M R Venkatesh at Rediff asks whether China’s accumulation of 2 triillion in US dollar reserves has an ominious purpose and whether that card is about to be played. The close linkage between economic and foreign security has rarely been subjected to close scrutiny. The recent financial crisis raises the question whether appointing Barney Frank to his position isn’t at least as important as appointing a General Petraeus to his.
This gargantuan build-up of forex reserves by China has strangely received very little attention of economists, policy analysts, currency traders and, of course, geo-strategists around the world. … After adjusting for all known sources of reserve accretion, experts conclude that approximately an excess of $200 billion could have flown into China as ‘hot money’ — read inexplicable flow of funds — in this period. The Economist — in one of its issue in recent months — quotes Michael Pettis, an economist working in China, who explains how and why hot money flows into China. According to Pettis, hot money comes into China when companies overstate FDI and over-invoice exports.
In effect, is this hot money flowing into China in anticipation of this revaluation of the yuan? Or is it a simple case of China maintaining trade competitiveness through a weak yuan? Or is there something more to it than meets the eye? Are the Chinese acquiring the dollars with some sinister motive? In effect, has the Chinese strategy of a weak currency over the years the un-stated policy of dynamiting the American economy? … Countries that hold large US dollar denominated forex reserves have a powerful tool in their arsenal — they could wreck American financial markets at a mere click of a mouse by selling their dollar holdings. Imagine China with a holding nearly $2 trillion worth of treasury bonds seceding to sell the same overnight. … And that completely alters the existing global order.
The radical Islamists also wish they could exploit the current financial crisis. Tigerhawk notes that Adam Gadahn has surfaced to claim that America’s woes stem from its refusal to follow the edicts of Islam and thus denies itself the chance to emulate the prosperity of say, Pakistan. Gadahn says America is in “a crisis whose primary cause, in addition to the abortive and unsustainable crusades they are waging in Afghanistan, Pakistan, and Iraq, is their turning their backs on Allah’s revealed laws, which forbid interest-bearing transactions, exploitation, greed and injustice in all its forms.”
But Gadahn shouldn’t count his vultures before they’re hatched. Other people have also been mismanaging their financial affairs and Europe is in the grip of a crisis equal to or possibly greater than the tornado that struck Wall Street:
The euro had its biggest one-day drop against the yen since its 1999 debut as the deepening credit crisis prompted European governments to pledge bailouts for troubled banks while stopping short of coordinated action. The 15-nation currency fell below $1.35 for the first time since August 2007 after European authorities avoided announcing any plan comparable to the $700 billion U.S. bailout. The yen rose the most against the dollar in a decade as global stocks plunged, damping carry trades. Implied volatility on one-month euro-dollar options rose to a record high.
“People are running for safety,” said Ram Bhagavatula, a portfolio manager at Combinatorics Capital LLC, a New York-based hedge fund that has $45 million under management. “There’s a huge premium for safety bets: the dollar and the yen. A global recession is coming.”
Although recently passed bailout bill has been the focus of much discussion, the focus of attention has been its effect on unblocking credit. Relatively little notice has been given to whether it fixes the broken ways of doing business. During the First World War, the Allied Generals on the Western Front attributed every failure to advance to a lack of resources. They kept throwing more and more millions of men in front of the machine guns until public outrage and a near mutiny among French forces forced the generalissimos to change their methods. Indirect artillery spotting, armored vehicles, fire and movement, etc. And then, lo and behold, they beat the German Army. Despite rhetoric about the economic crisis, there is evidence that, at GHQ, amid the leaders still confirmed in their elegant routines, it is still business as usual. The Times Online described some of the riders politicians tried to tack on to this emergency bill.
Inserted into the modified Bill by two Oregon senators on Wednesday night was a provision repealing a 39-cent excise tax on children’s wooden arrows, which would save Rose City Archery, a company in Myrtle Point, Oregon, that makes the toys. … Also in the revised Bill is $128 million of tax relief for the manufacturers of car racing tracks, aimed at congressmen in Nascar states, such as Virginia and North Carolina. A provision to give $10 million in tax breaks to small television and film producers could convert a congressman from Los Angeles. The help for Alaskan fishermen is aimed at swaying Don Young, a Republican from the state.
Although more money may be necessary to restore the flow of credit into the financial system, the unfinished and arguably more important component of the bailout must be a set of political and institutional reforms. Without that, we may be throwing money into the flames with the same recklessness with which Western Front Generals fed their battalions to the machine guns. Without that, the West could face another wholly predictable surprise from China. Even the Western Front Generals learned eventually. So should we.
The final phase of the battle of the Somme saw the first use of the tank on the battlefield. … The Somme led directly to major new developments in infantry organization and tactics … the British, and the Colonial contingents, reintroduced the concept of the infantry platoon, following in the footsteps of the French and German armies who were already groping their way towards the use of small tactical units. At the time of the Somme, British senior commanders insisted that the company (120 men) was the smallest unit of manoeuvre; less than a year later, the section of 10 men would be so
The disasters of the Western Front were the graveyard of the long accepted adage that the ‘Public School boys governed best’. The public blunders of a social elite damaged their prestige beyond repair. From then on, things would have to be presented for acceptance on evidence, rather than trust. Maybe that process is now taking place in the less sanguinary but equally vital spheres of governance, finance and the media.
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48 Comments
1. Lifeofthemind:The cliché is that when you owe the bank $100,000 the bank owns you but when you owe the bank $100,000,000 you own the bank. The US owes China several zeros more than that. China needs the US to keep chugging along. Putin may want to see America humiliated but I suspect that China is more interested at this time in the US Navy protecting their sea lanes from pirates. Besides if China starts reworking the calculus that Imperial Japan went through in 1940 the relative merits of Strike North and Strike South may lead to a different conclusion.
The domestic game changer would be seeing Barney Franks and at least a dozen others in handcuffs. America hasn’t had a proper purge in generations. It is a defect of the American system that the distributed nature of our elective offices means that a failed party is rarely completely repudiated at the polls. Therefore they are never seen as completely responsible. Even now the Democrats in Congress with 17% approval are fighting to pin responsibility on an Executive with 26% approval. On the other hand the defective civil service system ensures that partisan operatives of the Permanent Government cannot be removed even if the citizenry reject their failed policies. Compared to the UK model we end up with an inferior political class who are unable to control an inferior civil service.
Oct 6, 2008 - 3:29 pm 2. Shivermetimbers:Hmm. China building up Forex fro some sinister plot… For what purpose? Let’s suppose that there purpose was to wreck the US economy. Why? In doing so, who would buy their goods?
In wrecking the US’s economy, they would wreck theirs and many others. If this were the case, who would be in a better position? Despite the interconnectedness of the global economy, if you stripped everything down to bad scenarios, who would come out ahead?
By attacking the financial markets, you would change how things operate today, and this would cause chaos. But, people can adapt. Our finance system is based on fiat anyway, when you get right down to it. If this were China’s intent, to wreak chaos, then they would be affected just like everyone else. And at the end of the day, the US has food, energy, still somewhat of a manufacturing sector, most of the world’s gold deposited here in NY, and the most powerful military in the world today. So, again, I ask why would they want to?
Unless of course, Obama wins. Then all bets are off. Then I see Russia taking over Ukraine, Iran getting nukes, and possibly China making a move on Taiwan because we would definitely blink if he were President.
Oct 6, 2008 - 3:35 pm 3. Ron Hardin:China is holding Treasury bonds. If they sell them, they get dollars, and the Fed just buys the bonds back, in effect by printing the dollars.
Those dollars are only good for one thing, namely saying what the US economy does next. For which the Chinese have to buy something from the US, or invest in the US. Either one is fine.
If the Chinese just sit on the dollars, the Fed just replaces them. It’s dollars in US circulation that has to be the right amount, not dollars sitting in some mattress. It’s an interest free loan to the US Treasury if you just sit on dollars, or burn them.
Oct 6, 2008 - 3:47 pm 4. Hope Muntz:Ron Hardin is correct. All the US Treasury has to do is to keep printing dollars. The way the EU monetary system is constructed, it may very well collapse next week, triggering even more massive purchases of the dollar against the Euro. Each such purchase makes the Chinese holdings more worthless. However, if those T-Bills get dumped, it will affect the bond market just as the stock market is currently affected.
Oct 6, 2008 - 4:00 pm 5. Mark Maps:If China is half as smart and half as focused on the long-term as advertised, they will gradually spend those dollars after the world markets bottom out in three to twelve months. There’s lots of profit-producing assets, as well as hard assets, in the US, Africa and South America that will be cheap.
I’m with Shivermetimbers. China dumping dollars wrecks their own economy. That’s something the Chinese execute people for.
China is the new Saudi Arabia: they can pump just the right amount of dollars to keep the world markets functioning smoothly while they earn a comfortable return.
Oct 6, 2008 - 4:09 pm 6. NahnCee:Anyone know how Russia is doing in the current market? They were doing dreadfully a couple of weeks ago. I sincerely hope Putin is flailing in a sea of blood-red debt and financial desertion.
Oct 6, 2008 - 4:39 pm 7. Konyok:Nahncee,
They doing just about as badly as you’d like them to be doing. The RTS-1 index is down 19% for the day, down 50% for the last 30 days and down 65% for the year. The RTS-2 index is down 6%, 30% and 45% for the same periods.
Volodya Putin’s oil affluence is disappearing like a puff of smoke.
I suggest a nice bottle of Georgian wine to celebrate.
Oct 6, 2008 - 4:46 pm 8. Lifeofthemind:Pardon for the OT but has everybody seen this about William Ayers?
http://www.frontpagemag.com/Articles/Read.aspx?GUID=9E8CD8A7-E90B-4311-8AA9-AEFD014A14B2
These days this would be called coercing someone to assist a rape.
Oct 6, 2008 - 5:24 pm 9. Konyok:I was tickled when our friend American Muslim corrected his salutation from “Allah akbar” to the proper “Allahu akbar!”
Oct 6, 2008 - 5:42 pm 10. sigintel:after watching Wall Street’s angst playout today with the 800 point drop and 500 point roller coaster recovery, the market has been so tampered with by Washington that its unlikely for the market to stabilize until there is a 1000 point capitulation and the Presidential election is over. The short sellers want back in badly. For the Chinese, they see a “big picture” with a long time interval that Washington and Wall Street never see with quarter by quarter financial reporting and congressional elections every two years. The Chinese are going long while we are going short.
Oct 6, 2008 - 5:54 pm 11. Joshua:And I’m still tickled that he’s apparently swallowed the Obama-is-a-Muslim canard.
Oct 6, 2008 - 6:01 pm 12. NahnCee:Ahhhhh, little A-Mus loves us a lot and can’t stay away. Hanging around, moping, hoping to get back in once he was shown the door. Ain’t that cute, though?
Oct 6, 2008 - 6:14 pm 13. cjm:if china is so smart and patient, taking a long term view of things — then why are they polluting the hell out of their country? all evidence points to a gangster mentality.
Oct 6, 2008 - 6:21 pm 14. bobal:Glad you pointed that out, Konyok. You may have just rescued our friend from everlasting suffering, the “old bastard” being quite strick, you know, and a stickler for all things linquistic. So may our friend mind his a b c’s and x y z’s. I call this, your action, ‘western compassion’ in the best sense.
Oct 6, 2008 - 6:26 pm 15. 2164th:Rubbish. Debtor’s leverage covers rock.
Oct 6, 2008 - 6:28 pm 16. slade:The Chinese are going long while we are going short. – sigintel
all evidence points to a gangster mentality. – cjm
Not either or. One of the themes I have seen develop since the beginning of so-called Reagan deregulation – call it what you want – is an increasing focus on quarterly returns at the expense of “building” an industry (investing capital) to create “real” long-term growth, as in the old manufacturing model, which, as we all now know, is no longer applicable to the services industries.
It cannot go unnoticed by some of the people here that China is in an industrial stage while many western democracies are in a “services” phase, which comes complete with its own attendant liabilities not the least of which is a shaky business model – rough on profits and rough on competition.
Debtor’s leverage covers rock. – 2164th
I have no idea what that means.
Oct 6, 2008 - 6:47 pm 17. E. Nigma:cjm,
Good point.
The Chinese actually have a lot of plans to reduce air and water pollution with better technology over the next 20 years.
Oct 6, 2008 - 6:49 pm 18. slade:They have some very ambitious plans to replace coal-fired power plants with nuclear plants. They have been very interested in re-foresting parts of the country. The land to the west of Beijing had been reduced almost to a dustbowl. and they are very interested in exploiting wind power.
But it (China) is still a pitiably poor country in many ways, and reducing air and water pollution is expensive in terms of productivity and in use of capital. Someday, just not today.
Maybe with the profits of buying out GE and GM and Ford in the next six months with that 2 trillion dollars?
If I had the proper background (and motivation), I would consider developing a thesis that the dominance of the services industry contributed to the development of the “structured investment vehicles.” In fact, it wouldn’t be that hard, given what we know to date.
At a very minimum the “fee for transaction” model that overtook the banking industry in the 1980’s was a contributing factor.
Oct 6, 2008 - 6:59 pm 19. Roy Lofquist:Dear Sirs,
The Chinese, and others, don’t hold dollars – they hold Treasury Bills. These have a maturity date. Until that date they have no claim. They can sell them on the market at whatever they can get – they can buy all the wheat in Russia and the Russians will have a bunch of paper. The total portfolio of US debt is closely monitored and there is no window of vulnerability to either chance or purposeful mischief.
Regards,
Oct 6, 2008 - 7:08 pm 20. JFSanders:Roy
@LotM
Well that fits with the mental gymnastics one has to go through to be a leftist like Ayers. He must be one hell of a sociopath.
I wonder what his brothers have to say about him today?
As to the topic put forth by Richard. I would think that someone outside of a defined nation would more likely use the money markets to cause harm to economies. As far I as know he has done it to the Bank of England and has stated he is trying to do it to Russia economy as well. So why wouldn’t he try the U.S. Mr.Soros has stated that he would use his billions/maybe trillions to effect change in nations he deemed needed it.
Jim
Oct 6, 2008 - 7:11 pm 21. peterike:The thing about China, is that if it were in their political/strategic interest, I think they wouldn’t think twice of breaking the back of the world’s economy and throwing America and everyone else into turmoil. If, as a result, they could play some hand and WIN. You think the Chinese leadership would give a rat’s patootie if masses of their own population were tossed into starvation meanwhile? Ha.
Except we haven’t reached that point yet. The US is still, with everything, too strong. Too strong militarily. After four or eight years of BHO and nice new “peace dividends,” maybe not so much. Maybe that’s when the ChiComs pull the plug and let the whole world go to hell. Last man standing wins.
Oct 6, 2008 - 7:13 pm 22. peterike:On another note, it just struck me that the movement of the US into a services economy has gone hand-in-hand with increasing Left-wingery. Something about the lifestyles of folks in marketing and media and finance and such, vs (dare I say it) Joe Sixpack down at the factory.
This bears more pondering.
Oct 6, 2008 - 7:16 pm 23. slade:On another note, it just struck me that the movement of the US into a services economy has gone hand-in-hand with increasing Left-wingery. – peterike
Put some ice in it. The business community pushed globalization – starting with Reagan but not reaching fruition until Clinton. It was supported by both sides of the aisle. The incentive was profit – and more of it.
Pure and simple.
Oct 6, 2008 - 7:34 pm 24. Mark Maps:Roy,
The point is that Treasury bills, notes and bonds are the most fungable asset on the planet. Even more fungable than gold at the present time. Look at the steep drop in 10-year treasury bond rates in the past few weeks. That’s the result of increased demand. There’s nothing to stop the Chinese from selling those instruments at any time before maturity. The only restraint on them is the age-old demand-supply equation. If they flood the market, the value of their instruments plumment, so they must sell carefully. But sell they can and may.
Oct 6, 2008 - 7:34 pm 25. peterike:Slade, I think you misunderstand me. I don’t mean that a services economy moved things Leftward in any macro sense. I agree, it was all about profit.
But I think the working environments of services industries are much more Liberal/Left than those of manufacturing. I’m talking at the level of the individual employee.
Believe me, I worked at “a large software company based near Seattle” as well as some other very big tech firms, and in those places there is significant peer pressure to be “progressive.” As younger workers enter the workforce, the weaker minded are easily taken in by this and go along to get along.
Old time manufacturing may have pushed unionism, but it never pushed “America sucks” the way Progressives do. Services companies also strive mightily for “hipness,” and hip always = Left. That’s the level I’m talking about.
Oct 6, 2008 - 7:47 pm 26. Craigicus:Once someone owes you too much, they get some of the leverage — so this is not a sinister plot with effectiveness.
Some claim China is working towards mercantilistic goals, outdated by a century, that are still sensible as a good savings account. Isn’t China’s situation we’d all like to see for ourselves and our country?
Oct 6, 2008 - 7:51 pm 27. sigintel:Slade has pegged the real issue in US economic stability and that’s the move away from building a long term, sustainable business. The shift from long term financial return on investment to “get rich quick”…dotcom mentality along with the near sighted, narrow minded quarter by quarter financial analysis by the “Wizards of Wall Street” and “earnings report madness” has been a big factor of getting us to where we are today. Government interference in capital markets also has contributed to the cascading financial failures and the “Great Panic of 2008″…OBL must be loving this…he doesn’t need a suit case bomb to take out NYC and the US economy…he’s got the US congress, POTUS and the Fed doing all of his dirty work for him.
Oct 6, 2008 - 8:11 pm 28. Alexis:According to the Times (of London), Oliver Stone’s movie “W” is bankrolled by China. My URL contains the link to the story.
The PRC apparently does have uses for its money.
Oct 6, 2008 - 8:41 pm 29. NahnCee:Sooooo, what’s going on in the Middle East? Lots of very thick quiet coming out of there. I thought they were heavily invested in the West, both Europe and the U.S. And the price of oil is going down.
I refuse to believe that they’re just so dadblamed rich in Saudi Arabia and Dubai that they don’t care at all what’s happening to the rest of the world’s markets.
I had always thought that if China wasn’t a candidate for Economic Terrorism of the U.S., then Saudi Arabia would be. Especially since I’m also convinced that Saudi will sooner or later be discovered to be a major funder of B. Hussein’s campaign.
Maybe they’ve got so many balls in the air right now and for the next fews weeks, that the House of Saud simply doesn’t have time for their usual “Death to Israel” rants.
Oct 6, 2008 - 8:51 pm 30. Alexis:Foreign governments with a lot of cash can always attempt to purchase the loyalty of Americans whose loyalty can be bought. Foreign exchange is useful that way.
Oct 6, 2008 - 9:02 pm 31. Dave:Hello all: Am now back from Cincinatti. Great reunion with a fantastic, though shrinking, bunch of WWII P38 pilots and a few ground crewmen as well.
To the topic at hand: No it is not possible to destroy the US dollar and/or wreck the US economy by selling T-Bills/Bonds. I know that. You know that. Question is, does the Chinese government know that? Any danger we face would seem to be from their assuming they could do the impossible by commanding it to be done.
Same thing as what went haywire in Dec 1941. Everybody knew that Japan could not win a war by staging a successful surprise attack on Pearl Harbor. Everybody but the Japanese that is.
This is one of those cases where intentions can maybe cause somebody to exceed capabilities. Momentarily, I do not know what to say except “Stay tuned”.
Current indications would seem to point to a global deflation. Reason is that too many have used the good times not to reduce or eliminate debt but to pyramid it, often on frivolities.
Just hope there is no Smoot-Hawley-Hall to compound the felony.
Am glad to be back. Belmont Club grows on a fellow.
Oct 6, 2008 - 9:34 pm 32. peterike:The Obama Fraud Machine. Astonishing.
http://www.wewillnotbesilenced2008.com/video/index.htm
Oct 6, 2008 - 9:41 pm 33. ledger:Sure the build-up of dollar reserves in the PRC could be a potent political weapon – but there necessities for them to keep high dollar reserves:
1. The Bank of China (PRC) is not transparent. No real statistics show how my Kiljillians of RMB have been printed. This knowledge to lead to a run on the Bank of China.
2. Interest rates are relatively low in the PRC. If one were to add inflation the interest rates would be paper thin. This leads Chinese investors to buy high quality US Bonds which pay better rates (and stocks high dividends paid in US dollars – say Hong Kong shares of Chinese companies and “B” shares of Chinese companies).
3. Some people in China can get very low interest loans. These loans facilitate the age old “Carry Trade.” This is when Chinese can borrow cheap money and buy high yielding US bonds pocketing the spread.
4. China buys most of its oil with US dollars and there is no end in sight for that.
5. China could possibly become “export un-competitive” if inflation, including wage inflation, were to get out of control – which it could.
6. The Chinese authorities have been raising interest rates to halt the over heated economy causing Chinese debt instruments to fall and causing investors to run to dollar instruments.
If China wanted to cure its inflation ills and overheated economy [1] they should let the Yuan float freely in the world currency market.
If they continue to tie the Yuan to the dollar they must print more Yuan which just increases the problem.
[1]
The central bank, in an effort to keep the yuan stable, buys most of the dollars generated by the surplus, for which it must in turn print yuan, thus flooding the banking system with cash.
Gao Shanwen, chief economist at Everbright Securities in Shanghai, said he thought the interest rate rise would only exacerbate that problem.
“Higher interest rate rises can help slow down investment and domestic consumption. With domestic consumption weakening, more and more goods would have no market at home and have to be exported abroad, which would make the trade surplus even larger,” Gao said.
See: China raises interest rates again to cool economy
http://www.iht.com/articles/2007/03/17/business/yuan.php
Oct 7, 2008 - 3:40 am 34. slade:Peterike – Got it.
That’s actually not a bad theory**. Fits my experience with IT people.
Which isn’t good.
**IT demographic was a big Clinton backer. I think it was Mad Fiddler who posted several years back that Clinton loosened up the Visa requirements for immigrants who displaced huge chunk of home-grown staff at reduced wages. Caused a stink awhile back.
Oct 7, 2008 - 4:37 am 35. Starko:Great post ledger.
Also, to clear up a few things from earlier posts:
The Yuan is pegged to the dollar. One reason to sell some of their T-bonds/bills/notes would be if they thought the dollar was going to continue to depreciate. With what’s happening in Europe, that actually doesn’t leave many options. Believe it or not, the dollar is once again being seen as a reserve currency. The Yen is the only other currency with any cache in the current stage of the crisis.
To confirm early posts, selling all at once would be murder/suicide, although the murder part would be less certain. The suicide comes from the wiping out of trade w/ your biggest trading partner, not to mention that you can’t just sell 2T of bonds at once, so you’d decimate the price on the way down.
If a bond holder wants out, they don’t sell to the US gov’t unless the gov’t happens to be buying bonds at the time (e.g. there’s a surplus). The bonds are bought by another investor.
If China repatriated 2T dollars it would definitely be inflationary, which as ledger points out would be problematic.
If the US starts printing money to re-inflate its way out of this debt crisis (it’s already started in small explicit ways and some larger though not yet massive implicit ways) then China stays pegged to the currency that allows them to sell the most (since we buy the most of any country) and also gives them a natural hedge to oil prices. Of course if they hold onto bonds (especially longer term bonds) while the inflation is happening, they would lose money to inflation. If China was worried about this you’d see them buying more short-term bonds and T-bills. Last week there were some T-bill trades that *literally* resulted in the buyer *paying* a small amount for the gov’t to hold their cash. That’s how panicked some traders/investors were. I’d like to know what the maturity/duration profile was like for China’s portfolio.
Something in this post is probably wrong since I typed in a hurry (gotta get to work), so reader beware (and feel free to correct).
I could keep going. They say it’s a curse: “May you live in interesting times.”
Oct 7, 2008 - 4:41 am 36. slade:the dominance of the services industry contributed to the development of the “structured investment vehicles.”
I see that mushy feeble part of my brain is acting up again. My intent was to cross-reference the multitude of “new” business models that went down with the high-tech bubble – “content” as a revenue stream. Jerry Yang explained it to Charlie Rose who was of course enthused. The bigger picture (if there is one) is staying in touch with the basics. The experimentation has been disastrous. In my view.
Maybe that explains the mush. After this last month I feel like I’ve been in the ring too long.
Oct 7, 2008 - 5:19 am 37. slade:Cramer also lowered his estimated Dow bottom from 8300 to 7700.
50% drop.
Oct 7, 2008 - 5:31 am 38. slade:The End of an Era by Michael Malone (PM):
A new era – with new rules, new winners and new losers — is coming up on us fast, and we need to get ready for it right now. Our national leaders just had their chance to prove they were prepared for this new era – and they have failed miserably. We now have to look elsewhere for leadership… and quickly.
Sounds like the progressives are going medieval on us.
I hope when our new leaders and masters from Silicon Valley take over they will be gentle.
But his point has legs. The spectacle of September 2008 assaulted on every front – the magnitude of the personal loss in wealth carried out the door by Bugs Bunny and Bullwinkle in the wink of an eye.
And th-th-that’s all folks!
Oct 7, 2008 - 7:22 am 39. Dave:Hey Slade: Take two recessions and call me in the morning.
Just for the heck of it, what do you think of the following purgative?
Raise margin requirements to 70% to 100% and keep them there for about six months. Deliberately crash the stock market so that it reaches its bottom right away rather than grinding downwards for 2 years or so. After all, people are going to have to sell stocks in order to pay their debts. Why don’t we
the (self) annointed make that selling sooner rather than later?
And yes, might as well raise bond margins as well while we are at it.
Result should be weeping, wailing and gnashing of teeth along with larger total liquidity and some high-yield securities as well.
I’m just speculating. Would appreciate your thoughts.
Oct 7, 2008 - 8:49 am 40. Konyok:Joshua,
Actually, AM’s Obama boosterism is the tell that they’re a prankster.
A muslim Obama supporter would softpeddle the issue.
A bona fide jihadi would consider Obama to be an apostate. Taqiya can only take you so far, at some point you’ve got to put your foot down, like cucumbers in the same basket with tomatoes …
Oct 7, 2008 - 8:51 am 41. slade:Dave -
I’m outta my league, dumb as dirt, and desperately seeking a thought that might work.
Mark Haynes this morning said the markets are sort of simmering – like a jilted lover who hasn’t decided what to do (that last part was mine). But his point was that the “information” meter inherent in market movements was at zero. The European factor, the pending demise of the Euro (gotta love the smell of hysteria in the morning), and of course the break-neck speed of the Continentals – nothing like a good financial dither to wipe that smirk off their faces as everyone scrambles to find a “Treasury Secretary”.
Noise on CNBC that optimal “buying opportunities” are pending as Dow hovers around 9800 +/- 5% or 10%. Also a lot of positive response to the Fed tinkering.
Truth is I have stopped paying (full) attention. Too hard on my nerves so there is something to be said for lancing the boil.
The period from CRA in 1977 to F&F accounting scandals in 2005 was sanguinary (I think that’s a word). Stuff happens. We fix it and life goes on. But the covert complicity in covering up the exposure of liabilities during the post-2005 time period is reprehensible. A wink here. A nod there. Pretty soon we’re talking about real leadership. But calls for criminal action I expect to produce very little because it was all legal.
The question of speed however is excellent. I expect the response will include a gender gap ::))
Oct 7, 2008 - 10:01 am 42. Konyok:This from the Guardian, via instapundit, on Iceland:
http://www.guardian.co.uk/world/2008/oct/05/iceland.creditcrunch
The Icelandic finance minister says that very soon the krona may not be accepted as currency …
Oct 7, 2008 - 10:29 am 43. veracious:Wretchard,
Excellect metaphor of new and supposedly whizzy economics (financial methods) to outdated warfare techniques.
I’ve thought, since I was a young teen, that fractional reverve banking is a completely immoral and unlawful practice. Just as selling products with unbalanced measurements or weights would be. It is nothing short of creating money out of thin air, earning both interest _and_ the principle for special enough to have this special priviledge.
Oct 7, 2008 - 10:30 am 44. Bob Murphy:@Wretchard
Oct 7, 2008 - 6:25 pm 45. Bob Murphy:Actually the stalemate breakers on the Western Front in France in 1918 was the arrival in great numbers of the American Army under Blackjack Pershing and probably the innovative tactics introduced by the brilliant Australian Lt General John Monash, an engineer by trade and a Jew (which made him an outsider amongst the British officer class at the time).
Pershing’s troops held more than 80 miles of the frontlines in 1918 and many other US Army divisions were fighting under French and Belgian Army command.
Quite simply, the rapidly increasing number of fresh US troops spelled the end for the Germans.
That and the fact that US industrial output in 1914 exceeded that of all the combatants on both sides combined.
The US would have swamped the Germans by mid 1919. The writing was on the wall, even for the pig headed Prussians.
In fact with his military strength increasing rapidly, Pershing opposed the November Armistice saying that the German Army needed to be beaten on the battlefield or they would be back for more…
Oct 7, 2008 - 6:28 pm 46. Belmont Club » The second debate:It only took 20 years or so.
[...] of the problem, as I have written elsewhere, is that the bailout efforts don’t clearly signal that the bad old ways of doing business [...]
Oct 8, 2008 - 3:18 am 47. veracious:BobM,
Although the American arrival was of strategic import and helped decide the issue, the new tactics developed by _both_ sides changing the war from static slaughters to maneuver and bypass.
Without these changes and the general German exhaustion, the American losses would have been staggering.
Oct 8, 2008 - 9:59 am 48. veracious:Just reading Fox News statement about Chinese IP addresses hacking into to national treasury infomation at the World Bank (below). Regardless, so much pride about how USA is so powerful that _nobody_ could seriously hurt it. Nope, not: financial manipulation, domestic enemies, Islam, lawyers, congress, perversion, MSM, illegal immigration… Perhaps Japan didn’t have enough methods or surprise, to be able to seriously wound USA in 1941. They signaled their discontent and only hit a naval base. This is a single dimensional approach.
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The World Bank Group’s computer network — one of the largest repositories of sensitive data about the economies of every nation — has been raided repeatedly by outsiders for more than a year, FOX News has learned.
It is still not known how much information was stolen. But sources inside the bank confirm that servers in the institution’s highly-restricted treasury unit were deeply penetrated with spy software last April. Invaders also had full access to the rest of the bank’s network for nearly a month in June and July.
In total, at least six major intrusions — two of them using the same group of IP addresses originating from China — have been detected at the World Bank since the summer of 2007, with the most recent breach occurring just last month.
Oct 10, 2008 - 8:05 am“
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