[Skip to the end]

And this includes the ‘appropriate collateral’ for the unlimited USD loans as well.

ECB extending collateral (to almost anything)

ECB extending collateral (to almost anything) and introducing more longer dated repos with full allotment. Significant points: acceptable ratings down from A- to BBB- (except for ABS) syndicated loans included, also wider range of currency. Quid pro quo is higher haircuts but fair enough. So virtually no excuse for any bank to run out of money. Also pretty positive for corp spreads.

As you predicted. The US taxpayer, via the Fed, is basically the dumpster receiving all of this toxic crap from Europe. That’s got to be dollar bearish longer term.

Until the the ECB is driven to sell euros to pay back the USD it borrowed from the Fed.

And no doubt there will be continuous politically driven responses that could tilt the outcome in any direction.

Our leaders are in this way over their heads.

All they needed to do was declare a payroll tax holiday- none of this had to happen.


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24 Responses

  1. “And no doubt there will be continuous politically driven responses that could tilt the outcome in any direction. ”

    Warren, newt gingrich told me over a decade ago that a good politician grows government, sticks thier fingers in everyone elses pie, and never shrinks or reduce their numbers or power. He told me that the women in congress were not satisfied with thier own achievenment, they had to make sure many more clones of themselves also got involved. You have to stop thinking in terms of preoductivity and efficiency and elegant things like payroll tax holidays. Start thinking in terms of how we can take those idle hands and make them government political types who micromanage all kinds of things. If there are 5 people on the USVI who have to make sure all the bike tires are inflated to proper pressure and about 50 red tape bearaucrats who have to monitor those workers – that is 55 jobs right there. Payroll tax would have been too easy and involved too few idle hands, this way we get lots of people doing stuff they have no business doing but it occupies the idle hands.

  2. Warren, did you see this:

    At today’s Economic Club of New York speech…

    In a question and answer session after his speech, Bernanke, a student of the Great Depression:

    –Defended the Fed’s decision to let Lehman Brothers fail, saying the company didn’t have enough collateral to post for a Fed loan.

    Yet he “defends” giving unsecured, non-recourse loans to European banks instead??? Unreal!!!

    We’re in deep trouble!

  3. Yes Mike, we are all in deep trouble. The Fed. doesn’t really know if any of there “solutions” to the credit collapse will work. No one does and if they claim they do let them offer a little proof. But, what else can they do? And of course the U.S.A. is in a recession. The consumer is tapped out. The prospects for the future are pretty bleak right now. Maybe M. Magoo had some thoughts on the subject?

  4. Warren,

    You left a comment on Brad Setser’s blog post this morning referring to a “totally confused” discussion following my comment there on the “money multiplier”. I wouldn’t disagree.

    I’ve scanned your “Required readings – Soft Currency Economics” on the subject, which looks very impressive. If you have time to respond, I’d be interested in knowing if you took exception to anything in particular in my comment on the Setser post (reference below). My first impression is that it is fairly in synch with your paper.

    (I did include an overly general point on capital at the conclusion of my comment, which may well have led to some of the ensuring confusion, and would have been better left out.)

    Thanks.

    My comment at Setser’s:

    October 14, 2008 9:59 p.m. JKH

    http://blogs.cfr.org/setser/2008/10/13/an-unlimited-guarantee-requires-unlimited-access-to-financing/

    P.S. I posted this on your contact section also. Sorry if unnecessary duplication.

  5. mike, excactly! they never mention the swap lines as unlimited loans to the ecb and the eurobanking system, etc. it seems to be totally under the radar screen.

    AMAZING THE RESPONSES ON THAT SITE!

    HOPE THIS IS THE RIGHT ONE:

    bsetser Says:

    The swaps are rather complicated in a BoP sense.

    the ECB lends euros to the fed, leading to an increase in the fed’s liabilities and to the united states external liabilities. But the fed holds the euros it borrows on deposit at the say the ECB, so the Fed and the united states external assets also go up. it is a wash. A capital inflow from the ECB finances the buildup of US external assets (an outflow).

    YES, THE ECB GIVES THE FED SOME KIND OF EURO ACCOUNT TO SECURE ITS DOLLAR BORROWINGS.

    The Fed lends $ to the ECB — leading to an increase in the europe’s external liabilities/ the united states external assets. This is a capital outflow … as it results in a US claim on a non-resident, i.e. the ECB. The ECB then lends the $ to a European bank. that is a new domestic asset for the ECB (the dollar loan)/ new domesic liabilities for the European bank (the need to repay the ECB) — there is no BoP impact. The european bank then repays a US money market fund. That is a capital inflow to the US, or rather a reduction in net US external assets (an existing loan to the world is repaid, leaving the US private sector with fewer claims on the rest of the world). The net result is that a capital outflow from the Fed finances the repayment of a private US loan to the rest of the world, so the fed’s external assets go up/ private external assets go down and the net BoP impact is zero. A fed loan to the ECB that finances a ECB loan to a private European bank replaces a private US loan to the European bank. Net US claims on the world are unchanged.

    SOUNDS RIGHT ON QUICK READ.

    HOWEVER, THE EURO BANK STILL OWES THE ECB THE $ AND THE ECB STILL OWES THE FED THE $. THAT PART DOESN’T GO AWAY UNTIL SOMEONE OVER THERE SELLS EURO FOR $?

    ALSO, YOU GAVE THE EXAMPLE OF A MONEY FUND GETTING REPAID. THE FURTHER QUESTION IS IN REGARDS TO THE EUROBANK THAT REPAID THE LOAN TO THE MONEY FUND.

    WAS THAT EURO BANK BORROWING TO FUND DOLLAR LOANS THAT HAVE GONE BAD? OR JUST GOT SHORT DOLLARS/USED DOLLAR FUNDING A WHILE BACK IN A ‘MISMATCH’- DOLLAR FUNDING AND EURO ASSETS?

    MAYBE THE EURO BANKS GOT SHORT DOLLARS FACILITATING EURO DEPOSITORS SELLING THEM FOR DOLLARS? FOREIGN MONETARY AUTHORITIES WHO SHIFTED RESERVES FROM EURO TO DOLLARS? ETC.

    At least that is how I think it would scored.

    YOU ARE THE BRIGHT SPOT ON THAT BLOG- PLEASE ACCEPT MY APOLOGIES FOR GENERALIZING WITHOUT READING ALL THE POSTS!

  6. “But, what else can they do?”

    How about telling the truth? Happy hour’s cody willard on fox business just had a guy on – dale morgan – a risk specialist at WAMU – he said management blacklisted certain appraisers who didn’t hit the right numbers – clearly violating the LAW (which is being broken all over the place right now) – cody like to had a heart attack – half this management has been transferred over to JPM – in sweden they fired all the crooked crony chumps from paulson down to the lowly loan techs – we have done just the opposite – handed the keys to the city to Kaiser Soze himself! Then over on Fast Money – Icahn and Branson were telling ratigan until they get rid of all these crooks the capitalists are not going to invest, they are going to hold tight to their money – but it is an ILLUSION – however much MONEY the SWF’s have, and saud princes, and chinese investors, and icahn and branson, Paulson and Bernanke can make MORE! They have this technology called the printing press 😉 The founding fathers said something about people like Warren Mosler who knew how the sheeple were getting fleeced to pick up a gun and go shoot some government folks – but warren doesn’t have the balls to do that, so the ignorant sheeple will keep getting fleeced. The boston tea party happened because some people had balls – where are the men with balls today? How bad will the government crony crooks have to rape any of the posters here before one will pick up a gun and say ENOUGH? I bet all of you are gonna take lots more abuse before that day comes – you chumps.

    Paulson is a child of the plumber team and nixon days – people who thought the LAW did not apply to them – I don’t like people like that. What is good for me is good for thee!

    “And of course the U.S.A. is in a recession. The consumer is tapped out. The prospects for the future are pretty bleak right now. Maybe M. Magoo had some thoughts on the subject?”

    First go watch this movie called “a man for all seasons” about thomas more – one of my favorites – and this quote specifically why laws are good for human beings and not to be broken willy nilly (thanks http://www.nakedcapitalism.com):

    More: Yes. What would you do? Cut a great road through the law to get at the Devil?

    Roper: I`d cut down every law in England to do that.

    More: Oh! (advances on Roper) And when the last law was down, and the Devil turned round on you –where would you hide, Roper, the laws all being flat? (He leaves him) This country’s planted thick with laws –man’s laws, not God’s –and if you cut them down –and you’re just the man to do it –d`you really think you could stand upright in the winds that would blow then? (Quietly) Yes, I`d give the Devil benefit of law, for my own safety`s sake.

    As Icahn said, these chumps have to go, I can never trust the system with all the crony crooks that are everywhere – breaking laws left and right willy nilly as they see fit. And as Mosler said a few articles over – the world will not end if less hotels are built on artificial islands in DUBAI, the world will not end if less supermalls called SM are not built on reclaimed land in the philippines. The world will not end if your town only has 8 starbucks instead of 10.

    The brainwashing of our children from birth to buy and consume does not have to continue. What is wrong with just sitting on the beach getting a suntan like Mozilo and not working much at all? All I do is sit here and ridicule monetary folks wanting to build large towers of babel, is that so terrible? Will Mosler types not be happy unless I am cropping a field or maxing my credit cards at the cheesecake factory? MIT put out 30% finance grads this past year – pathetic – and Warren can’t see the evil of his ways by sponsoring even ONE MORE agent smith MBA clone who adds NOTHING to the big picture – puke.

  7. just for the record, i only sponsor econ grad students who presumably go on to teach things hopefully the right way around.

    but no doubt the financial sector has or will pick up a few down the road.

  8. For the record Roubini has said the financial sector is too big, you have said it, most sheeple agree. You sponsoring a couple, roubini a couple, jeff sachs a couple, bhagwati a couple and the collective actions of all you econ boyz just adding 1 or 2 agent smiths really adds up across the globe and over time. My sins are small to me, collectively these sins amongst all 7 billion can do very bad things to the world in general. Example: I’ll just lie about my income on this one loan application – it can’t hurt if just little ole me lies one time on a loan can it? I’ll just sponsor a couple agent smith MBA types, it can’t hurt can it? Another example: I’ll just spoil princess a little and buy her a new car on my heloc this one time – that can’t hurt can it?

    30% of MIT grads were finance types this year – ugg! 500000 MBAs coming out of school tomorrow with your training will not solve your mortality problems. 10,000 well trained bioscientists have a better chance, but that is not going to happen when you and all your clones say well I will sponsor a couple MBA types with the right memes – you are dooming yourself, sada, and me to death – thanks! I know you mean well Warren, I really believe you want to do the right thing, but my biggest problem is programmed cell death – dna breakdown – and I don’t see how your actions are helping that. I need more TIME in this world to do all the things I want to do and learn all the things I want to learn, as roy batty told the god of biomechanics – I want more life fugger!

    Cutcheon has said that the almighty dollar means more to him than life itself, he will choose actions based on a society that rewards him with more dollars to buy STUFF than extend genetic research that could give him 10000 years of life to get all the stuff he wanted – sad. I just don’t know how to interpret people like this who are so myopic.

    All that time you have spent analyzing currency swaps the past few weeks is time you did NOT SPEND educating yourself about biotech or genetics or doing experiments advancing mankind’s knowledge – if you can’t see the Sin you are committing against yourself and Sada, then I guess you are going to get everything you deserve – A short life analyzing currency swaps – what a life. It possibly could have been a 10,000 year life with Sada listening to bob dylan while you unlocked the secrets of hayflick limits. Humm, where is that bloomberg terminal with the next FED news piece – that is more important….

    I would hope – cutcheon aside – that life extension means far more to most people than some MBA’s who think the right finance memes. The CEO of intel said we can’t give 1 billion to college programs to help the next generation of scientists, but what have we spent already saving the banks – 1 trillion and growing – sad. Another finance type, even a mosler trained one, doesn’t fix the problems I really want fixed.

  9. Just to clarify, the Setser comment you noted above was a discussion I was involved in earlier on in that thread, but not the one to which I was referring.

    I wrote something further on, very specific on the money multiplier, which is amazingly close to what you’ve written also.

    Again, the comment was here:

    ———————————————————-

    http://blogs.cfr.org/setser/2008/10/13/an-unlimited-guarantee-requires-unlimited-access-to-financing/

    See the following specific comment:

    October 14, 2008 9:59 p.m. posted by: JKH (me)

    ————————————————————

    I’m going to try and read all your stuff. It looks very interesting.

  10. You are right man-of-a-thousand-identities and I think we all agree that the financial sector is one big fat waste of time and resources. But, at the end of the day, I have to feed 4 mouths and a springer spaniel, and pay those taxes Warren talks about to keep the value of the currency. What do you want? Shut down this site?

  11. (MY APOLOGIES TO OTHERS ON THIS POST FOR TAKING UP THIS SPACE OFF-TOPIC. BUT IT’S THE MOST DIRECT WAY FOR ME TO COMMUNICATE QUICKLY ON A LINKED SUBJECT OF GREAT INTEREST. THANKS.)

    Warren: The following was the comment I posted at Setser’s:

    “JKH Says:

    Re: the money multiplier

    The theory roughly is that an individual bank can expand its deposit base according to the reserves it keeps. Since the amount of reserves required to back a deposit is a “fraction” of the size of that deposit, a bank can “multiply” the size of its deposits relative to the size of its reserves. At least that’s the way I remember it from the textbooks. You may correct me if I’m wrong on this.

    This sort of thing is true as an observation at a point in time. After all, if the law is that you must keep reserves, and there is a formula for those reserves, then the relationship between reserves and deposits must fit that law, or you have broken the law.

    The problem I have with the multiplier it is that it is useless as an explanation of the dynamic of how the money supply actually grows and what the roles of central and commercial banks are in overseeing its expansion.

    So it is correct as a description of how the world looks, but useless as a description of how the world works.

    This is how the reserve world roughly works, I think:

    First and foremost it is essential to understand that the central bank controls the level of bank reserves available to the banking system. Without going into detail directly, this is evident indirectly when you hear discussions of “sterilization” by central banks. Sterilization refers to the capability of a central bank to view the system reserve effect of its various balance sheet activities as an unintended consequence of those activities, and to offset or “sterilize” that reserve effect with other activities. The fact that the central bank exhibits such dexterity in fine-tuning the reserve impacts of its activities is pretty good evidence that it is aiming to control the level of the final result.

    The idea of controlling the level of reserves is important to a central bank because there is a rule for the amount of reserves that commercial banks are required to keep – i.e. the required reserve ratio. The level of system reserves relative to that rule means there are supply and demand forces at work in the sense that banks compete for their required level of reserves. This competition affects the level of interest rates. The relevant rate in the case of the US is the fed funds rate. The competition results in a daily trading level for the fed funds rate, depending on the level of funds supplied by the Fed and importantly the distribution of that level across various participating banks.

    The primary operating objective of the Fed is to keep that trading level close to the target Fed funds rate, which is the one that is announced whenever the Fed makes such a policy change.

    Two points here.

    First is that this interest rate relationship is the important dynamic around bank reserves – not the relationship between the level of reserves and corresponding deposits.

    Second is that the true causal relationship between reserves and deposits is really the reverse of how it is described in textbooks:

    This relationship is an iterative one over time. Both reserves and deposits may grow in steps or contract in steps. Synchronization is required. But there are short time lags in the required synchronization.

    And the effect of the time lag is that reserves become a function of deposits rather than the reverse as suggested in the old textbook story.

    All banks in a fiat system have the power to create money, including the Fed and commercial banks. If commercial banks expand loans and expand money supply as a result (assets equal liabilities plus equity), the Fed will pick up the new money supply count for next period’s reserve requirement. If the Fed likes the way things are going, it will supply the required reserves. It does so because if it likes the way things are going, it won’t want to change the target funds rate. And if it doesn’t want to change the target funds rate, it will supply the reserves that the banks require according to law.

    And so on …

    So reserves when fed to the system this way are a function of deposits, not vice versa.

    And for example when the Fed wants to tighten monetary policy, it may well drain reserves in conjunction with or just prior to announcing a policy rate change. But this action is not directed immediately to forcing some change in deposit levels. It is directed at the trading level for the funds rate. The Fed will then hope that the new funds rate affects the financial system and the economy as intended over the longer term. But any change in money supply that comes out of this will mostly be a function of the effect of higher interest rates on the economy – not a function of the effect of a temporary reserve drain on deposits as transmitted through a “multiplier”.

    Bottom line is that reserves are important as a Fed tool in controlling interest rates.

    They aren’t important in the sense of a “multiplier”. That multiplier simply specifies the rule for Fed supplied reserves when the world is OK according to the Fed.

    The corollary is that the chosen reserve ratio itself is economically irrelevant to the Fed’s desire to control short term interest rates. The ratio could be 10 per cent or 1 per cent or lower. The effective reserve ratio (if we choose to view it as spread over the $ trillions in US banking system deposits) is almost infinitesimally small now in the US. The reserve ratio could even be 0. The Fed could still control interest rates by penalizing banks who end up with negative reserves in their own account.

    The economically important aspect of reserve ratios relates more to the implicit taxation effect on banks and their effect on bank interest margins – particularly non-interest bearing reserves.

    Finally, the entire subject of the reserve multiplier is outdated and prioritized incorrectly in my view. People should really be focusing on capital requirements and capital ratios as the driving force in bank balance sheet behaviour. Capital ratios determine leverage. And leverage in the case of commercial banks determines a constraint for the generation of money supply as a consequence of banking lending and asset expansion.

    Focus on capital rather than liquidity reserves if you really want to understand money supply dynamics.”

    JKH

  12. “You are right man-of-a-thousand-identities”

    Identity, why is that so important to so many people? The tales I could tell you of identity theft and the blackmailing that goes on with banks behind the scenes you never hear about in the public. They are terrified for the truth to be known. They have sold the public so much “SECURITY” for their bank accounts and credit identity and they can’t allow the sheeple to know the truth – this is why they will fail – you can’t fool all the people all the time as a great president said. The day is coming where the truth is all that they will have left to build the new society on, cause all the rest of their assumed “wealth” and “security” is going to be marginalized.

    Jorge R L like to have had a heart attack when he thought someone was pretending to be him. I don’t live in the silly world of peer reviewed publish or perish tenure appointments. Ideas should be strong enough to stand on their own, identity is irrelevant. At the end of the universe we are all just mathematical points of force, collections of molecules, borgs and cloned agent smith’s – Identity – uniqueness – ugg. So many of you are hosed and don’t even realize it, you build your whole life on your identity and currently live in a world where individual identity is increasingly becoming less and less important.

    “and I think we all agree that the financial sector is one big fat waste of time and resources.”

    Recent history is confirming this, yet Warren says with his mouth that the whole sector needs to shrink by 90% if not more, but his actions are ones of funding these types in college, cutcheon how should I react to a human being whose actions contradict thier words? Funding one more econ person in a world awash in econ clones does not get you or me or our children life extension any way I can tell.

    ” But, at the end of the day, I have to feed 4 mouths and a springer spaniel,”

    I have been discussing a leveraged investment strategy with this guy:

    http://www.bogleheads.org/forum/viewtopic.php?t=5934&mrr=1224211182

    He has been sold by his professors and his country that as an MBA econ type he will have lots of income and wealth in his future – that his “human capital” is extremely valuable. My granpappy had 11 mouths to feed, couldn’t read or write, he slaved himself and his children on the farm so that everyone could eat, do you even know the first thing about harvesting corn? Or are you gonna be like the bolsheviks who starved to death in the city dependent on crops from the farmers who never delivered the food? You say the finance sector is WASTEFUL, but you are contradicting yourself, you hope and pray to god that all that time and effort you have put into this econ stuff keeps the party going so that you can profit and feed your kids. 15 hours a day in the field is not so bad, really helps build a closeness of family that I don’t see much today with the shopping machine families in miami or palm beach. Human beings who beome too abstracted from the real world that fuels their bodies probably aren’t going to do well in hard times. Their spiritual death has long passed – as Warren said about 9/11 – we had a chance to feed our souls something more than materialism – but the Devil won. The constitution and the society around it was only going to work with a just and moral people – sad.

    “and pay those taxes Warren talks about to keep the value of the currency. What do you want? Shut down this site?”

    I want Warren to make a difference that will help you, sada, me, and himself, shorting euro’s and clicking buttons on his trading terminal doesn’t get us asteroid defenses, genetic research, nuclear/solar research, etc etc – the more people he sends down the path of business/econ/finance and the less down science, the more damage he does. He will never see this though, econ knowledge has been very rewarding to him personally and help pay many bills over the years and let many other people do the REAL WORLD work he has not had to do and he just wants to give back to the society and profession that has elevated his personal tower of babel so high.

    Cutcheon never read another econ book ever again, go to the library and take your kids and start reading about farming, genetic research, nuclear breeder reactors, quit depending on other lying human beings who will kill you and your kids to feed them and theirs if the times get tough – if I get hungry enough to eat one of your children wouldn’t you shoot me to stop it? See how it all breaks down to animalistic violence when you are surrounded by hungry monsters? Kinds like these greedy finance types – they are eating you and your children – not just through their recent actions that has bankrupted their intellectual and spiritual futures – but by doing like Warren – selling the memes that being good econ/finance practitioners you and your children can eat well for at least 100 years of life.

  13. “identity is irrelevant”

    If identity is irrelevant, then why do you spend so much energy disguising and hiding your own?

  14. Huh? I don’t hide it, the CIA jackals that need to know the physical embodiment of this collection of memes can trace all the anonymous proxies through various international gateways and find my AI programmed computer terminal sitting outside some municipalities wireless network somewhere on the darkside of the moon – see it’s easy 🙂 Did you think you were talking to a human? I should submit myself to the next turing test.

    You should read the cuckoo’s egg by cliff stoll, some KGB types killed this nice hacker because they knew where to find him, here in the USA they put mitnick in jail for many years for just clicking buttons on a computer – amazing eh? It all comes down to thugs who want control being able to blow your brains out, deny them the ability to blow your brains out and they have less control right?

    I will give you a hint, there is a professor of computer science at ga tech who is very well known in the cryptography world – he said several years ago before this crisis that he was hiding gold coins in his mattress and he was alarming several of the banking executives at this conference – I know this because I was present and wish you could have seen the look on some of these silly humans faces. 😉

    http://www.nakedcapitalism.com/

    One of the trades that looked like a no-brainer was betting on continued appreciation of the Chinese renminbi. In fact, so strong was the confidence in this outlook that China suffered from large-scale hot currency inflows (as recounted ably by Brad Setser) despite the official obstacles.

    A top investment bank in China is now forecasting a small fall in the renminbi next year. Not only is that bad for US exports, bad for global rebalancing (a higher renminbi would do wonders to slow China’s destabilizing growth in foreign exchange reserves), but an exit of the hot money certain of either a revaluation upward or continued appreciation could have nasty knock-on effects for China.

    The theory is that China will now try to keep the renminbi weak to preserve its exports. So far this is a lone forecast, but if it were to pan out, it would not be a good development. While not obvious, it would amount to a defacto race to the bottom in currencies.

    They say china is going to induce a global currency race to the bottom – so let me make sure I understand. A few elites at the top of these individual nations want to keep their respective worker bees doing something so their hands don’t go idle and lead to devil’s work. So to keep the worker bees buzzing along they are going to vaporize the worker bees purchasing power in the hopes some other workers bees in some other nation will starve first.

    I am too lazy to work – and any trick warren can come up with to make me work is going to fail because I know laziness pays off now, I want some other human being to do the REAL WORK while I play nintendo all day. Why can’t this meme expand to all 7 billion humans? Why can’t we all just play nintendo all day and talk money with Warren. I don’t understand a society that makes humans who because they lost their job walk into thier house in california and shoot up themselves and thier family. How was the fear of living homeless on the street in the cardboard box eating handouts worse? I have lived homeless on the street, many times, I have dug the bottom of dumpsters for a half eaten maggot ridden sandwich – let me reassure all of you, it is not so bad. The sun still comes up and richard pryor jokes still make me laugh. sheesh.

  15. Hey. I really enjoy Mike’s, I mean Pierre’s posts. They are thoughtful, somewhat informative, and usually entertaining. If Warren doesn’t take Pierre’s posts personally, than I don’t see a problem. Keep it up ole chap. Btw, The Pierre (Pepe)is cute. Google the name if you don’t get it yet.

  16. I agree on some of your apocalyptic rambling. In fact, I own a farm in south America and if Correa doesn’t take it away from me, I plan to get more deeply involved with the day-to-day. Humans are animals and we have hard-wired primal instincts.

    Been teaching my wife how to day-trade futures with a paper trading account and she was shocked at how easily you could make 5,6,9 hundred bucks a day. She thought it was kind of immoral -she wants to partake, though ;-).

  17. “if Correa doesn’t take it away from me,”

    Didn’t the large farmers in Roman days relocate as far away from the roman military as they could so to escape the oppression? Didn’t Bush just buy a lot of land in paraguay? Humm. The founding fathers said something about being well armed so the “state” doesn’t come steal from you – so are you admitting if Correa comes to steal from you that you will just lay down and take it? Didn’t a lot of nazis flee to south america when their tower of babel came crashing down?

    “Been teaching my wife how to day-trade futures with a paper trading account and she was shocked at how easily you could make 5,6,9 hundred bucks a day.”

    LOL, Ms. Watanabe in Japan also is amazed how easily she can increase her paper dollar hoard by clicking buttons on a computer – like her Zimbabwe friend a few years ago – but I just don’t see how getting 900 more pieces of paper a day really makes the world better for you or your wife or your kids or me or warren or sada.

    “She thought it was kind of immoral -she wants to partake, though ;-).”

    Greed is good. I hear lots of ARM’s are about to reset really soon – the following news makes me go humm.

    http://www.telegraph.co.uk/finance/economics/interestrates/3211785/Financial-crisis-Interest-rates-to-hit-lowest-level-since-1694.html

    The Bank of England faces cutting borrowing costs to beneath two per cent – or even as low as one per cent – within months as it battles to protect Britain from the financial crisis and the worst recession in decades, economists said.

    Such a drastic move would bring rates, currently 4.5 per cent, to their lowest level since the Bank was founded in 1694.

    The rate cut would be good news for borrowers, who have faced sharp increases in their mortgage rates as embattled banks have raised the cost of borrowing in recent months.

    http://www.nakedcapitalism.com/2008/10/bailout-plan-drives-up-mortgage-rates.html

    US mortgage rates have soared this week in an unexpected reaction to the latest Treasury financial rescue plan, which has prompted investors to buy bank debt and sell bonds backed by home loans.

    Interest rates on 30-year fixed-rate mortgages, as measured by Bankrate.com, rose to 6.38 per cent on Thursday from 5.87 per cent last week – before the Treasury said on Tuesday that it would take equity stakes in banks and guarantee new bank debt.

    Investors responded to the new guarantee by buying existing bank debt, reckoning it could be refinanced with the new government-supported bonds. As they did so, they sold lower-yielding paper issued by Fannie Mae and Freddie Mac, the mortgage companies put into government conservatorship last month….

    Fannie and Freddie had been taken into conservatorship by their regulator to help keep mortgage rates low and – it was hoped – revive the housing market.

    However, the opposite is now happening, making it more difficult for struggling homeowners to refinance their mortgages and for prospective homebuyers to get financing. As a result, house prices may fall further before they find a bottom…

  18. Execellent point. My understanding is around $500 billion of ARMS are scheduled to reset next year to what will certainly be higher or even much higher interest rates. It looks like round two of the mortgage diaster is about to begin. This financial nightmare is just beginning. Count on it. Lets see how the brain trust in Washington handles this one.

  19. Mike Pierre Magoo LePew, if we are all such animals why bother at all? Why, in fact, bother with anything? For example, why spend volumes of your time rambling on and on about life extension and the fundamental amorality of futures trading, when in the end your philosophy tells you we are nothing but crass organisms excreting and procreating? Indeed, why pontificate about how Warren and others are so amoral for not contributing (in your eyes) to the global good, when in your own estimation we are all just beastly creatures anyway? And, if you would like to issue such charges such as “I want Warren to make a difference that will help you, sada, me, and himself”, how can you then simultaneously assert “I am too lazy to work – and any trick warren can come up with to make me work is going to fail because I know laziness pays off now, I want some other human being to do the REAL WORK while I play nintendo all day.” Seems there is a moral conundrum there, at the very least.

  20. “Mike Pierre Magoo LePew, if we are all such animals why bother at all?”

    A great monetarist said in the end we are all dead – I wish to change the basis of the reasoning for that statemant – if in the end we are all alive because we have found the fountain of youth – mankind’s destiny takes on all kinds of new meaning and purpose to the humans who would then be living millions of years if not more. 100 year lifespans are really limiting in the big picture – as Keynes accurately pointed out. As I approach the end of my life, I am reverting to more actions based on selfish greed and lack of consideration of the other borg on this dirtball and collectively that meme amongst all humans is a very negative and destructive force – the best way to stop that meme from spreading is to expand all human’s lifespans. You don’t want more life?

    “Why, in fact, bother with anything?”

    As I get closer to death that meme races through my head very often. Warren tried to get government boyz after 9/11 to redirect the spiritual journey of our people away from materialism and towards something else – why did he think that was so important? Isn’t everyone here so they can make more money and have bigger yachts and fancier meals and faster jets and mosler super cars? Isn’t 100 years of yachts and jets better than 10 million years riding a bicycle or worse having to walk?

    “For example, why spend volumes of your time rambling on and on about life extension and the fundamental amorality of futures trading, when in the end your philosophy tells you we are nothing but crass organisms excreting and procreating?”

    LOL! Bingo! I am not the only one saying the finance sector is a vampire parasite on humanity – Roubini says it often, Warren has said it often, many econ wizards up in their ivory tower have identified this big problem besides me. I am not sure I can fully answer your question about why a million years of excreting and procreating matters to me, I know the 100 or so years I have now do not seem to be enough – I want more – perhaps after 2K or 3K years I will not want anymore and choose to end my existance like “bicentennial man” – you can watch a movie called Zardoz or many Dr. Who episodes where beings wished for death because they were tired of existing. Most people I talk too though assure me 100 years is not enough – they want far more. Maybe I just haven’t been around enough people who were destitute and hopeless where death was a welcome escape.

    ” Indeed, why pontificate about how Warren and others are so amoral for not contributing (in your eyes) to the global good, when in your own estimation we are all just beastly creatures anyway?”

    In the long term view, the sun blows up so really what does it all matter in the long run? In the really long term view the whole universe goes to absolute zero an things basiscally stop. Perhaps as futureshock begins to affect mankind, 50 years will be enough time for most people to welcome death. How many years do you want? Just 50?

    “And, if you would like to issue such charges such as “I want Warren to make a difference that will help you, sada, me, and himself”, how can you then simultaneously assert “I am too lazy to work – and any trick warren can come up with to make me work is going to fail because I know laziness pays off now, I want some other human being to do the REAL WORK while I play nintendo all day.” Seems there is a moral conundrum there, at the very least.”

    The internet loses so much context, things like sarcasm, humor, even hate can be completely misinterpreted from this form of communication. I have seen memes projected from an original author that when took up by other beings and interpreted and then transmitted through the virtual grapevine have done 720’s from the orginal author’s understanding. In the real world I spend massive amounts of time trying to educate myself and anyone around me to the best practices for a long living human through science and knowledge, but I meet many who are not going to work and have sat down – my highschool friend I talked about in another post being one. Warren can’t do anything to get that donkey to plow that I can see, and more and more clones of that donkey seem to be appearing every day in this current iteration of society. I enjoy all your points, you make some great ones, it gets people thinking what is the point of thier lives and existance. How many years of life do you want for you and me and our children?

  21. I don’t want to pollute Warren’s blog with a lot of off-topic stuf, but I’ll just address two basic points.

    1) I don’t view human beings as crass organisms devoted to nothing but excreting and procreating. I think there is a spark of the divine in every person and I think that spark needs to be nurtured and cared for. I don’t think our lives are meaningless exercises but rather, I believe that we are all called to do the greatest things we can do and become the greatest people we can become. Everyone approaches that calling in their own way but the only ones who are truly failing at it are the ones who devote their lives to dissipation… the ones who just don’t care to do anything or go anywhere. And of course I agree that they are out there, but I’m not sure I would lump Warren and crew in with them.

    2) Length of years is a counter-variable to quality of life. Do I want my kids to live long lives? Of course. But I want those years to be spent in health, with love, and joy, and the opportunity to excel and grow and do amazing things. If you were to tell me “your son must eek out his life in abject misery and poverty, and this will never change” then no, I would not wish a 1000 year life span on him or anyone else in that position. And although I don’t want to belabor the point, I will say only this: to establish and advance the idea of 1000 year lifespans, 2/3 of humanity will have to die and population growth would have to be drastically curtailed, simply because the planet is not capable of sustaining the number of humans that will result.

    I think you are right in a general sense with respect to the ideal that everyone ought to be trying to better themselves and everyone ought to be trying to accomplish as much as they can. Accomplishment, however, is a slippery construct and has an aspect of interpretation to it that makes it difficult to assess. What really is an accomplishment and what is no?. I think there is a general sense that becoming world grand master of Nintendo is not such an accomplishment. But what about less obvious scenarios? For example, if a man establishes wealth, and uses that wealth to build companies, to train up people in what he considers a better way of approaching the world, and to take care of a family that he loves, then how is this to be seen as a waste or as an amoral tryst with mammon? Is a man who devotes his life to being good at a game… a spectator sport, perhaps… a man who has failed to accomplish anything of note, who is unworthy? How about a man who spends inordinate amounts of time on internet bulletin boards attacking people he doesn’t actually know 😉

    Perception comes into play far too much in these kinds of analyses. Who is the arbiter of which perception is correct? Who really contributes and who does not? How do we decide? Does the welfare mom on skid row contribute? What if she gives birth to a boy or girl who goes on to become a great scientist? What about artists, musicians? Even, and it galls me to suggest this, politicians? How can we ever really say that “you have not made a contribution?” It is arrogant, I think, to believe that we can make such judgments with any kind f accuracy because we do not know, nor can we accurately perceive, truth.

  22. Drifting isn’t so bad, take maria bartiromo trying to eat between camera pans at the latest economic club of new york meeting – it was hilarious like her reporting – totally silly! 😉

    “I think there is a spark of the divine in every person and I think that spark needs to be nurtured and cared for.”

    Even me? awww… (big hug)

    “but I’m not sure I would lump Warren and crew in with them.”

    I like Warren so much I don’t want him to die, I want him to live 1 million years or more if he chooses. Another econ agent smith clone won’t help his life extension from what I can see. Another shopping machine princess won’t either. I think deep down Warren has come to this conclusion as well and realizes more shopping malls and hotels perhaps are not the path to prosperity that really matters. See if Warren sponsors a couple econ grads, and then jeff sachs sponsors a couple econ grads, and then bhagwati sponsors a couple econ grads, then roubini – well you see where I am going – we start getting into LARGE numbers of econ grads collectively – and I want more genetic type folks – not econ folks because I like Warren a lot and want him to live a very long time.

    “2) Length of years is a counter-variable to quality of life.”

    It doesn’t have to be does it?

    “me “your son must eek out his life in abject misery and poverty, and this will never change” then no, I would not wish a 1000 year life span on him or anyone else in that position.”

    I think of those poor kids in the silver mines in south america who die from mine collapses, they see no way out of their misery, maybe you and Warren can adopt a few of them and send them to econ grad school and save them.

    “And although I don’t want to belabor the point, I will say only this: to establish and advance the idea of 1000 year lifespans, 2/3 of humanity will have to die and population growth would have to be drastically curtailed,”

    I have advocated for many years unchecked population growth is not wise for our “great engineers” and our “great society” but there is a lot of energy and matter out there in the universe and I think human population levels meshed with appropriate science and engineering can lead to trillions of humans easily living billions of years just in this solar system. Atlantropa was one project to reclaim a lot of land. We can still build cloud cities and underground cities and floating cities and underwater atlantis cities and moon cities – lots of space and energy to expand things still.

    ” simply because the planet is not capable of sustaining the number of humans that will result.”

    I don’t agree, the scientists I have talked too don’t believe this. Let me recommend a book to you I just read – “living off the land in space” by Les Johnson – NASA JPL guy.

    “Accomplishment, however, is a slippery construct and has an aspect of interpretation to it that makes it difficult to assess. What really is an accomplishment and what is no?”

    My goals have very selfish memes – I don’t want to die. I look at the collective of humanity like perhaps a mainframe programmer would look at clusters of processors – a bunch of cycles to execute code. If the programs they are running are to build more shopping malls and faster cars instead of finding solutions to hayflick limits – I view that as a waste of cycles.

    “I think there is a general sense that becoming world grand master of Nintendo is not such an accomplishment.”

    Some of my bobby fischer wannabe chess friends don’t agree with you. You know there are videogame sports leagues being set up in the USA to make this a big televised national pasttime – already in Asia you have videogame players who are being elevated to the status of rock stars and sports heroes. If you have cable there is an entire channel devoted to video games – in my market it is called G4. Humans seek adventure and entertainment even over knowledge and truth in many instances – the virtual “matrix” is going to be a big part of humanity’s future.

    “But what about less obvious scenarios? For example, if a man establishes wealth, and uses that wealth to build companies, to train up people in what he considers a better way of approaching the world, and to take care of a family that he loves, then how is this to be seen as a waste or as an amoral tryst with mammon?”

    My wealth would be mostly enriched by 7 billion humans who have genetic knowledge floating around in their head looking for ways for all us borg to live longer. Think of the 7 billion as one huge mainframe hive mind – a lot of the thoughts bouncing around in that computer are stuff like – golf scores, sales at macy’s, discounts on garden gnomes at lowes, etc etc – well you see what I am getting at – a lot of those brain cycles are not doing much I feel – just wasted – and I don’t really care if they are wasted – but you and me and warren are DYING and I don’t feel that has to be if more time and attention was applied in the right places. It is hard to teach an old shopping machine new tricks – lord knows I have tried – so I have given up on those old brains that have crystallized with the memes to shop til they drop and want to fill up the new brains with the right thoughts, but more econ grads doesn’t fix what I want fixed from what I can see. We have enough. I could be wrong, maybe one of warren’s econ grads will solve the hayflick limit.

    “Is a man who devotes his life to being good at a game… a spectator sport, perhaps… a man who has failed to accomplish anything of note, who is unworthy?”

    I was in west palm beach when Susan Polgar came to play a bunch of folks – you might be amazed at the number of people whose whole life is about moving 32 pieces on 64 squares more efficiently than the next guy. If you and warren and I were not dying I wouldn’t care who played games, but those cycles they are putting to use to play games could possibly be put to use to solve genetic problems – which do you think is the better use?

    Still on another level I have seen many econ types talk about how badly it reflects on our culture that math wiz’s and 12 year old solar scientists are not celebrated like a football or baseball player at the local schools. I have heard many scientists say it was not so bad maybe 50 years ago, there was some glory for the young geeks, but not in today’s america. This is not a good trend is it? More football star’s don’t make genetic advances do they?

    “How about a man who spends inordinate amounts of time on internet bulletin boards attacking people he doesn’t actually know ;-)”

    I don’t attack Warren – I like that guy – I just want what he says – a reduction of stuff that has grown too big and is not helping in the big picture. Warren is connected to the most powerful man in washington – Mr. Masters – therefore he has a better chance of getting those dopes in washington focused on the right stuff – I haaven’t heard any of the prez candidates talk about thier genetic research policy in any of the debates. Why not?

    The real reason I am here – I need a break between reading all these science journals – this is my therapy. 😉

    “Perception comes into play far too much in these kinds of analyses. Who is the arbiter of which perception is correct? Who really contributes and who does not?”

    Humm in capitalist societies it seems those who control the printing presses of the capital in their stodgy ivory towers have the control no? My rich friends in DC said the best way to get rid of irritating socrates types is to own the printing press, then make sure only your friends have access to first dollars off those printing presses, then you can charge really big sums of cash for houses and conferences that keeps out the poor rabble. How do you ever expand your horizons if you only hear from like minded people? I welcome all my criticisms, censorship is of the devil. You are spending far too much time responding to my drivel and not focusing on what I really wish you would, go read more genetic science stuff, try to get more kids interested in it – even if you have to take away their wall street journal and take an hour out of their baseball practice, that is the best thing for you and me.

    “How do we decide? Does the welfare mom on skid row contribute? What if she gives birth to a boy or girl who goes on to become a great scientist?”

    Yah like beethoven’s mom. Some democrats I know are certain that any policies to subsidize child birth and immigration will be good in the long term, more people are always better they say. I meet a lot of people that I think are very damaging to themselves and everyone around them, time will tell.

    “What about artists, musicians? Even, and it galls me to suggest this, politicians?”

    Newt Gingrich was my representative for many years – he was all right when his lips weren’t moving 😉

    “How can we ever really say that “you have not made a contribution?” It is arrogant, I think, to believe that we can make such judgments with any kind f accuracy because we do not know, nor can we accurately perceive, truth.”

    All I know is what I have read from all the computers from yours to warrens to everyone elses that I have hacked into. Once we have the technology where I don’t have to die, and you or warren doesn’t either, then let all the silly humans waste thier eternities pursuing whatever silly games they want – I won’t mind, but right now it just seems to me there are better uses of all that wasted processing. We need leadership to send the sheeple down the right path, warren is a sheepherder and I think there is a better path than the one he has chosen if more life is the goal.

  23. 12. Looks pretty good to me! i like to say, loans create deposits and the deposits at the same time create reserve requirements. and in the first instance a required reserve is an overdraft in that banks reserve account, which, if left alone, is booked as a loan by the fed. that firms up the causation as you have it.

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