Marc Faber: backs US dollar against Euro, US economy better than Europe's

Here.

Another US bank bites the dust - 10th this year

Here. (htp: Drudge Report)

Financial Apocalypse Now

Cash, Gold, and Swiss gov't bonds.

In 7 years, it could very well be that a Krugerrand buys a decent house!

... says an anonymous commentator on Nourishing Obscurity, after listing multiple dire threats to our wealth and security. Any other expert care to give a view - and put his/her name to it?

Changes in foreign holdings of US Treasury Securities, June 2007 - June 2008

US mortgage GSEs: Bank of China is taking cover

The Chinese have been reducing their investment in Freddie and Fannie (htp: Alice).

What bankers don't know about banking - or do they?

Those red and blue lines remind me of the song, Me And My Shadow.

This is from Mark Lundeen's 12 August essay on banking and inflation (htp: The Mogambo Guru). And here's another graph from the same:

(Is it my imagination, or does the curve begin in the 60s?)

Should we call the credit crunch the Shawshank Recession?

What I don't know about banking

London Banker reports that US deposit insurance looks compromised. I comment:

In my amateur way, I have suggested that we give up on fractional reserve banking for home lending and simply lend (create) money without any base at all (but with, perhaps, some State budget for how fast they can inflate the money supply). We're nearly there, but the current system is complicated by the expensive mechanics of taking in and returning deposits, and the threat of runs on the banks.

Perhaps deposit takers could be like the old Swiss banks and charge you for holding your cash, while the lending banks rot its value. Any votes for a separation of functions?

The British underclass: cocooned victims

Theodore Dalrymple, a retired doctor who worked in Birmingham with many of the underclass, writes an excellent, all-in-one piece about the misery and degradation at the bottom of society, and how it is sustained by people in the middle who depend on it for their living, and a political class that pretends to treat these carpeted, centrally-heated slaves as their clients.

And the whole thing is supported by ninnies who think they're clever: "For intellectuals, multiculturalism is a lot of different restaurants."

It's in yesterday's Daily Express, but I'm finding it hard to create a link as you are led straight on to some viewing program; so since everyone who was going to buy that edition has now done so, here's the text:

MODERN Britain is a land of contrasts, not to say of paradoxes. Its children are simultaneously overindulged and neglected, mollycoddled and subjected to violence. Adults either work long hours or while away the time in complete idleness.

It imports labour from overseas but supports large numbers of people to do nothing. As the health of the population improves so the number of invalids grows inexorably. No war has ever produced as many people unable to work as the British welfare state.

Despite official statistics – misleading, of course – about the low rate of unemployment, one in seven British households does not have a working adult. Millions of children are growing up with no personal example of earning a living before them. No wonder later in life they call the day on which they receive their social security “pay day”.

They even use the word “wages” in this connection. (Habitual burglars, by the way, talk about “going to work”). It is not their fault. We have made – or perhaps I should say our government has made – them as they are.

We should not imagine, just because we ourselves would like a little more leisure time, that the condition of state-supported idleness is a happy one. Living happily in idleness is an art which most people do not possess. On the contrary, state-created and subsidised idleness is purgatory on earth, or a limbo in which you are denied the two great motives of effort: hope and fear.

IF THOSE paid to be idle go out to work the chances are that, because they are mostly unskilled, they will receive little more money than if they do not. Who, other than a saint, wants to get up at 6am every morning to earn £15 a week more than if he stays in bed? The idle do not believe they can improve their lives by honest labour and they are not entirely wrong.

On the other hand they cannot deprive themselves of an income either. Whatever they do, however they behave, the money – such as it is – will come in. No hope, then, and no fear. This also means no meaning. What rushes in to fill the void? The answer is self-destruction and social pathology of every conceivable kind. Better to live a life of perpetual crisis – a kind of personal soap opera – than one of quiet limbo. A bit of crime and violence helps to break the monotony.

The whole system is very expensive. It means the rest of the population has to spend between an eighth and a quarter of its working life paying for it. Moreover, there is no end in sight: for the system is reproducing the very kind of people who will necessitate its continuance. No one strapped to a treadmill ever had a more futile occupation than the employed British population working to reduce child poverty under the present arrangements.

A large number of the households with no working adult are those of single parents. Contrary to received opinion, the answer is not to force them all out to work, tiring them out so that they can devote even less time and attention to their child or children.

The answer is to provide firm and very strong incentives for people to form stable couples. As anyone who has ever witnessed an unhappy marriage will know, not every stable couple is a happy one but from the point of view of public policy it is better on the whole. From the point of view of children and public finances, too, couples (even unhappy ones) should be stable. Successive governments have followed exactly the opposite course, encouraging the break-up of parents as much as possible. The consequences are disproportionately severe for those at the lower end of the economic spectrum.

Paying large numbers of people to do nothing, we find ourselves short of labour so we import it. This has unfortunate consequences, whatever political correctness might say. (For intellectuals, multiculturalism is a lot of different restaurants).

ONE of the reasons people give for wanting to leave Britain – and more want to leave than the natives of any other comparable country – is that it has entirely lost its distinctive character. Oddly enough, even older immigrants say the same, lamenting the country they came to is no longer the one they live in.

As if this were not enough, much of the demand for labour produced by the prosperity of the past years, now coming to an end, has been bogus in the sense of not being economically viable in the long run. Half of the employment created in the past decade has been in the public service without there having been a corresponding improvement in public services.

These extra public servants – many of them in effect drones of the State, whose main activity is obstructing others from doing anything useful – have to be paid for by taxes. They are an extra burden to those in the real economy and are the natural political allies of the permanently idle. After all, those with social pathology require an army of saviours from the consequences of their behaviour.

The whole pyramid scheme – for that is what it is – works wonders for a time, based as it is on a mountain of personal and public indebtedness. But once confidence in it is lost the edifice comes tumbling down.

As Louis XV’s mistress Madame de Pompadour said, aware of where all the excesses of the aristocracy were ultimately leading: “Apres nous, le deluge” (After us, the deluge). The Government has turned a cynical witticism into its economic and social policy.

Impending dollar implosion?

Mish reports a notion that there's heavy foreign buying of US Treasuries supporting the dollar; how much longer can it be kept up?

Impending gold explosion?

According to "Jesse", India is buying physical gold like there's no tomorrow, and they've run out of supplies of Krugerrands in SA.

The New World Order

I said earlier this week that rich and powerful foreign investors will call the tune now, and London Banker relays a threat from the Chinese re Fannie and Freddie. Unlike the domestic citizen and taxpayer, these people absolutely will not be stiffed.

Which is why we will get high interest rates, to prevent robbery-by-inflation. Which is why cash may remain on its throne for quite a while yet.

The question remains, which currency? One says the yen, another coughs and says "Euro." Wish I knew.

A snippet from Alice

Just a reminder from Alice's powerful Picasa presentation on house price trends (see also her Youtube version - top of sidebar).

Advisers and analysts who haven't been in the game long enough to yellow their teeth, may be emotionally unprepared for severe and enduring reversals of fortune.

Woman in orange suit breaches security cordon to assail Presidential nominee

UPDATE (24 Feb 2012): curiously, the link for Hillary's picture below is now broken. Further, the reverse image search engine Tin Eye returns ZERO results for this specific image, despite its being an AFP/Getty Images pic. Quite possibly this is the last place on the Internet that you will find it.

Is this happenstance like those photos in Stalin's era, re-edited as certain persons became unpersons? Or in this case, as an unperson became a Person?

You can, though, find other images of the same thing elsewhere. So maybe it's to do with the vanishing of the LA Times Dishrag blog? And when and why did it vanish?
___________________________________________________________

"Pantsuit", or jumpsuit? You decide; I fear it may be prophetic.

But I think Paris Hilton carries it off better.

Is your financial adviser a charlatan?

It seems the experts now agree with my guess that the economic doldrums may continue until at least early 2010, a considerable change from their more sanguine assessment a year ago.

Unlike them, I was warning my clients about US indebtedness in the 90s; about the '98 Far East crash; about the late-bubble tech enthusiasm of '99; and have generally spent the last 10 years or so cautioning clients against making substantial investments. And I first said 2010 in January (in one of my Ol' Blue Eyes farewells - I keep making comebacks because I can't shut up when I hear what "experts" say).

The real difference is, I'm not rich; I simply can't understand it.

I may retrain in astrology. It's less regulated and I can't remember an astrologer being successfully sued. Here's a sample:

ALL SIGNS: house prices will continue to trend downwards in real terms, but because homeowners don't like accepting a loss on their personal real-estate speculation (I've long said that anything you treat as an investment will behave like one), much of the slide will be achieved by long-term stagnation.

Meanwhile, the good news is that to be a contrarian now means to keep your powder dry while looking for promising targets. I wonder, for example, whether a punt into carefully-selected construction firms might prove lucrative in the long run?

That is, unless we manage to deport the people who've come here illegally and start to apply geonomic principles to land use, in which case we'll find out that we have no such thing as a housing shortage in the UK.

Financial experts "miserably bearish"

This report by Jim McTague from Barron's, reproduced on the Cumberland Advisors site, gives an indication of how the money experts were feeling this month, on their annual fishing trip in Maine:

[David] Kotok's diagnosis of the cause of the gloom that permeated the crowd was this: Most of them see more economic downside than upside; we don't have functioning credit markets; banks and big Wall Street credit intermediaries are either dead, wounded or on life-support; housing is a wreck; and the auto industry "is done."

Once the economy stabilizes, it will take many years to fully recover, he said, because no strong growth engines are evident. "That's why people are so gloomy! They see no upside!" He personally is investing client money in agricultural plays because, he says, the long-term price of food is trending up. He likes bio-companies whose products are geared to an aging population. And he likes Asia as an investment destination...and he doesn't like much else.

I conducted in-depth interviews with a dozen of the participants. They all perceive the economy in the early stages of a multiyear recession that will be the most painful downturn since the 1970s. The housing market, which experts once predicted would recover in 2008, may not recover even in 2009. Credit woes on Wall Street will begin to inflict real pain on Main Street.

We're already seeing the impact on housing, though the worst may not have happened yet; and I think stocks and bonds are still in something of a fool's paradise. I'm sticking with my guess that in retrospect, we will see that the upturn began in the Spring of 2010.

Accountability - but not to the citizens

Reuters reports yesterday that a bank in Abu Dhabi is suing Morgan Stanley, Bank of New York, Mellon and the ratings agencies for fraud relating to understating the risks in the complex debt packages at the heart of the credit crisis. (htp: Jesse)

Answerability to the voters is so last millennium, pace idealistic dreamers like Karl Denninger; but money talks.

If voting made a difference, it'd be Paris Hilton for Prez, and do you know, she could be a surprisingly good choice. Much more can be achieved laying on a sun lounger than crashing around the world. A film quote from Lawrence of Arabia:

Colonel Brighton: Look, sir, we can't just do nothing.

General Allenby: Why not? It's usually best.

And what a pleasant change it would be, to have a politician who only pretends to be dumb. I can just imagine her sweetly commanding some tough dudes to go and give the financiers the drubbing they deserve, then turning her attention back to her fashion magazine.

Yes, it's money that talks and the people are dumb. In 1930 Ludwell Denny wrote, "Too wise to try to govern the world, we shall merely own it. Nothing can stop us." America forgot that lesson; rising foreign powers now pay the piper, and will call the tune.

If you can't beat 'em... every dollar and pound you save in your bank account, is a vote in this new electoral system. With luck, one of your descendants will be accepted into the Superclass, while the rest vainly try voting for improved social security and healthcare; when the well is dry, the vote won't fill it. The freedom for which America thinks it stands, isn't founded on supplication. As here in Britain, it would be a hard road back.

Perhaps Chesterton's observation on Christianity may apply equally to the US Constitution: "[it] has not been tried and found wanting; it has been found difficult and not tried."

In praise of the American Constitution

On The Great Depression Of 2006 recently the talk has turned, inevitably, to rich vs. poor. When societies are under stress, the people turn on each other. I think they are forgetting what holds them together.

I hold no brief for American foreign policy (perhaps nations and religions should be evaluated according to how they treat "the others"), but I wish we in the UK had something that guaranteed our international independence and defined and limited the powers of our government. My comment on Jim's piece is as follows:

Would we have to be talking like this if the banks hadn't exploded the money supply?

After much heart-searching (and encouragement from me), my brother recently became an American citizen. He sent me the crib book ("The Citizen's Almanac"). Page 5 ("Responsibilities Of A Citizen"), item one: "Support and defend the Constitution against all enemies, foreign and domestic." The explanatory paragraph ends, "When the Constitution and its ideals are challenged, citizens must defend these principles against all adversaries."

Please don't bridle if I quote the United States Constitution, Article 1, Section 10: "No State shall [...] emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts..."

It's not just about money, but allowing the bankers and politicians to corrupt the money system threatens liberty. We in the UK had a constitution based on civilised understandings that have been thrown out by mad revolutionaries, but you have a clearly expressed founding document more precious than any wretched paper dollars you may have. Lincoln said that the American nation was conceived in liberty and dedicated to equality; "... Now we are engaged in a great civil war, testing whether that nation, or any nation, so conceived and so dedicated, can long endure."

Then as now, you may be the last major nation to hold up that flame. It is not gold and silver that made America admirable, but the principles that bind her citizens. Perhaps excessive material wealth has proved a distraction and a subversion.

After the crash, there will still be Americans, and the American nation. May I humbly suggest that Denninger is right, and the miscreants who have threatened the community with their greed and irresponsibility, should be held to account?

Gold: "reculer pour mieux sauter"

A very interesting, concise post from Mish. He says deflation forces borrowed money out of speculation, so gold and silver will drop while this happens; but then - it could take some time yet - will come the rise: "The reason gold will reassert itself is that Gold Is Money."

Mish's line appears to be consistent (June 2007):"Typically gold is a counter-cyclical asset that does best in real terms when liquidity evaporates."

Gold seems unpredictable - the demand for it as jewellery is unrelated to price - but if his chart below is correct, there is an underlying trend of steadily increasing demand. New gold mined each year is only some 2% of the total still available above ground - gold generally doesn't get used up (though I have drunk Danziger Goldwasser) - so the supply cannot be easily boosted by the State in inflationary times.

Gold, or paper? Your choice.

Judge Mental on broken families

Even though he is a judge, and an expert in dealing with the results of family breakup, Mr Justice Coleridge will be panned for observations like these:

"... almost all of society's social ills can be traced directly to the collapse of the family life."

"I am not saying every broken family produces dysfunctional children, but I am saying that almost every dysfunctional child is the product of a broken family. "

He's not wrong. I'm the last to hug a hoodie, but you have to know why they're like that. Knowing the causes doesn't make them any better; the point is that an ounce of prevention is worth a pound of cure. In years of teaching children in social services care, and children excluded from mainstream education, I don't recall knowing even one case where the child came from a hard-working, addiction-free, two-parent family.

By the way: to what extent is the government fanning the flames, with its tax-greedy promotion of alcohol, its popularity-seeking liberality on drugs law enforcement, and its negligent attitude to employment (especially, I hesitantly suggest - expecting to get it in the neck for saying so - full-time employment for men)?

But it's not just about keeping the parents together. There needs to be a commitment to nurturing the child emotionally: squabbling parents who want the child to take sides make a deep and enduring split in the child's psyche. No law, judge or social worker is going to remedy that; putting the child first should be a screamingly obvious moral point. But who is allowed to make it? "Musn't be judgmental."

Oh yes, we must. Watch the American Judge Judy on Freeview when the subject of children, marriage and responsibility comes up. She did many years in family court, and she doesn't have any time for the mealy-mouthed approach.

The big one is yet to come

Karl Denninger gives his interpretation of recent events: hedge funds have been caught out badly betting against oil and the dollar, and the frantic unwinding hit gold. His prognosis is that sooner or later all the over-borrowing is going to take its toll:

There is a "supercritical" point where all asset values will get hit at once, unless the process runs to exhaustion first, and I don't think there is a snowball's chance in Hell that it will.

Meanwhile, keep your money safe.