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I’m keeping an eye on crude prices rising a lot more than the USD is falling; so, I suspect the great Mike Masters inventory liquidation has run its course.

Inventories are at record or near record lows.

If there has been net demand destruction, it hasn’t yet showed up in OPEC or Saudi production numbers.

The Saudis only pump on demand, at their price, so as swing producer it’s their production that should fall, not anyone else’s.

However, there can be 90 day type lags; so, October Saudi production could be down but not be reported until early November.


This latest swap line expansion should be a target of Obama and McCain, but neither are touching it.

It’s a financial blunder, potentially of epic magnitudes.

It’s also an oversight issue of epic magnitudes that could dwarf the subprime issue at the first ECB USD auction tomorrow.

The $620 billion swap lines currently in place could swell to well over a trillion USDs.

It will reduce eurobanks cost of USD funds, bring down LIBOR, and normalize bank liquidity.

And the reduction of bank credit risk is bringing in credit spreads which makes room for equities to appreciate as well.

But that’s an empty victory that changes the lack of aggregate demand very little, if any.

And it adds a new element of systemic risk.

Unrestricted/’currency secured’ international USD lending has been tried before in the emerging markets.

Yes, this type of initial lending reduces financial stress, but then it must be sustained and increased to avoid a subsequent collapse, which then becomes inevitable.

Remember Mexico and the rest of Latin America?

It took a growing level of external USD debt to hold it together, until the number got too large and the controls impossible. And then it all fell apart.

All of these ‘top down’ measures that carry the hopes and anticipations of markets should continue to be let downs as no one addresses demand.

This happened in Japan after the banks were recapitalized and ‘healthy’ and nothing happened regarding lending.

Obama and McCain have a window to jump on this opening but don’t seem to be. McCain as the watchdog and Obama as the reformer are both letting us down. Again, as they show no insight and instead keep to their canned rhetoric.

Bush and congress missed a historic opportunity to move the US away from ‘materialism’ after 9/11.

I got a call from Congressman Gephart at the time, and I said this is an opening to show a different kind of leadership as people had turned ‘inward,’ with the following type of statement:

A nation is not richer because people sleep in hotels instead of staying at home. A nation is not richer because we eat out rather than have family meals at home. And now that we have become more introspective on life itself, we can continue this enlightened change of course, back to our real core values, and steer our efforts to educating our children and improving our health care service, etc. etc.

But instead, our leadership telling us:

“Get out of Church and get into the shopping malls!” in order to ‘save the economy’, etc. etc. Gephart didn’t do it. And we went back to the malls.

This go round was also an opportunity to make a fundamental change away from a lending based model to a more cash based model which seems to me has proven more stable over time and a lot more beneficial to human peace of mind.

We could have let most of our lending institutions go by the wayside and kept the banks that would be allowed to make more conservative home loans, installment loans, checking and savings accounts, and not much else. And the housing agencies operating a bit like the old savings and loan’s used to do, but this time with sustainable, matched treasury funding.

And rather than relying on lending for aggregate demand, which is inherently unstable, we could have supported aggregate demand with a fiscal package to provide sufficient income to buy our output and sustain growth and employment.

But instead we are first ‘fixing’ the lending institutional structure, without addressing aggregate demand.

It’s unlikely that costly (in terms of lost output and employment) credit bubbles will be reduced by first supporting the lending institutions and then supporting demand.


2 Responses

  1. You watched too many episodes of green acres as a kid didn’t you Warren? 😉

    “A nation is not richer because people sleep in hotels instead of staying at home. A nation is not richer because we eat out rather than have family meals at home. And now that we have become more introspective on life itself, we can continue this
    enlightened change of course, back to our real core values, and steer our efforts to educating our children and improving our health care service, etc. etc. ”

    I took this a step further than you when talking to newt gingrich over a decade ago. I told him that my wife working 40-50 hours a week and not staying at home cooking the meals and raising our children was a bad thing and would produce a lot of selfish uncaring children. That having my children or grand children take care of me when I got old instead of increasing their taxes to pay for medicare so some strangers at a nursing home could take care of me was something to fear. He illuminated me to the fact that many in congress are women who like working 80 hours a week up on the hill and would hate to have to stay home with whiny rugrats and cook meals when they could get in the middle of hundreds of millions of americans and stick their finger in their pie. I talked to Newt about AYN RAND who said she didn’t need KIDS but had her BOOKS, and I asked newt if all women believe as AYN RAND, then who will wipe our collective butts when he get old and sick – because books couldn’t do that, and he laughed.

    So Warren as a daddy – did you bring Sada up to be a slave to some working mule man and be a baby maker who will stay home and cook and clean and raise whiny rugrats and sacrifice her CAREER for the family – or did you bring Sada up to be a free independent woman who would rather eat out at the latest trendy restaurants while some illegal immigrant cleans her house and if Sada does accidentally get pregnant (oh please lord no) she is not going to drop her career to raise lots of whiny rugrats?

    A long time ago in a city far away one of the local chinese restaurants had this first generation chinese immigrant family who were very traditional. The mother spent most of the time at home raising the kids, cooking the meals. No shopping for her or big career. She had 3 daughters, she was told for them to make something of themselves they all had to be big college grads. All three went to either harvard or yale on scholarships. After they all graduated she tried to get one of them to marry me, but the daughter illuminated mother that her CAREER was tops cause she had the HBS degree and was gonna be big time in new york. Many years later mommasan had no grandkids to come visit her, none of the daughters ever married or had kids and I told her what did she expect, she raised the daughters to be exactly what they became. How could they think of having babies to spent time with old grandma when all they had ever been taught was college and career and shopping and big paycheck?

    A couple years ago I saw a special on PBS about this rural agricultural family in china – they had a daughter. Daddy liked the rural lifestyle, small community, small schools, clean water and food, slow easy lifestyle, but momma just KNEW daughter would never be SUCCESSFUL unless they moved to the big city and got daughter a big digree at a big school so she could make something of herself.
    They moved to the city, the dad caught cancer from all the pollution, the daughter was getting beat up regularly at the big city school, but momma was still convinced that living in the big city and having the big shopping malls and the many places to eat out at was worth all those costs. Pathetic.

  2. You have struck such an emotional chord with me Warren I will give another life lesson relating to your “traditional values meme”

    Ty Ty Georgia, the asshole of the world. Population 100. I met another sweet princess there. I drove up in my Lexus to take her on a ski trip to colorado at a nice winter chalet. We met at church (she stopped going to church after she got heavy on drugs) She laughed and said she had to go practice her singing so she could be big star in new york city. I asked her who sold her on this fairy tale, it was grandpa. The grandpa that spoiled princess with every gift imaginable, every trip, all the money he had borrowed from credit cards to reverse mortgages on his house so he could cater to princess’s whims.

    So one day me and grandpa walked outside to the barn and one of the few times in my life I lost my cool with an elder I told grandpa what a selfish attention hawg he was, that his spoliing of princess left NOTHING for any other person on this planet to offer her. And that while he may think he was doing the “right thing” who was gonna take care of princess and princesses needs after grandpa and his credit cards and reverse mortgage were gone? She couldn’t sing and the dreams she had been sold of being big time new york opera star was setting her up for failure. Grandpa told me I better get off his land or I was gonna be eating hot lead from his shotgun. He eventually died, princess’s party came to an end, she was so spoiled and ruined at that point however no one could stand to be around her, she turned to drugs to escape the reality that all of a sudden slapped her upside the head and was a raging crackhead the last I heard. I know you don’t wanna be like grandpa with Sada, right? Last weekend I went walking through the international mall in Tampa, the weekend before the big mall at the gardens in palm beach. The shopping machines will never understand what you are trying to sell to them warren, all they know is more hotels, more shopping malls, more expensive restaurants (but at times with terrible overpriced food) – it will take a whole new generation of people who learn different things in the formative years of thier life – you can’t teach an old shopping machine new tricks – they will never learn. I see your emotional and spiritual journey on this dirtball is not as far along as mine or you would give up on trying to reprogram the shopaholics who can’t be saved and try to move on to new groups of people who have not been tainted by the evil memes.

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