Finally, an economics reporter, in this case, in England, finally figures out what I figured out 4 years ago: the Japanese carry trade flooded the entire planet with easy credit.  In this case, Mr. Elliott is talking about Iceland.  But the story of Iceland is exactly the same as England, Spain, Ireland, Scotland, the US, etc, etc.  Eventually, if everyone finally, finally sits down and examines where this flood of funny money came from, they will finally, finally figure out, it was due to the ZIRP banking system of the Bank of Japan, not homeowners suddenly wanting to buy three or more houses.  And if we finally, finally understand all of this, we have to fix it so it won’t happen again and how are we doing this with half of the first world nations imitating Japan’s ZIRP system of banking?  Of course.  This is doomed.

How Iceland went from world’s biggest hedge fund to pariah in global markets | World news | guardian.co.uk

Larry ElliottIn the early part of this decade inflation fell in most of the western world as a result of the recession triggered by the dotcom collapse and the flood of cheap imports into the west from Asia. Interest rates fell in most of the developed world, and in Japan, which had been in almost permanent recession since the early 1990s, they were almost zero. Pension funds had made big losses on their ill-judged investments in new technology shares and were looking to make amends. This phenomenon was known as the search for yield and resulted in a flow of funds from Tokyo to Reykjavik.

Iceland had relatively high interest rates, so investors borrowed heavily in Japanese yen and bought Icelandic bonds. Money flooded into Iceland and its big banks borrowed $120bn (£85bn) on the international markets – six times the size of the country’s GDP. This is the sort of leverage normally associated with hedge funds, which borrow money for their speculative plays. The money was recycled into other European economies, including Britain where Icelandic investors bought up large parts of the high street, and all was well while the bubble continued to inflate.

The financial crash has put paid to Iceland’s get rich quick scheme – known as the yen carry trade – and left Iceland saddled with debts it has no hope of paying without impoverishing its people for decades to come. Given its pariah status in the global markets, the country was forced to turn to the International Monetary Fund for a loan earlier this month, but faces years of austerity.

Nearly anything is higher than ZIRP!  This is the problem of a ZIRP system: even 1% is a huge difference from 0%.  And a zero system is a black fiscal hole.  Think of it!  Do we have dollar bills with a zero on it?


Here is a dollar bill design I made today.  Isn’t it cute?  When this dollar was printed, the US was undergoing severe post-Civil War inflation.  Note that both Lincoln and Grant decorate the stand where the eagle flexes his wings.  Note also, that this was printed by the US Treasury, that quaint group that used to be in charge of our currency.  As a joke, I inserted some amusing words.  See if you can find them.  Heh.


Here is a story I wrote in June, 2007, just before the Japanese carry trade slid off the Chinese cliff:


Money Matters: The Federal Reserve And History of Money

DeVaul, one of the readers of this blog, sent me a photocopy of the famous case, Juilliard v. Greenman which was an 1884 Supreme Court case which opened the barn doors for a Federal bank to issue fiat paper currency. Since this is the week the Federal Reserve which was launched by really rich men at a secret meeting offshore in 1913, issues its annual reports, it is time to talk about the Consitution, money and why we have a political economy that is destroying America’s economic future in the name of quick profits for the top 1% of the nation and cheap prices for the working class.


On May 31, 1878, the lower courts in New York held that certificates issued by the Army during the Civil War were legal tender and could be passed around as if it were gold coin and it would carry the face value of gold on redemption but this was all false since the inflation caused by the war had significantly reduced the value of these bills handed out by the US Army and so when a manufacturer tried to use them in lieu of coinage, the man selling the cotton wanted payment in currency and not a goverment IOU of indeterminant value.


This story has many illustrations of old money from my personal money stash.  I noted how all currency paper were actually contracts and the older the paper money, the denser the language and the more clearly were the details about the paper money which was shorthand for a temporary loan between two parties for future payment in either gold or silver.  Note the money above: it is a silver certificate, for example.


Back to the Guardian article: for years now, traders and bankers have talked, in private, about the glorious Japanese carry trade.  Years ago, I puzzled over this.  What the hell were they talking about?  When I finally figured it out, my mind went into high gear.  ‘These bastards are flooding the world with funny money!’ I said.  Well, what was really going on?


Fractional reserves were reduced to less than 0.1% in the case of the biggest international banking houses as they combined this crazy Japanese wild lending with derivative swaps that would take care of several key issues: interest rate hikes that would kill the Japanese carry trade if Japan raised rates to over 1%, and insurance swaps for guaranteeing the loans if the corporations and bankers using this system were to default.  This meant, there was no more risk!  See?


And since there was no risk, there was no need for any reserves!  Isn’t that cute?  So, Japan had a zero interest rate in a system with one of the world’s biggest FOREX reserves while the US bankers, for example had zero reserves with the world’s biggest exposure to the Derivatives Swap Markets!  Now, isn’t that a great way to have utter destruction?  These extremes would balance themselves out only if nothing every changes and no one ever goes bankrupt. 


Only, it is inherent within the system for accumulating debts due to the Japanese Carry Trade would create massive inflation.  First, in housing and then, stocks, then in commodities.  Now, we are in the bankruptcy side of the scale.  Japan didn’t raise interest rates.  Instead, something totally unexpected by the Japanese carry traders happened: all the major G7 nations began to drop interest rates to zero, too!  This utterly kills the Japanese carry trade.  Who needs to go to Japan for 0% interest loans when Uncle Sam is handing them out like candy?


So nations that bet on the Japanese rather than the US carry trade, lost big.


Obama: Enough Of This Crap – The Market Ticker

I’ll tell you what would be change.  Since it appears that a huge percentage of the current and former Congressional delegation has cheated on its taxes – after all, what are the odds you only picked the tax cheats, if you want me to believe in your idea of CHANGE you will immediately order all member of Congress in both Houses to undergo full IRS audits all the way back to the Statute of Limitations (three years), along with all of their staff.

You and I know know it won’t happen, but I’ll tell you what – I keep hearing people say they’re going to file absolute crap this year.  Utter garbage.  “The Dog ate my Schedule C.”

If The American People do this, Mr. President, government funding will collapse.  The IRS can’t possibly audit everyone and we all know it.

Your administration is dangerously close to creating a full-on tax revolt among Americans.  You would not believe how often I have heard this among people both online and off in the last couple of weeks.  The anger, especially when the people who are cheating are folks like Daschle and Geithner, is VISCERAL – these are the people who both wrote the tax code and were involved in the bailouts and handouts which you expect we the people – ordinary Americans – to pay for.

Here is what Daschle said previously:

“Make no mistake, tax cheaters cheat us all, and the IRS should enforce our laws to the letter. ” Sen. Tom Daschle, Congressional Record, May 7, 1998, p. S4507.

But you, Mr. President, expect Americans to file truthful tax returns and pay their taxes as due?

Arrest them all.  Really, by now, even Denninger should be ready to pull out his Derringer and take a pot shot.  After all, do we think any of the corrupt bastards in DC shouldn’t be arrested?  If nothing else, they should be removed due to running over budget for eons.  Under both Republican and Democratic rule…except for one year when hyper-market conditions in NYC with the Dot Com Bubble coupled with the GOP not giving Clinton any money, balanced the budget.


Then, the GOP got total control and added on another $4+ trillion in debt.  Not to mention, both parties are for free trade so we ran up almost $10 trillion in trade deficits.  Balancing this with a ZIRP system is like a teenager getting rid of zits by eating lots of chocolate bars.


Cautiously Capping Executive Pay – Forbes.com

If there’s a middle ground between being restrictive and constrictive on executive pay limits, the Obama administration is trying to find it.

Wednesday morning, President Obama and Treasury Secretary Timothy Geithner announced that top bosses at companies that receive “exceptional assistance” from Uncle Sam will have the salaries capped at $500,000, among other limitations….

The restrictions on executive compensation would not apply retroactively but would apply to any future TARP programs. They will also distinguish between firms participating in generally available pools, like the Capital Purchase Program, which provided funds to nearly all banks, and those needing “exceptional assistance” like the special programs announced for Citibank, Bank of America and AIG.

Aside from the $500,000 cap on annual compensation for the top corporate chiefs whose firms get “exceptional assistance,” there’s a provision that limits their stock compensation until the government is paid back. In additions, the salary of executives and the structure of their payments must be disclosed to shareholders.

Come on now, just tax the bastards, OK?  Then we balance the budget and we drive the gnomes nuts.


Goldman Sachs Would Like to Pay Back U.S. TARP Funds Soon, CFO Viniar Says

(Bloomberg) — Goldman Sachs Group Inc. wants to repay the $10 billion it got from the U.S. Treasury last year to signal the firm is healthy and to escape limitations that were imposed with the money, Chief Financial Officer David Viniarsaid.

“Operating our business without the government capital would be an easier thing to do,” Viniar said today at a conference hosted by Credit Suisse Group AG in Naples, Florida. “We’d be under less scrutiny and under less pressure.” He added, “It would send a very good signal” if the firm could repay the money.

Under current rules, Goldman and other firms that received money under the Troubled Asset Relief Program, or TARP, are required to raise common or preferred equity to replace the government funds, Viniar said. The company, which received the government money in October, will consider raising money “if the markets are good,” he said.

No money for gnomes=sexual hell.  How on earth are they going to cage cute Russian fashion models?  Especially if they are competing with Russian Mafia?


Goldman Cancels Miami Fund Conference – WSJ.com

Goldman Sachs called off its big Miami hedge-fund conference scheduled for the first week of March, telling clients that going ahead with the normally posh event there could cause image problems for the firm at a time of intense scrutiny over banks’ spending habits.

“In light of the current environment, Goldman decided to reschedule the hedge-fund managers’ conference. We plan to hold the conference in the next few months in New York,” Goldman spokesman Ed Canaday said.

Morgan Stanley meanwhile told brokers this week that it was canceling trips it holds for top-producing brokers, usually in locations like Florida, California

All future financial meetings should be held in Siberia or Tibet.  Or the Upper Volta Region.  The waiters will be head hunters.


FT.com / Comment / Analysis – Recession Britain: All washed up

David Cameron raised the spectre of Britain’s humiliating 1976 bail-out by the International Monetary Fund, warning: “If we continue on Labour’s path of fiscal irresponsibility, at some point – and it could be very soon – the money will simply run out.”

The Conservative leader noted that government borrowing was likely to be higher by any comparison in 2009 or 2010 than when Denis Healey, then chancellor, had to go “cap in hand” to Washington.

Jim Rogers, chairman of Singapore-based Rogers Holdings and co-founder of the Quantum Fund with George Soros, went one step further when he told the Financial Times: “It’s simple, the UK has nothing to sell.”

So is Britain or its government going bust? Nonsense, says Gordon Brown, who criticised Mr Cameron for displaying “ridiculous behaviour on behalf of the opposition” and accused Mr Rogers of being a speculator talking his own book. But the prime minister cannot be so definitive on Britain having no possibility of defaulting. After all, the country has form.

Well, if the Brits come here for loans, um…we are broke!  Yeah!  There are few addresses left.  The UK can go to China.  Or the UK can go to Russia.  Or they can go to hell.  In a hand basket.  I’m sure the Icelandic people will be happy to weave one.  And England better watch out.  What if the Norse people decide to resort to Viking raids?

YouTube – Erik The Viking – salves in boat: Japanese overlord whips the Vikings to row faster







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