has given a talk or 2 on this. Go google multipolar world. Those who refuse to embrace the entire world and its many varying cultures without preconception, is in for a really rough ride.

  8. Pat Flannery

    You are right that the only thing presently keeping Irish bond prices from collapsing is the assumption that Germany will eventually pay, but that is and always has been a vain market hope, whatever the German constitutional court decides at Karlsruhe. The debt problem is much deeper and wider than that. It cannot be solved by government action alone. It is a global markets problem.

    The specter of a Detroit municipal bankruptcy is far more immediate and threatening in the minds of Wall Street traders than Karlsruhe. They know that Detroit would open the floodgates of municipal defaults in America triggering sovereign defaults all across the world. That would be the end of the bond market as we know it, which is what is worrying the markets.

    They know that the present level of sovereign borrowing around the world is unsustainable and that sooner or later bondholders have to collectively find a way to negotiate an orderly write down of bond values in order to avoid a cataclysmic market collapse.

    It probably won’t happen until the collapse actually begins when there will then be a hurried Bretton Woods-style conference to manage the crisis. The Cold War concept of MAD (mutually assured destruction) may prove handy in economics. Like the nuclear powers of the Cold War the global bond markets are staring at their own certain destruction if they do not deal with the MAD unsustainable reality they have created. Let’s hope they are up to the task as the Cold War military generation were.

    • 5Fingers

      One things about WWII and Cold War etc..that was just a war mostly between Caucasians. Essentially a European war. Americans are just Europeans really. So, while I 100% agree with the initial destabilising trigger from Detroit, I am not so sure that the concept of MAD has the same meaning for those outside the Judeo/Christian enclave. That said, I hope you’re right.

      • Pat Flannery

        Hope that I’m right that the bond markets will realize before it is too late that their bailout hopes are illusory and that they will follow the example of the Cold War military and stand down from mutual self-destroying aggressiveness. The markets current not-an-inch debt forgiveness strategy is as MAD as the superpowers threatening each other with total destruction ever was. But there the similarity ends. This is a whole new type of war.

  9. bonbon

    There seems to have been an outbreak of MADness here, probably spread from Obama’s White House.
    Why is it DMcW’s valid point about bonds brings beads of MAD sweat?
    Obama is just a European really, a true Brit. After all, primes inter pares, what?

    And this nutcase wants thermonuclear war for his handlers?

    It is MADness, but typical (returned)-Tiger, to avoid homework. The average warhead now is 470 KILTOTONS, 10 times Hiroshima. 8+ of these per sub missile, 27 each on 18 Ohio-class boats. It is beyond insanity to use past experience with this. Stop the drivel about WWI or II.

    Banking will be split, rattle your 470kt swords, we are going to Glass-Steagall you, and promptly. DMcW knows this, banksters know it. Running to Abu Dhabi will not help, either if Obama is allowed to proceed, not when we split banking.

  10. bonbon

    The height of foolishness knows no statosphere. Look at the case of Deutsche Bank, bailed out by the US, number 1 derivatives casino world wide. Germany will very soon face this horrendous Euro 70 Trillion problem, head on. what do you think Ireland or bonds will mean then? Are ye joking?

    FDIC VICE PRESIDENT THOMAS HOENIG TO GERMANY: GET SERIOUS ABOUT DEUTSCHE BANK!

    June 16 (EIRNS)–Sixty years after President Franklin Delano Roosevelt freed the U.S. from the control of Wall Street, with the Glass-Steagall Act that cut “investment” banks off from commercial banks and deposits and then from government support, Thomas Hoenig, the Vice President of the U.S. Federal Deposit Insurance Corporation (FDIC) created by that 1933 Act, has struck terror into the hearts of German apologists for “universal banks,” which in Germany means above all, nothing less than Deutsche Bank (DB). The June 13 interview with Hoenig in Germany’s {Handelsblatt} ran with a big picture of him under the headline, “The Enemy of Wall Street.” The subhead continued, “The most important money institutions must be broken up…. A similar attack is being prepared in Europe.” Then on Friday, in an interview with Reuters — widely commented upon — Hoenig attacked Deutsche Bank: “It’s horrible, I mean they’re horribly undercapitalized.” He stated Basel III rules are nothing but computer-modeled fake risk assessments, and that Deutsche Bank is dangerously leveraged. Deutsche Bank Chief Financial Officer Krause responded to Hoenig with an icy comment, that according to Basel III, we are in good shape. Aside from {Handelsblatt}, as of today in Germany no one has picked this up except for some marginal Internet websites.

    Although Deutsche Bank became what it is today–24 years after the unsolved 1989 assassination of its then head Alfred Herrhausen–by virtue of its London derivatives and foreign exchange operations where it is now number one in the world, during the 2007-2008 bankruptcy of the London imperial finance system, Deutsche Bank avoided bankruptcy exclusively due to massive bailouts from the U.S. Federal Reserve. Alone in November of 2008, Deutsche Bank took on $66 billion of short term loans from the Fed. At the same time, it got almost $12 billion in payouts from U.S. taxpayers who covered AIG’s fraudulent Credit Default Swap (CDS) derivatives contracts with DB. We still do not know how much bailout money DB got from the European Central Bank, but what is known is that the U.S. Federal Reserve provided $8 trillion (!) in U.S. Dollar currency swaps with the Eurozone’s European Central Bank headquartered in Frankfurt, this according to a U.S. Government Accounting Office (GAO) report publicized after the U.S. Congress forced the Fed to disclose what bailouts it carried out and what banks got them. More than half of the Fed’s bailouts went to London and continental European banks! The ECB to this day refuses to publicize the beneficiaries of its money-printing bailout operations, and no parliament in Europe has had the guts to demand that information, which almost makes the U.S. Congress look like heroes.

    Thomas Hoenig’s straightforward clarity has been bolstered by the hard fought accomplishments in the fight for Glass- Steagall in the U.S., and with his interventions into Germany of the last days, calculated decisions were made to force the issue there also. When the bubble bursts, who in Berlin is ready to pick up the bill for the $72 trillion in Deutsche Bank’s derivatives portfolio?? Should Germany bleed to death for a hedge fund in London, just because it has the word “Deutsche” in its name?!?

  11. Pat Flannery

    bonbon I wish you would troll somewhere else. There are a few commenters worth reading on here. Your trolling is destroying what could be a good site.

    • bonbon

      Add something creative insightful, stop complaining. Good sight meany you can take it easy and wallow?

      Sorry, wallowing is an old Tiger delicacy, and look what it produced.

      The theme is Germany, Ireland, if you know something post!

    • I object

      Bonbon has a right to exist and contributes a lot of food for thought. Ireland needs more Bonbon and not less. You are on a hiding to nothing

      Or would you rather Dev and Charlie were dictating the official version of the truth. It’s time to grow up

      If he / she / or they give you a smart answer then give one back.

      You’ve got a mouth on you I presume.

    • Joe R

      In Internet slang, a troll (/?tro?l/, /?tr?l/) is a person who sows discord on the Internet by trying to start arguments and upset people.[1]. They may do this by posting deliberately inflammatory,[2] extraneous, or off-topic messages in an online community, such as a forum, chat room, or blog, with the intent of provoking readers into an emotional response[3] or of otherwise disrupting normal on-topic discussion.[4]

      Bonbon is not a troll. Bonbon is genuine.

      • Pat Flannery

        Bonbon, Paulidiv, Joe R, moneydoesnotmatter et al:

        Obviously David McWilliams agrees with all of you. This is his blog, he must like it this way.

        I naively thought that because of David’s public profile that his site would be a good place for me to meet and debate some thoughtful Irish people on global economics. Sorry, my mistake. I have much to relearn about Ireland. It seems I have been away too long.

        I therefore leave you to enjoy your genuine bonbon-style debate, without further interruption from me. I’m sure that the polite, sober debating style I am looking for is out there somewhere. THIS is just not my style.

        • Joe R

          Troll, I have found, is a common enough insult trod out by intolerant people in a (usually insular) given blog community against opinions which do against the grain that given blog community.

          You know like mob bullying, a school ground mentality.

          Usually I find people who bandy it about don´t know what it even means.

          I don´t agree with Bonbon mostly but he/she has the right to post and I do think he/she is genuine in those posts. I haven´t noticed any personal abuse coming from him/her. I certainly don´t see why DMcW should arbitrarily stop him/her from posting.

          • Joe R

            Mistakes and clarification – given blog community against opinions which GO against the grain OF that given blog community´s group opinion.

            ( i.e. groupthink. )

        • Joe R

          Pat,

          Biggest think to happen in Ireland in economic terms last week was the announcement of the liquidation of the last of the public pension fund (6.4 billion euro) and it´s gradual injection into the public realm over the coming years

          That has a number of interesting consequences and says quite a lot about about where the Government and Labour in particular are at, I think.

          But there was no mention of that hereabouts.

          But maybe there will be soon.

        • Fuck off then PF. It’s getting too much for you but for everyone who leaves there will be a hundred others waiting to take your place ex comrade. You are a coward and sound like one in series denial.

          We are no different to maginalized minorities the world over. One Million were out on the streets of Brazil today and people are taking over Istanbul

          Does that not motivate you?

          Or do you still desire the cozy tea time ads to convince you that you have a stake. Those misty eyes and honey dewed multimedia reassurances they have been peddling since the 1950s

          The Brazillian Brothers are showing us what needs to be done. Or are you too comfortably off to care?

          One day they will come for middle class cowards. Like you Pat. Then you will wonder why no-one cared and you will be left alone to weep over your imagined fallen empire

          Polite?

          You don’t beat Inter Milan by being polite.

          The last thing we need is politeness. Politeness is for losers. This is a war.

          Politieness is a luxury afforded only to those who have unshakable confidence in the Status Quo

          I put tit to you that you are asleep and you are a coward who does not want change. I pity you Pat Flann

  12. dwalsh

    For anyone who still believes there is a civil war going on in Syria see this video of Former French Foreign Minister Roland-Dumas saying he was told by British officials in London 2 years before the crisis that Britain was preparing gunmen to invade syria.

    https://socioecohistory.wordpress.com/2013/06/16/former-french-foreign-minister-roland-dumas-said-that-britain-had-been-preparing-gunmen-to-invade-syria-two-years-before-the-crisis-there-flared-up-in-2011/

    The crisis in Syria is a Western-backed invasion by Sunni jihadi terrorists.

  13. dwalsh

    Excellent article and analysis David.

    The central banks have created a complete disconnect between the financial economy and the real economy; and are creating the biggest asset bubble in history; the bond markets.

    The financial markets are addicted to free money; and like any addict they panic at the slightest hint of a reduction in their supply. This creates a very dangerous situation for the world.

    We are drifting towards an abyss.

    • Correction. It was a lazy schoolboy summer afternoon half assed attempt at jounralism during lunch. Typical of the lazy half assed fare from the Irish msm. If you think is top notch then you are easily pleased and there for the kidding

      The more people ass lick his the more we will get half baked writing. It’s not excellent at all. It’s bs and everyone knows it

      Grow up

    • Arse licking should be re-classified code red and elevated as a serious public health warning. Now go and write something original. Please!

      After all the ass licking at the G8 the Irish are without a whimper. They are sucking Obamas ass and still kissing Kennedy’s bottom. They are incurably romantic. Kennedy was a pervert like so many of the good fathers who represented the holy faither and his Roman cabal

      Sick and warped as fuck

      Tell them to fuck off and tell the bankers and you local idiot politicos to sit on this:

      Roll Over Beethoven Chuck Berry
      http://www.youtube.com/watch?v=sz2bHUbOTnE

      Or do you intend to be a loser all your life?

  14. http://www.bullionbullscanada.com/gold-commentary/26267-gold-bashing-mythology-hits-new-crescendo

    Active crescendo of buying leaves a 1500-2000 tonne demand in excess of supply. Even the western banks are buying, creating money from nothing and trading the paper junk for real money.

  15. QE to Infinity, followed by Gold balancing the balance sheets of the sovereign balance sheet disasters. Just as there is no tool other than QE to feign financial solvency, there is no tool to balance the balance sheet of the offending entities other than Gold. It is just that simple.

    –Jim Sinclair, jsmineset.com, May 22, 2013

  16. Casey Research

    What happens if the world’s monetary system fails? Stuck like a rabbit to a tar baby, we find the US government balled up to its collective ears in trying to use monetary policy to manage the complex system of a very large economy. It’s not just futile and doomed to failure, it is as counterproductive as can be. That’s because having a central bank, let alone one armed with a blank check, invariably leads to excesses… in government spending, in government debt, and in massive misallocations of capital that, in turn, extend like cracks in lake ice throughout the entire economy.

    Moreover, the infrastructure and bureaucracy and businesses that have grown around central bank meddling literally extend around the globe, presenting a clear and present danger to pretty much everyone. While things have gone way too far for anything other than a painful reboot, being an optimist I think that if we were to wake up tomorrow to the news that the Fed was being shuttered and that henceforth the dollar was to be backed by gold (at whatever price that required), the world would quickly adjust and move forward – because that’s what we humans do best.

    • Bamboo

      FYI: Webmaster and/or David, I can see a lot of content in this article that is most likely unintentional and not for publishing. You may want to look into this!!!!

      • Bamboo

        Please ignore my comment, thanks. My mistake

        • Hi Bamboo

          Casey Research have been in business a long time.
          His remarks quoted above seemed appropriate and very much in line with my opinion and thinking about the validity of the central bank organization. They cause the inflation and the attendant fiscal and social discord.

          No doubt we need to be rid of the central banking systems and the cabal who run them.

          Take care and have a great sunny summer day.

        • You are grand Bamboo. Don’t worry about it.

  17. 5Fingers

    A good compass for economic sustainability is to watch the brand which derives from a country’s endeavors. I wonder does it act as a pointer of how it self-manages.

    Here are a list of my prejudices.

    BEST PRACTICE BUT INSULAR: Germany, Sweden, Norway, Denmark (maybe Japan and other asian tigers?) etc – Engineering, precision etc. Management – Nothing allowed to be vague or open ended. Enter Karlsruhe.

    COMPLICATED & MESSY: France,Italy, Spain etc – Fashion, Art, Agri etc. Management – Aligned Communally, open ended.

    INSULAR BULLIES: UK, America – Lost all their brands. Not much good at anything aside from banking and weapons and mass media(propaganda machine) – loosing lead or dumped it everywhere else. Management – Strong Man, Military Hierarchy – yes man culture.

    CLEVER FOLLOWERS: The BRICs will mirror all of the above as necessary to grab market share. Their brand is still cheap and cheerful and copycat for now – why change what works? Still evolving their management styles.

    Stalkers: Russia and most of the former Euro East Blockers. A tendency to be like Germany – but ambitions to be bullies (management style).

    CHAOS: Islamic/ Gulf states, African hotspots. Brand: Testing Ground. Management Style: Cellular and Unspecific.

    Nobodies: Ireland, Canada, Australia. Maple Syrup, Fosters and Bull$h1t. Management style – US wannabes.

    So there you have it, yiz are all wannabes crying about the loss of bigger and better.

  18. Pat Flannery

    I am not the only one to compare the bond markets to drug addicts:

    http://abcnews.go.com/Business/federal-reserve-sends-stimulus-junkies-rehab/story?id=19422315#.UcA4yzE1gcA

    “The market is such an extreme QE junkie that, perversely, whenever there’s talk about the economy improving, stocks go down ……. because the market is addicted to this continuous infusion of cash.”

    • bonbon

      We are not the “bond markets”, get it?

    • If you are comparing markets to drug addiction then that implies most people on here are talking out their bum and I’d figure around 95% of them are pig ignorant bog trotting assholes

      Some of these conservative maniacs would get extremely uppity if you suggested legalizing drugs such is their myopic and ignorant world view.

      I wonder do they realise their supposedly legit investments and pension fund activities are funded by international drugs and arms trades. I bet they never look at pictures of life in Iraq

      We all know it is twisted and warped

      It is my contention that if you have money then you have a lot to answer for

  19. crazy cat

    Excuse me for interrupting, but given the G8 meeting taking place at the moment, this second article by George Monbiot is worth a read.

    http://www.monbiot.com/2013/06/17/elevation/

    • 5Fingers

      Very disturbing indeed. But is this the actual truth or someone with an axe to grind?

      • cooldude

        Bono went to the dark side along time ago. He is just another arrogant globalist who hangs around with corporate scum like Bill Gates. As they say look at what he does not what he says.

  20. Does the name Salvatore Ferragamo mean anything to you?

    Absolutely nothing David. Does he drink in your local?

    • bonbon

      That wil o’the wisp never existed, pointless to follow the “free” pied pipers at the G8, somewhere over the hill at Enniskillen .

      Never mind Adam Smith’s illusions. We are free now to split the banks, and good.

  21. Protect your psyche and let me talk frankly for a minute. We are in a loft in the Garngad plotting supremacy of The Glasgow Celtic and will be happy even if that supremacy is asserted after our deaths. We are Irish brothers and our struggle is massive but we have vision despite our poverty and having to suffer abuse under the Scottish version of apartheid. We are willing to serve and who in their right minds would refuse to pull on that famous shirt? Not Many and I defy any Irish man on this earth to deny it!

    We are talking about proper footballing shirts here. Recognised the world over and thanks to an Irish Brother called Walfrid

    It happened and the rest is history

    Stop being so fucked up with the Me Me Me generation and listen to your intuitions. Stop Tweeting and Fuckbooking and get a grip. You are all being manipulated and your brains turned to pulp. Opt out!

    In recent weeks I have been on a mission. I am a huge fan of open source software and I am a programmer by trade and intuition. I want to teach people how to code and make their applications cross platform and available. I see the potential but know how hard it is to break into something that appears to be the playground of intellectual snobs and ‘celebrity’ demagogues. Fuck them. I will show them another way

    After graduation I shunned the IT industry because I am terribly bad at taking orders and I love software for it’s own sake. I am not interested in doing an internship or any of that fuckin nonsense. I’d probably know more about coding that the boss

    I have spotted a learning gap and my computing blog stats are coming up with surprises. Of the 20,000 hits so far, 50% of them have been for three posts out of 50

    You might say that my stats are telling me something and you would be right

    If I can write ten posts that get 10,000 hits a year then that would be a success in anyone’s mind

    But

    There is no revenue!

    And this is the whole point.

    It’s got nothing to do with money. It’s about going to places where money is irrelevant and the only reward is karma and undying love from followers around the world

    Now can you understand why some men fight for gold and why others fight to maintain their freedom?

    Stop laughing. One day soon you will find out that you are not as free as you think you are!

    Now tell me again why this pathetic excuse for an article by a minor celebrity Irish economist is more important that what you are I have to say

    These guts are fakes and they understand fuck all.

    Stop licking their floppy haired belly buttons. They know what they are and they know what WE are and that is why they are bricking it

    Bell Bottom Blues :

    http://www.youtube.com/watch?v=BKAYGVIkbok

    If you ever pass me in the street then please say nothing at all

    God Bells to the Irish Brothers.

    We did it before and we can do it again

  22. bonbon

    US secret servicemen disguised as farmers at the G8? I wonder if they have wellies? It’d be hilarious if a few have to pulled out of the bog!

    http://thedailyedge.thejournal.ie/secret-service-farmers-g8-954205-Jun2013/

    • What are you looking for?
      Empathy?
      Won’t find it here Brother Bonbon.

      They could not give a fuck about the big picture.
      You are wasting your time if you think you can make a difference.

      But you know you can and this is why people profess to hate you.
      Personally I like you and think you are needed. Whoever you are are they are

      And why would they not be dressed in wellies. When in Rome do what the Roaans do

      You sound quite naive and I know you are young

    • onq

      Let’s hope not. We have enough contamination around here as it stands. :)

  23. You silly little boys are all asleep and I find you all as creepy as fuck. You are not the sort of people I’d want to shoot the breeze with but there are some who are sound because they want truth rather than the usual crap. They are sound because they have shown me friendship and given me the strength to carry on annoying the fuck out of everyone despite efforts to the contrary

    You know who you are I know who you are

    Some people can’t take the truth and so they stay asleep

    I also know the vast majority of you are just using bastards and this place stinks of your selfishness, incompetence and fucked up hangups. Desperate losers looking for answers but consumed with some unfathomable sense of inferiority and bitternessa

    Step 1 – Lose the bitterness and get laid more

    Look. This guy is an economist. You won’t get your answers here and you are hastily invited to fuck off (unless you come to some private arrangement). All is fair in love and war

    Hush little baby and don’t cry

    Oh David, David please tell me what to do!

    I will do almost anything David.

    Fuck Off.

    I am finally seeing it for what is is. It’s a lovefest for perpetual losers and the morally challenged. Smart as fuck but the types you would never invite to G+. Losers

    If all you worry about is money then you have lost and you are a prisoner. You are a slave. God knows I see many come and go and marvel at why they are so ignorant to the reality that they have well and truly fucked their lives up

    Cant they handle the truth that they did it through conscious choice?
    Can they hell. And this is why they hate themselves

    Why hate yourself?

    Get out. And do do it fast.

    If you worry that people will call you a ‘debt dodger’ then you are fucked and you deserve all that’s coming

    Will you listen to the village simpletons who will label you a ‘debt dodger?’ I’d face them down and like the pro life brigade I’d tell them to mind their own

    It’s frightening to know that such simpletons are all that the political parties have to contend with. Ignorance is bliss?

    Where is Oor Colin when you need a laugh and someone to fuck with?

  24. Adelaide

    Yikes, this site has gone to the dogs!

    Seems to be fewer and fewer contributors writing longer and longer submittals, at this rate it will ultimately be just Bonbon submitting a thesis every week. Davidmcwilliamsandbonbon.ie

    • Yeah it’s full of trash. The boss himself even hates this blog.
      So I am led to deduce :-)
      We are all scruffs and the sooner we realise it the better life will be.
      Know thy place.

      • But

        He has created a monster and he is a prisoner.
        I’d hate to be him and so would any right thinking person.

        It’s far better to keep your head down

    • bonbon

      “The only thing keeping Irish bond prices from collapsing is the assumption that Germany will eventually pay.”

      This is what has driven some MAD dogs to sit out in the noon-day sun. DMcW is right about the height of foolishness. Germany has one major problem, as I post above, Deutsche Bank. The entire strategy is teetering on a thread.
      Now Putin has put Britain’s Barry O’Bama on hold at the G8 so what will the empire do next?

    • whatamess

      +1 Adelaide

      “to the dogs” is dead right…

      but Bonbon’s contributions have not,this week anyway, been so GS centric …Bonbon is very correctly pointing out Deutsche Bank and the associated concerns that may very well tip the balance and send us into a deeper chasm of despair !

      out of 100 comments so far,one contributor who just can’t seem to help himself ,spews absolute crap and accounts for 40% of the offerings here in this blog today…one comment as vulgar and useless as the next…

      DMW ,please get some software to eliminate the use of such atrocious language?…if only as a courtesy to the rest of us who enjoy visiting here and learning and don’t want to visit here if having to ENDURE such drivel and profanity …

      • bonbon

        And the only possible way to deal with DB, in fact Glass-Steagall was invented for it and its peers.

        I notice the closer DMcW gets to the nutshell, various methods are used to disgrace the blog. Not a cooincidence, used to be “shill-ing”. For the moment I will not suppose any premeditated “tell the truth and muddy it” tactic…

        And for my every word about splitting banks, I get showered with gold! Maybe it is the Midas touch?

    • whatamess

      +1 Adelaide
      “to the dogs” is dead right…
      but Bonbon’s contributions have not,this week anyway, been so GS centric …Bonbon is very correctly pointing out Deutsche Bank and the associated concerns that may very well tip the balance and send us into a deeper chasm of despair !
      out of 100 comments so far,one contributor who just can’t seem to help himself ,spews absolute crap and accounts for 40% of the offerings here in this blog today…one comment as vulgar and useless as the next…
      DMW ,please get some software to eliminate the use of such atrocious language?…if only as a courtesy to the rest of us who enjoy visiting here and learning and don’t want to visit here if having to ENDURE such drivel and profanity …

  25. Hallo!
    Halloow!
    We are da silly boys!

  26. I’ve known some of you Irish Brothers for a while now.

    You know what disappoints me?

    You learn nothing and you are incurably conservative. It’s like you are incapable of seizing the truth and saying ‘to fuck with all this crap the bastards programmed me with since birth’

    You still sound incredibly naive or you are plainly gullible and there for the conning.

    Are you all thick or what

    Look at your country. What do you see.

    You should all be fucking ashamed and queuing up in the morning to make amends. Crude Selfish Bastards

    Kiss the gold Brothers

  27. 100 Comments is great for a slow summer article. Awesome. Hampden in the sun Brother David and Hampden all covered in banners of green. Like 1972 and 1953.

    Was sixty this morning. Conclusion – we motivate each other when we stop beating about the bush get down to business. Some us are altruistic and some of us are selfish pricks

    Agitate and engage. It’s your purpose!

    If you think you can take a back seat and have it cushy them you are asleep

    Bigots would have driven us out of Scotland. They didn’t because we proved we just as good and sometimes superior :

    http://www.youtube.com/watch?v=PXyBLnScuCU

    Know your history Irish Brothers.

  28. TrackerMan

    I wonder if its possible to lock some people out of writing on this site…could we at least keep it civilised and leave some of the more vulgar comments out, would be greatly appreciate, thanks all

  29. Seems the Germans average wealth is lower than the average Greek. This may, to some extent, offer a reason why Germans do no wish to bail out the periphery.

    There are some interesting graphs here too.

    Plus an explanation of why wages are contracting even as asset prices rise, producing classic stagflation

    http://www.insideinvestingdaily.com/articles/inside-investing-061913.html?sub=TD

  30. David,

    QE, abled by computers, is not even akin to printing money but works as follows. Ignoring cash, we have a two tier electronic money system. The ECB, via the national central banks, electronically creates the first tier, central-bank-money. It does this by recording a new liability on its books to whichever institution borrows said money into existence and so this type of money is also matched by a debt back to the central bank. It is only the commercial banks and the government which can use this tier of money since other businesses and households cannot hold a central bank account. While this money can facilitate the banks’ daily clearing system and inter-bank trading it’s not in general circulation. An abundance of central-bank-money alleviates any liquidity issues the banks may have but it cannot provide a means of exchange for anything in the non-financial, or ‘real’, economy.

    Under QE the banks’ ‘bad’ assets are swapped for central-bank-money, the idea being that the banks then have ample money while the central bank is better positioned to take the hit on the exchanged assets which are likely to decrease in value. As long as we’re prepared to ignore the potential insolvency of the central bank, which we are, the end result of QE is that the banks to have an abundance of central-bank-money and a much healthier balance sheet. However this does nothing for those who use the second tier of money, bank-account-money, which can still only come into existence if someone walks into a bank and organises a loan. As Mario Draghi admitted “It is a fallacy to make a mechanical connection between the creation of central bank liquidity and a rise in the money supply. The liquidity we provide to banks is used in the markets where banks lend to each other. It does not automatically increase credit or money in the economy.”

    While Eurozone QE would excite the financial services sector into trading more financial products with each other, it wouldn’t alleviate the problems of over-indebtedness in Europe’s real economy. That could only happen through what I’ll call ‘Qualitative Easing’. This would involve a truly electronic version of printing money. i.e. Having the central bank cautiously type enough money into the Government’s bank account to maintain an adequate medium of exchange for the real economy. Monetary financing of public debt is still considered an underhand way of resolving your debt issues despite the fact that the alternative, resolving the crisis under the debt-based system, is not possible. However before you catch up with the can you’re about to kick down the road again things can seem manageable.

    If we were serious about banking reform we could outlaw the creation of euros by banks altogether and run the economy the way most people think it runs – have the central bank create the entire money supply and have banks facilitate intermediation of existing money only.

    Best,
    Paul

    • bonbon

      Please take time to study Hamiltonian Credit systems, as used by Lincoln, FDR among others, rather rarely unfortunately. There lies the solution to the banking conundrum, monetarism.

      It is also much easier to understand, as Hamilton actually deals with the physical economy, on a scale most can readily appreciate.

      • Well I have taken some time and concluded he was no different than todays lot of Manipulators and thieves of the common good. He promotes central banking to the benefit of the bankers.

        You have been asked to explain your understanding of Hamiltonian banking and how it works but you have to date steadfastly refused to discuss prefering instead to repeat your exhortations numerous times as if the more you repeat it the better it gets.

        I wait yet for a reasoned discussion as to how Hamiltonian banking is of a benefit. That invitation is extended to all readers who also are notably silent on any detail of such benefits.

        • bonbon

          It is difficult to shake off your Austrian Schooling, Mises mesmerising. The world does not, never did and never will function as Hayek, with a nudge and a wink, wrote. Why not take the hint from Hayek himself?

          • It is not difficult to shake anything off given a reason but you again will refuse to answer a simple question. You are like the politician who gives innuendo and outright stupid comments to hide inadequacies.

            I suggest you hide under the mantel of LaRouche popping out with these cute quotes but you have no understanding of what you comment upon.

            So again. What is the benefit of Hamitonian banking. How does it work, and what effect will it have on today’s economy.

            You appear to be the only around here doing any nudging and winking. Either give a reasoned discourse or kindly cease and desist.

          • We will shake off anything that holds us back

  31. [...] in this way forever. A wide gap has opened up between valuations and fundamentals. This is what Irish economist David McWilliams, describes as the “wedge between soaring asset prices and the anaemic economy [...]

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