It is a very good synopsis of the present panic plans to stabilize. Very clear and cogent arguments. (We are rapidly approaching the point where the Fed is the only institution doing any lending at all.) A point to expand on the latter parentheses is that conceptually the Fed was at the root of all lending in the past, as safety valve on M1, but could be extrapolated to be the lender in effect. It is this effect of the Fed that is so widely criticized. Pure Fiat money, which can get out of control whether Fed controlled with government oversight, or government controlled banks, as in Argentina, which regularly have failed, and in other countries failed like series Christmas tree lights in any historical era.
(Quick question.. how many bankruptcy court days until Christmas?)
Canada is a case in point where the Bank of Canada which operates by edict from on high in Parliamentaria. (A Bank of Canada gov was fired for not adjusting interest rates as wanted by the Prime Minister!- we are commies I am afraid)..) but only because we are conservatively tied to the US dollar, and the availability of our credit has more to do with the fact that we have only 6 or so banks with slowish bureaucratic approach to lending, than fiscal policy. Think of the people and businessmen living in Siberia, who are registered as having voted against the Communist party and they trying to borrow off the the Bank of First Stalin, 2500 miles away in Moscow - and you have an idea what banking/borrowing is like in Canada. And you want to leave your cash in the bank? That will be a charge of 2 percent per month. If you are peasant wanting to buy/improve your Dacha and you can be bent to the bank/gov't will, of course you can have the money, Tovarich! But first you must steal 3 sheaves of wheat from the gov't tax ledgers, to give to us for your loan. You have an oil well coming in and want money to hire workers and buy pipe? It will add to the Soviet economy? Bad excuse, Alexy, Get the money from the Mafia!
Canada is poor by edict, bureacracy and compromised socialist legislation. The US is becoming poor by bolixed financials, fiat money, corruption therefrom, and declining incentive/output. The cash crunch on the consumer (inflation spiral really) lack of consumption-liquidity has led over time to reluctance to support American retail product sales. In other words the only way the can afford their lifestyle is to buy on "incentive interest" But the company cannot raise capital at below those rates and is hampered by fat unionized unproductive labour. Bye bye GM. It is a three way credit crunch. The inflation spiral that once had labour making $1500 a year, and now has less free cash (but more toys more toys!) at $65,000 a year had to come to and end. It appears it is going to. And we will return to lower salaries and lower costs. We had to. I don't know about $1500 per year, but I can see 15 to 30 K coming. What will happen to the unions. Well, good question. Union/trades cartels have been with us a long time. I see strike and unions at first getting more powerful as they did in the 1930's. "Labour unrest" as they call it. Spilling over into the streets and into political unreset and social chaos. As Doug Casey said it will be horrific, but not serious.
Our reserve structure is 20 loan to one assets. We never went on zero reserve policy like US banks did. We conservatively edicted from on high that CMHC and other mortgages had to have so much down, so many credit points to be non de minimis etc.. in other words our natural tendency to be Crud-Asses to the borrower protected the banks.
They (CDN banks) would lend to anyone as long as he was not a 1. business person who need payroll. 2. middle class person short of the 25% for a mortgage. 3 business person with bills, unless big business 4. wrong political party if you were the Fed Dev Bank. We were really tight bastards and corrupt as hell. That protected the banks. Started by Scots. You can guess the rest.
Although we did not get into ABCP in a big way and our derivatives market in loan protection is primitive, that 20 to one reserve structure will hurt us in time. And we are the tail of the flea bitten American Cur. Bad again.
All we need now is for Obama to get elected and an unemployed Iranian/Native-American Red Neck who had worked in an Alabama Saw Mill, to shoot him and we get riots in 40 US cities. "That ones", mistaking the lone nut with the gun for a systemic coalition of knee jerk honkeys, will effectively burn the cities of America down block by block. Hurricanes will follow that summer and trash 30% of the Atlantic coast infrastructure. 15,000 concrete and steel bridges and overpasses will finally corrode and collapse into rivers, estuaries and onto freeways. Simultaneously Earthquakes will hit Los Angeles, Sacramento, San Diego, and San Francisco, and resulting fires will burn those towns to the ground. The resulting mobilization of industrial enterprise, the across the board realization of the mistake in the social reaction to what appeared to be organized infamy, will re-energise the US fabric. Swarms of volunteer labourers will work side by side in pure racial and labour harmony with unionized tradesmen in rebuilding from the ashes. People will stand in bread lines proudly, shovel and wireless slide rule calculators in hand. (Breadlineberries) A new era in race relations, industry and commerce will begin, where $3.65 will be a top wage for a single worker home owning family. The rebuilding of the American pyramid will start and prosper mightily. A side effect will be that Non fed banks, released from the obligation to tie into that federalized Washington crony dictates, will arise with naturally conservative lending practice and new titanium gold-silver coinage and gold certificates backed by 1/50 of an ounce of gold will be issued by the banks, at first as local currency and finally with gov't guarantee. (If you look into the history of American currency that is the norm. It was not always printed by the government!) Prime number currency will be started simplifying changing making and retail commerce. Wall street, now burnt down, will arise anew as a curb exchange, unburdened by the Securities act of 1934 which will be repealed in a massive simplification of all tax and corporate law. It will begin with one simple edict at the start of the law book. Thou Shalt Not Steal or Multiply Credit Unnecessarily. All other laws will refer to the first page. How will excesses be averted with a free booting curb exchange? Look at curb markets all over the world. From farmer's markets to the Reyjavik Stock Exchange to the Indian Stock exchange to the CDNX. Excesses and rip offs were far less common on these than on the major exchanges. Why? I think it is systemic. People only steal large where there is large money to steal. Keep it simple and the big crooks will not be there. I think markets need regulation, but far less than we tend to believe. All the 43-101 and TSXV issuer regs do not stop Bre-X's and market melt downs. They just make it harder for honest people to make a living.
EC<:-} |
