The IMF just released a report about the total collapse of banking in the G7+ system. The very same countries that lord it over the rest of the earth via the IMF are now nearly all in very deep trouble due to wild lending, wild borrowing and playing wretched money games that exploit loopholes, glitches and time lags in the system. And when there are no legal ways to fleece the system, then outright fraud and theft as well as corrupting the political system was used by the financial gamesters and players.
The IMF just got a loan from one of the principal player in this mess, the Bank of Japan, creator of the ZIRP system. Hitherto, throughout history, all banks charged interest. Very briefly, during the Great Depression, the rate nearly hit zero but no one has ever done this for over a decade! Including during a burst of global hyper-inflation. Japan did this even when inflation inside Japan was well over 3%. And the IMF didn’t say so much as a peep about this bizarre business.
Nor do they talk about the faux interest rates all the major central bankers are offering today. We are in a deflation cycle but this is ‘normal’ since we have to pay down excessive debts before we can lend again, anyway. Today, we are going to examine a recent IMF report and news conference. They are trying to be the linchpin of the New World Order whereby all the national central banks all work under international [guess who!] rules. So we will all be run by the equivalent of the IMF’s sort of ‘internationalists’ who are actually not so international but rather, have their own various agendas, some of which are hyper-nationalist. Like Japan, China or the larger Jewish community supporting Israel.
• Causes. At the root of market failure was optimism bred by a long period of high
growth, low real interest rates and volatility, and policy failures in:
1. Financial regulation—which was not equipped to see the risk concentrations
and flawed incentives behind the financial innovation boom.
2. Macroeconomic policies—which did not take into account the build-up of
systemic risks in the financial system and in housing markets.
3. Global architecture—where a fragmented surveillance system compounded the
inability to see growing vulnerabilities and links.
• Lessons. The most basic one is that flawed incentives and interconnections in
modern financial systems can have huge macroeconomic consequences. These need
to be understood and tackled as best possible.
1. Financial regulation. The perimeter of regulation should be broadened and made
more flexible, with enough disclosure to determine the systemic importance of
institutions and the associated degree of needed oversight. A macro-prudential
approach to regulation and compensation structures should mitigate pro-cyclical
effects, promote robust market clearing arrangements and accounting rules, raise
transparency about the nature and location of risks to foster market discipline, and
facilitate systemic liquidity management.
2. Macroeconomic policy. Central banks should adopt a broader macro-prudential
view, taking into account in their decisions asset price movements, credit booms,
leverage, and the build up of systemic risk. The timing and nature of preemptive
policy responses to large imbalances and large capital flows needs to be reexamined.
3. Global architecture. The fragmentation into silos of expertise needs to be
overcome and senior policy makers engaged in promoting global stability, including
via early warning exercises. The case for cooperation is pressing in financial
regulation, especially the resolution of cross-border banks. A failure to meet the
financing and insurance needs of crisis-hit countries will worsen vulnerabilities and
outcomes. Governance reform is key to this agenda.
I like to tell fairy tales. Going back into the Ur-mythos is also very useful when we look at modern financial systems. Once we master both the psychology and the religious mirror-magic of numbers, counting things, using information to describe things and label things, when Adam was told to name all the animals, this was the first function of turning physical things into symbols.
The IMF mentions in the preamble to their ‘study’ of what went wrong by mentioning a long period of ‘low interest rates.’ But if we look at this ‘long period,’ we see only one country had ‘low interest rates’ throughout the last 15 years: Japan. The US rates were all over the map, from nearly 8% to 0.5%. And not a simple drop. Let’s look at a graph that compares Japan’s rates with the US rates:
Unlike Japan’s rates that are flatter than Kansas, the US rates rise and fall, wildly. Each time the differential between the US rates and the Japanese rates were the greatest, the Japanese carry trade flourished. How could the US flood the world with lending if its rates were high before the 2000-2001 Dot Com Bubble collapse and then, the US housing bubble? Both bubbles occurred when the differential between US and Japan were the greatest, not the smallest! This should be a clue but it is totally ignored by the IMF and others.
I decided, after years of vain disputes, the truth is, everyone LOVED the Japanese carry trade and are quite anxious to restart it, somehow. This is why the G7 never, ever demanded Japan strengthen the yen. Only the yuan was hammered, mercilessly. According to the IMF report, the fix for all this is for the central banks to interfere even more with capitalism, trade, government finances and social services. We know that their mandate usually causes riots as furious victims attack globalized dictates. Now for the press conference about all this:
MR. CARUANA: Thank you, good morning. One of the main points of the papers is the notion that the lessons and responses in the area of financial regulation and supervision are key elements in responding to the crisis and to preventing future crisis. But changes in regulation alone will not be enough, and that’s the reason why these papers focus on lessons in these three areas, and my colleagues will discuss those other areas, macro and architecture. I will concentrate my remarks on the financial aspects.
We have focus on five key areas that we see as priorities for reform in the regulatory framework. These are:
- extending the perimeter of regulation,
- reducing procyclicality;
- addressing market discipline and information gaps;
- improving cross border and cross functional regulations;
- strengthening systemic liquidity management.
I will put this into simpler language:
- The IMF/BIS machine will take over regulating all banking systems
- They will aim at controlling interest rates via consensus of unelected globalists with their own agendas
- They will have the right to pry into all systems
- They will enforce free trade no matter what it destroys And they will be the ultimate lenders.
Sounds delightful. I bet they discussed this at their various Bilderberg/Davos meetings. I bet some felt this was a wonderful opportunity to take over all systems. They also probably swore to each other, ‘This time, we won’t be so greedy.’ We know how this promise works. Like our banking system: not at all.
Institutions need to be regulated by their functions or by their activities rather than by their legal structure. We are also suggesting a two tiered approach, one tier basically extending the disclosure requirements to provide enough information for supervisors to determine which institutions are systemically important, and the other tier being more narrow, though wider than the present one, that would be, to those institutions, where intensified prudential regulation and oversight is needed.
A two tier system: banks for us schmucks and then banks for the super-rich. Our banks will be closely monitored. The other banks, not named in this press conference, namely, all the banks that did the derivatives junk, will remain aloof. Note that the IMF wants to have JUST ENOUGH INFORMATION to see if these mystery banks that have names like Goldman Sachs, to see if they are IMPORTANT. This translates into ‘protect them no matter how stupid, goofy, dangerous or reckless they get’.
The second reform that we are advocating in the paper are policies to mitigate Procyclicality:
In business cycle theory and finance, any economic quantity that is positively correlated with the overall state of the economy is said to be ‘procyclical’. That is, any quantity that tends to increase when the overall economy is growing is classified as procyclical. Quantities that tend to increase when the overall economy is slowing down are classified as ‘countercyclical’.
Gross Domestic Product (GDP) is an example of a procyclical economic indicator. Many stock prices are also procyclical, because they tend to increase when the economy is growing quickly. Unemployment is an example of a countercyclical economic indicator.
This is a complex way of saying, the IMF/BIS organization will control inflation and bubbles. We know that the creation of the Federal Reserve which is run just like the BIS and IMF [We have precious little power over it] this new regulator will magically prevent all the things the central bankers couldn’t control.
These people are mere humans and hang out together and are friends with the very rich, they ARE the very rich. Everyone seeking to loot world finances will join this entity and try to control it so they can secretly loot us. This is human nature. Far from disinterested, they are very interested in making themselves stronger and richer. And more powerful.
It goes without saying, they will have unemployment at levels that please them, not us. Our social services will come secondary to their needs to live in palaces, not be taxed and jet set in private jets while we die in the streets below. Ask any third world nation, how merciful and kindly these devils are.
We argue that capital regulation and accounting standards should include incentives and guidance for the accumulation of additional buffers in good times. These measures should be non-discretionary, and the transition should be phased gradually so that they do not exacerbate the present situation. Accounting rules and valuation practices should be strengthened to reflect a broader range of available information on the evolution of risk through the cycle, and these would facilitate greater consistency with good risk management and sound prudential regulation.
‘These measures should be NON-DISCRETIONARY…’ should scare everyone. This god-like internationalist organization made up of creeps who have been funding wars since the Napoleonic wars are not to be trusted. Naturally, these clever foxes wish to impose this DICTATORSHIP ‘gradually’ so we don’t notice it since it will ONLY SPREAD SUFFERING!
We also – you will see in the paper that we also need to reduce procyclicality in other areas such as liquidity risk. We are in favor of the supplementary leverage ratio. Capital requirement –
While Basel II significantly alters the calculation of the risk weights, it leaves alone the calculation of the capital. The capital ratio is the percentage of a bank’s capital to its risk-weighted assets. Weights are defined by risk-sensitivity ratios whose calculation is dictated under the relevant Accord.
Each national regulator normally has a very slightly different way of calculating bank capital, designed to meet the common requirements within their individual national legal framework.
Most developed countries and Basel I and II, stipulate lending limits as a multiple of a banks capital eroded by the yearly inflation rate.
The Federal Reserve and the US government both had incentive to lie about inflation. Namely, they try to minimize inflation. Governments can also use capital ratios to stop the rapid growth of lending which leads to inflation of equities and assets. By lying about inflation, banks can give low returns on savings while lending becomes ridiculously easy.
MR. BLANCHARD: Good – I shall talk about the role of the macro economy conditions in the crisis. If I had to list the causes of a crisis, what I would list would be, first, failure of market discipline, then failure of regulation, and then macro economy conditions, and I would do it in that order. When it comes to macro economic conditions, what you had before the crisis was five years of good times, strong growth, low interest rates, stable inflation, and I think there is no question that this led to over-optimism and understatement of risk. And then from that, basically what you saw was excess risk taking and the creation of bad assets and bad behavior in general….
Here we have more lies! This is not a 5 year cycle. It is a7 year cycle. This is the oldest of economic cycles: the Egyptian ‘Seven Fatted Cows and the Seven Starving Cows’ business! It is also all about how we must put aside wealth in good times so we have reserves for bad times!
Now, I used that magical word, ‘Reserves’! And pray, who put aside huge reserves during the Fatted Cow’ years? Above all, China, next, Japan and then Russia! These reserves were very important. The US reserves, on the other hand, are small and has not varied over time, year after year, it remains the same. No matter how big our GDP or how fast our economy grew, our reserves remained at 1974 levels.
If the IMF wants to know how this 7 year cycle works, they could consult with me. I will be happy to explain it. To keep too much ‘over-optimism’ to grow, all we have to do is, tax the rich people who control the IMF/BIS and the main Central Banks like the Federal Reserve. This way, they have no incentive to be naughty.
I think the difficult question is, looking at these five years of growth, were times too good, or were we basically living on borrowed time, and we should have seen it coming? I think the answer is, to a large extent, these five years of high growth were for real, there was sustained productivity growth, and the world was doing well in general, so it’s not the case that this was just borrowed growth or borrowed time.
Many humans were working very hard. Many industries were being relocated from one place to a cheaper-labor venue. ‘Productivity’ is the word rich people use to mean, ‘Getting cheap labor and making them work even harder.’ The world was doing better in some places but this was due mostly to the combination of cheap loans to US and European workers who were losing their jobs and seeing their wages fall as industries were moving out. This situation had limits as we can see.
At the same time, it’s clear that this was not balanced growth and there were imbalances in a number of dimensions. One of the main imbalances was global imbalances – large account deficits of the U.S., the large current account surpluses in Asia and other parts of the world, and the question is whether they played the role in basically feeding the fire. And I think the argument can be made that, yes, to some extent they did, and the fact that there was a very high saving in the world, that to low interest rates, which by itself is not a bad thing, but basically led to all kinds of bad behavior.
The IMF notices the biggest trade deficit in human history! And thinks this has a SMALL role to play???? This is utterly dishonest! The internationalists don’t want to change this deadly status quo. They would rather keep the US as their personal military machine and to do this, they need to keep us spending money. They don’t care how deep in debt we go!
There are two types of internationalists: the G7 guys and the Chinese. Both they and the Chinese want the US to continue going deeper into debt, overspending on our military and losing our industrial base. But Europe and Japan want to be the riders on the US military horse so they can use us for their own international ends. China wants us to be in debt to them so they can control us.
We must defend ourselves from both the G7 allies and the Chinese. Both forces are tearing apart our future. Both are loading us up with infamous levels of debt. Instead of sounding the alarm, note how the IMF officials try to minimize our massive, insane trade and budget deficits!
The large capital flows to the U.S, and the demand for U.S. assets probably gave incentives to suppliers of these assets to supply what in the end were risky and what are dead assets, so in that sense, I think there’s no question that global imbalances played the role in the crisis.
The Fund had worried very much about global imbalances before the crisis, but had in mind a different scenario, for the most part, which was that the flows would turn around, the rest of the world would not love U.S. assets anymore and would turn away, and the dollar would depreciate very sharply.
Who are these stupid idiots? At NO TIME in the last 50 years, have our trade rivals sought to make their own currencies stronger than the dollar! They ALWAYS move heaven and earth to make our currency as strong as possible which is why they hold so many dollars in their FOREX reserves! DUH! The only way we could make the dollar weaker in the past was to have big meetings and twisting arms of the Germans and Japanese export powers!
That’s not the way the crisis came into being, and so far the dollar has been very strong. But that doesn’t mean that the risk wasn’t there, the risk was there. Large capital inflows really have the potential for danger. And I think that, even if this time this was not the trigger of a crisis, we have to basically focus on these large imbalances, we have to focus on large capital flows.
Good Grief!!!! In the summer of 2007, Japan told China, they would flood China with the Japanese carry trade loans. China immediately began to buy and hold yen. The yen began to climb against all currencies and this caused the Japanese carry trade to unwind and this caused the global liquidity drought! The IMF wants a strong dollar but the US is put in severe danger due to the strong dollar!
Now, let me turn to the role of monetary and fiscal policy in light of the crisis. In the years preceding the crisis, most central banks had adopted, with various degrees of rigor, an inflation targeting framework. Some were really just targeting inflation, some were targeting inflation and output. But there was wide agreement that this was a way to do policy. And if you wanted to argue that the central banks should care about asset price bubbles or credit booms, then the burden of the proof was on you.
I think what this crisis has done is basically turn the tables, and now the burden of the proof is clearly on the central banks to say we should look at it or we can’t do anything.
Can they do something? I think they can do something. They can construct measures of systemic risk, which would capture some of the evolutions which happened and we didn’t see in the last five years, and then having done this, they can, if and when these measures indicate a large increase in risk, react to it in various ways.
Here he is babbling like a lunatic. The central banks caused this mess. The liquidity flood was caused by a central bank with very low interest rates and that place was NOT the US. It was whoever was lending at 0%. Namely, the central bankers of Japan!
It remains the case that monetary policy is the wrong tool to deal with asset bubbles; regulation is the right one. But what we’ve learned is, regulation cannot entirely do the job, so monetary policy has to be ready to do so, and that’s one of the messages of the crisis for macro. On fiscal policy, again, I think there are many reasons to believe that budget deficits were too large in a number of countries before the crisis, but again, I don’t think that this was the major trigger or the major source of the crisis. There are still lessons to be drawn. The first one is, if budget deficits had been smaller before, we would have more fiscal space today to actually react to the crisis. And so I think the message that, in good times, you better have surpluses—which is a message that the IMF has been giving for a long time, and the crisis makes much stronger—so you really have to have the fiscal space when you need it.
Monetary policies caused the bubbles. The interest rate differentials caused this bubble crisis. The unwinding of these many interest rate deals is what is causing the crash. Interest rate swaps and derivatives is what is causing this mess. No matter what the central banks do, the money vanishes as all the dealers in the OTC markets unwind all of their deals based on interest rate changes. And the more the central banks drop interest rates, the more of these noxious deals have to be unwound.
The other aspect has to do with the tax structure. And basically, many advanced countries, actually many countries in general, tend to have a tax structure which favors leverage by households and by firms, namely deductability of interest payments and mortgages, for example, for households, decuctability of interest payments by firms for profit taxation. And these two lead to higher leverage than would happen without. And what we’ve learned is that high leverage, not only in the financial sector, but in the corporate sector, in household sector, is very dangerous, and so these are distortions which would eventually be removed. I shall stop here.
He stops here! HAHAHA. Oh, take away the US interest rate deductions! Again, note that he assumes the international powers will do this to us! But we don’t need to discuss THIS, do we?
MR. MOGHADAM: Thanks. I will talk about the lessons of international financial architecture and the role of the Fund. I think the crisis has been a wake up call for reassessing the effectiveness of the international financial architecture, and in particular, of mechanisms to head off systemic risks.
In the paper that you have, one theme running through the paper is fragmentation. It talks about fragmentation of surveillance, it talks about fragmentation of policy coordination in the world, and cross border financial regulation, and it talks about fragmentation of liquidity support and generally financing.
And accordingly, it talks about lessons – needed reforms, if you like—in four areas, the first one, of course, being surveillance. And the paper argues for more coordination across institutions, for the need to drill down, to better connect the dots on policy recommendations, and the underlying analysis, and it talks about clearer warning signals, and more specific policy advice to policy makers. On international coordination, the paper argues that there is need for leadership, and in particular, the paper proposes the need for a, what do we call it, legitimate and efficient forum of top policy makers to respond to systemic risks.
The CDS markets are the creation of the internationalists. This way, they opened a back door whereby they could flood a country with debt. All businesses that tried to exploit these back door deals found themselves being used to legitimize faulty, dangerous deals. AIG was a perfect TROJAN HORSE after the Drexel Brunham Lampert operation was shut down by authorities.
And on cross border financial regulation, the paper argues for strengthening the ground rules before problems actually occur, and for better defining rules for burden–sharing across jurisdictions.
And finally, the paper argues for a better system of liquidity support and for providing greater resources to deal with external adjustment.
Namely, the IMF will be the bankers!
Of course, in all these areas, the Fund has a role to play, and a number of these areas, some of the reforms are already under way. Let me highlight a couple of things. For example, we are in the middle of thoroughly reviewing our lending facilities. We are also – we have also undertaken a number of initiatives to strengthen surveillance, and we are just about to start a new process, which I think is important progress coming out of the current crisis, and that’s the early warning exercise which we are about to launch with the financial stability forum. I’ll stop here and hand it over to Carlo.
HAHAHA. Modesty, indeed! But who controls the IMF now? Japan, not the US, just gave the IMF a loan so they could lend!
A silent $1 trillion “Run on Britain” by foreign investors was revealed yesterday in the latest statistical releases from the Bank of England. The external liabilities of banks operating in the UK – that is monies held in the UK on behalf of foreign investors – fell by $1 trillion (£700bn) between the spring and the end of 2008, representing a huge loss of funds and of confidence in the City of London.
Some $597.5bn was lost to the banks in the last quarter of last year alone, after a modest positive inflow in the summer, but a massive $682.5bn haemorrhaged in the second quarter of 2008 – a record. About 15 per cent of the monies held by foreigners in the UK were withdrawn over the period, leaving about $6 trillion. This is by far the largest withdrawal of foreign funds from the UK in recent decades – about 10 times what might flow out during a “normal” quarter.
The revelation will fuel fears that the UK’s reputation as a safe place to hold funds is being fatally comp-romised by the acute crisis in the banking system and a general trend to financial protectionism internat- ionally. This week, Lloyds became the latest bank to approach the Government for more assistance. A deal was agreed last night for the Government to insure about £260bn of assets in return for a stake of up to 75 per cent in the bank. The slide in sterling – it has shed a quarter of its value since mid-2007 – has been both cause and effect of the run on London, seemingly becoming a self-fulfilling phenomenon. The danger is that the heavy depreciation of the pound could become a rout if confidence completely evaporates.
Money that flowed into England is now flowing away. England thought, they could play at being banker instead of manufacturing trade goods. As if this medium-sized economy could be run like Aruba or Singapore! Now, all social systems will fail. The nation will be plunged into an IMF-hell hole! The British had an earlier brush with the IMF when the US dropped the gold standard and world oil prices rose suddenly. Then, Britain discovered the North Sea oil. Which is now running out.
MR. COTTARELLI: I don’t think I want to talk about specific countries.HAHAHA. I can tell you what are the features of the countries, what it is that allows country to undertake fiscal stimulus, what fiscal stimulus should depend on. And I think that the first consideration is that one needs to look at the state of the economy, what is the outlook for growth. So the weaker the state of the economy, the more countries will have to do to support the economy. The second point is the existing fiscal space. So countries with lower debt, and especially countries that are paying a low interest rate on their debt, have relatively more room to expand fiscal policy. And obviously, the reverse is true: countries with high public debt that are paying high interest rate have less room to support the economy.
Notice that he didn’t mention countries with low, low interest rates and high, high, high overspending! Japan, the US and Britain being three obvious examples.
And the last point I want to make is that fiscal space is not something that is given. Fiscal space depends on the set of policies, including the medium term policies, that governments implement. Governments can create fiscal space by doing what I was mentioning earlier as part of our four pillar strategy, namely, reforms that reduce over the long run spending, These can create fiscal space could allow a larger increase in spending today.
MR. BLANCHARD: I want to add something, which actually is related to both of your questions. What is clear now is that even if growth turns around later this year or next year, it’s going to take a long time before output goes back to normal so that basically we have to think of the fiscal impulses lasting for quite a while. At this stage what we see is that there has been an effort by most countries to basically have a fairly large fiscal stimulus for 2009, but when it comes to 2010, some countries don’t have much in the works, and for 2011 it’s too early to say, but there basically is very little that has been announced and it seems to us that at this stage the government should be thinking about doing more in 2010, maybe in 2011. And to the extent that the best fiscal stimulus is probably the moving forward of infrastructure projects which were intended in the future but just starting them earlier, this takes time. Therefore the government should be thinking about it now.
In less than two years, the UK has burned through nearly one fifth of its national wealth? Wow. The US has a better situation but only today. As our GDP collapses, the ratio will worsen. This is the nature of depressions. The GDP shrinks and this makes the debt ratios worse. Inflation has the opposite effect.
Part II of this story is tomorrow. This computer is VERY slow and infuriating. My new one hasn’t come in yet.
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