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Wednesday, September 28, 2016

Deutsche Bank is in trouble

In case you hadn't noticed, we're very far from being out of the 2008 crisis. The bandaids are leaking. Heavily.
Update: In an emailed statement, the German finance ministry told Bloomberg that the report on Deutsche Bank by German weekly Die Zeit “is incorrect" adding that "the federal government isn’t preparing any rescue plans. There are no grounds for such speculation.”

  • GERMAN FINANCE MINISTRY DENIES DIE ZEIT REPORT ON DEUTSCHE BANK
  • GERMAN GOVERNMENT ISN'T WORKING ON BANK RESCUE PLAN: MINISTRY

Only two more denials until it is unofficially confirmed.

It's all about Deutsche Bank this morning again, where after last night's vigorous denial by CEO John Cryan, who told Bild that the troubled German lender is not seeking a government bailout and that it's balance sheet is solid, earlier this morning Germany's Zeit reported that the German government is working on a contingency plan for Deutsche Bank. The German outlet writes that possible scenarios apply in case Deutsche Bank AG needed capital injection to cover litigation costs and include the option of German government taking a stake.

Contingency plan envisages possible sales of Deutsche Bank units, with the option of state guarantees to back the transactions if needed. One worst-case scenario involving the government taking a 25% stake would apply only in extreme emergency. All options are contingency planning and German govt hopes Deutsche Bank won’t need any state aid.

Queried by Reuters, a Deutsche Bank spokesman referred to an interview Chief Executive John Cryan gave German daily Bild on Wednesday and denied the report. "At no point did I ask the chancellor for support. Neither did I suggest anything like that," had told Cryan Bild in response to a different report that said he had asked German Chancellor Angela Merkel for her support with a $14 billion U.S. demand to settle claims it missold mortgage-backed securities. Such a request would be "out of the question for us," Cryan said, adding that he could not understand how "anyone could claim that."

Despite the preemptive denial, Zeit said that the German government is still hoping Deutsche Bank will not need state support and only scenarios for a potential rescue are being discussed so far.
In related news, it is calculated that the insanity can last somewhere between eight and 68 months longer before it all crashes down.
The ECB and the BOJ, the two central banks most actively monetizing debt currently, have 8 and 26 months respectively, if they do no changes to their programs. However, if incremental easing is layered on, like expanding the scope of their bond buying programs or purchasing equities even more aggressively, the total rises substantially. The final answer: 68 months, or just above 5 and a half years,  in the case of the ECB, were it to steamroll all political opposition and monetize virtually every possible bond (and 20% of the equity market), and 48 months, or 4 years, in the case of the BOJ. 
How very strange! One would have thought those one million new immigrants would have been good for the German economy....

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69 Comments:

Anonymous #8601 September 28, 2016 8:05 AM  

Low interest rates have indeed been doing more harm than good. The best thing about a Trump victory (and there are many good things to choose from!) is that he will dump Yellen, appoint a hawk and put an end to this low rate B.S.

Anonymous #8601 September 28, 2016 8:18 AM  

The BOJ has found away around the timeline with their new Yield Targeting strategy. By publicly targeting a yield (say 0% on the 10yr JGB) they actually don't have to buy anything. Just the threat will keep rates at their target.

The Yield Target announcement didn't get enough love in the media. It's actually quite brilliant. Expect it to catch on amongst other central banks.

Blogger Tamquam September 28, 2016 8:22 AM  

What can't go on won't. Brace for impact.

Blogger #7139 September 28, 2016 8:24 AM  

In case you hadn't noticed,...

The central banks have been more creative than I ever could have imagined 8 years ago.

OpenID bc64a9f8-765e-11e3-8683-000bcdcb2996 September 28, 2016 8:26 AM  

Hey, I know...Let's form a "community" where EVERYBODY "pitches in", and we can
just give an allowance to the less fortunate when they REFUSE to pull their own weight.
We'll just make SURE to do it RIGHT, this time.

CaptDMO

Blogger Nate September 28, 2016 8:27 AM  

"the federal government isn’t preparing any rescue plans. There are no grounds for such speculation.”

There is no better basis for such speculation than an official government denial.

Blogger dc.sunsets September 28, 2016 8:33 AM  

When you're inside a paradigm it's almost impossible to see how absurd it becomes.

When the dollar was floated free of any consistent "real" thing (in 1964 when silver was removed from coinage) it became possible to conjure unlimited amounts of dollar-based "wealth" in the Mass Mind. At first this translated into a spike in CPI-type inflation, but when bond prices bottomed/interest rates topped in 1981, it led to 35 straight years when holding someone's long-term IOU was a wealth-making machine.

During the last 3.5 decades banks could lend money from thin air (no prior production was required), the money was spent and came back to the bank as a deposit, increasing the supply of dollar-wealth with each turn of the crank. Governments could spend money without the need to obtain it first by taxation. This is why hand-wringing over the National Debt and tax policy were meaningless. Uncle Sam (and his brothers across the First World) simply issued IOU's (bonds) and the holders of those bonds were wealthier by that amount, plus as rates fell the capital value of their holdings rose. Plus the "money" Congress spent plowed back into the banking system as deposits.

We have had so long on this system that no one knows what parts of the economy can survive without this feedback loop of monetary insanity. We must assume that 100% of price increases and most of the industries that have blossomed since 1974 (the last low in the DJIA) are unsustainable without the illusions of the last 35 years supporting them.

It's possible that 98% of the "wealth" everyone rich and poor perceives will disappear when this period of monetary Three Card Monte ends. It's just perception, anyway. The structure of who makes what, who consumes what and who owns what seems likely to all be tossed into a barrel and sent over Niagara Falls. What emerges afterward is likely to look nothing like today. That's my 2 cents.

Blogger residentMoron September 28, 2016 8:38 AM  

Just notice that the report was that the government is preparing CONTINGENCY plans, while the denial is that the government is not preparing any RESCUE plans.

In other words, non sequitur as plausible deniability play.

Anonymous DT September 28, 2016 8:43 AM  

One would have thought those one million new immigrants would have been good for the German economy....

Well obviously if the first million didn't help, they need a million more. Surely it will work then!

Blogger dc.sunsets September 28, 2016 8:43 AM  

@2 While it looks like the BOJ created a perpetual motion machine, I think the key word there is "looks."

Holders of JGB's have taken a 15% haircut in capital value in the last two months, as I understand it.

Let us imagine that a central bank has announced it will monetize (buy) an unlimited number of IOU's. The relevant question becomes, what is something actually worth if there's no actual price discovery (market) for it?

From Japan to China to the USA, Germany, Italy, Greece, and beyond, the last 35 years were an historical (and historic) anomaly. Here, after nearly two generations of this trend being in place, our Wizards of Oz inform us that it is THEY who mastered the secrets of monetary/economic alchemy, and they can spin IOU's (lead) into wealth (gold) on command.

In fact, it was simply a secular trend in the long term bond market.

The Fed raised the discount rate to 0.25% only AFTER T-bill rates rose to about that. Until T-bill rates rise toward 0.50%, the Fed will do NOTHING. The problem is, the normal level for T-bill rates in relatively recent history is about 4%. If that were to occur now, with tens of trillions of dollars in openly acknowledged long term debt, interest payments alone would bankrupt most corporations and governments. It will finally be Game Over for this 50 year period of Monetary Madness. Borrowing will become impossible because the collective trust required to sustain it will be gone.

Blogger dc.sunsets September 28, 2016 8:47 AM  

Bankers, policy-makers, central bank managers and politicians are like SJWs.

They simply can't imagine a sea change in the sentiment on which their power rides. They are like children who think that the conditions of today have always existed and always will exist.

Anonymous Icicle September 28, 2016 8:49 AM  

The Germans just need more Somali imports. They are like rape machines. Because you can never have enough rape.

I'm sure someone can find that chart comparing them. They were about x8 the rate of Afghans or something (I forget).

Blogger Mountain Man September 28, 2016 8:55 AM  

This comment has been removed by the author.

Blogger Mountain Man September 28, 2016 8:56 AM  

This is why the drumbeat of war grows ever louder. Its the final act for central planning. The elite globalists will use it to further enrich themselves while still maintaining power behind the scenes

Blogger bosscauser September 28, 2016 8:59 AM  

Seems to me a lot of brilliant people were sneering over Trump's we're in a bubble....
I remember genius's on Fox sneering in 2008!😎

Let's go Trump and hurry!

Blogger bosscauser September 28, 2016 8:59 AM  

Seems to me a lot of brilliant people were sneering over Trump's we're in a bubble....
I remember genius's on Fox sneering in 2008!😎

Let's go Trump and hurry!

Blogger Mountain Man September 28, 2016 9:02 AM  

"What emerges afterward is likely to look nothing like today. That's my 2 cents."

It probably will look similar to what we have today. Its just that most food, goods and political /civic matters will be provided and handled "locally" versus internationally. The adjustment period will be the hardest because most people are not set up to survive a prolonged adjustment period.

Anonymous #8601 September 28, 2016 9:07 AM  

@10 d.c. sunsets

Great comments. Who knows what the normal level of rates is anymore but traditionally it has been somewhere around nominal GDP. So if you think real GDP will be around 2% over the long-term plus another 2% for inflation, then 4% does sound reasonable.

Blogger Mr.MantraMan September 28, 2016 9:09 AM  

WAG, for endgame till the currency blows up or nearly blows up, other than that party on dudes.

Blogger Johnny September 28, 2016 9:11 AM  

It goes like this. Modern policy allows large banks to run with very little equity, much less than was traditionally allowed. The second consideration is that when a bank loans money a much better return can be had by taking more risk. Combine the two, little equity an a risky loan portfolio, and every couple of years a financial blowup occurs. Because no modern society can allow its money supply to fail, the public at large has to intervene. In short the government's ability to tax bails out the bank by one means or another.

What makes it all work is that it it produces handsome bank profits, some of which goes to the politicians by means both ethical and not so ethical.
When banks get collectively in trouble, short of allowing the economy to implode, the only solution is a public bailout. The future can be fixed but not the present. So the public at large picks up the cost, the bankers take the blame for the political class that lets it happen, and things continue as is.

The running fantasy is that it can all be fixed with rules or more rigid enforcement, or whatever. The real fix that would work is to require much higher levels of equity financing by the banks. But that would lower the return on equity and, well, nobody in the industry wants to do that.

Blogger Mountain Man September 28, 2016 9:14 AM  

Meanwhile in the Middle East:

http://www.counterpunch.org/2016/09/28/cracks-in-the-kingdom-saudi-arabia-rocked-by-financial-strains/

Expect the entire Middle East to go full radical Jihad in the next two years. One by one the dominoes of resistance ( secular Moslem govts.) to flu blown Jihadism have been falling. This is with and without "assistance' from the United State.

Blogger Shimshon September 28, 2016 9:21 AM  

If Frankfurt suddenly starts erecting a large number of lampposts near Deutsche Bank headquarters, "contingency" takes on a whole new meaning.

Blogger U PC BRO? September 28, 2016 9:23 AM  

@16

"Let's go Trump and hurry!"

Trump can't do anything about the coming collapse, which is baked in the cake. I'm not voting for him with any delusions that he's going to salvage the situation. Indeed, it will probably speed up the collapse (the slaves must be punished for getting uppity). I'm voting for Trump because if the current demographic trend is not halted, indeed reversed, there is no hope for my progeny.

Blogger RC September 28, 2016 9:24 AM  

Overcoming normalcy bias is the big step in preparing for the Great Unwinding. Few will comprehend what's transpired and fewer still will be sufficiently antifragile to maintain anything approaching their current lifestyles.

I have been astounded that TPTB have kept the top spinning this long.

Anonymous Dave September 28, 2016 9:25 AM  

You can't predict bank failures and economic collapses for the same reason you can't predict wars -- they happen when not expected *because* they were not expected. If the elites see that their debauchery is about to end in disaster, they'll ease off until the danger seems to have passed.

Blogger dc.sunsets September 28, 2016 9:25 AM  

Banking has always been a parasite. People have a quaint, "civics class" fable-like notion of how banks connect savers to borrowers but that hasn't ever been the case in anyone's lifetime.

In our Monetary Madness system, loans come first (no prior production required.) Money-from-nothing is then spent, and comes back to the bank as deposits. This is how the money supply is grown under Keynesian and Monetarist (kissing cousins) theory. Wealth equals debt, so the more we go into hock, the more we pawn the Crown Jewels, the richer we all become...right?

Hoppe dissected this Frankenstein's Monster a long time ago with simple logic. Yet here we are, because everyone is in on the Con.

Ironically, today there's no need for banks as we know them. Organizations like LendingClub.com can connect those who have produced, and have actual capital in excess of what they wish to consume directly, to those who desire capital. No bank needed. All that's needed is a monetary system no one (including Con Artists in CONgress) can game. Money is simply a uniform representation of prior product (i.e., production profitably sold in an open marketplace such that its value is independently established.)

Payment processing and clearance are unimportant sidebars to banks, only a means to fish for new borrowers (lending is the bank's only actual business, they couldn't care less about deposits.)

Banking as we know it is like the Medical Industrial Complex: A vast industry employing tons of people to do things we largely don't want or need done. Banking has completely corrupted all political systems since at least the time of Napoleon.

Only a long period of perceived unlimited resources could produce the complacency required to allow such unimaginable waste and economic friction to arise.

Blogger Mr.MantraMan September 28, 2016 9:27 AM  

So maybe the whole EU experiment was built on such fantasy fraud banking.

I'm guessing this episode cannot really be blamed on German (((bankers))).

Blogger Mountain Man September 28, 2016 9:32 AM  

"Banking has completely corrupted all political systems since at least the time of Napoleon."

It is said Andrew Jacksons last words were " I killed the ( central) Bank". He fully understood the dangers and destruction that is wrought by a fiat money system.

Blogger dc.sunsets September 28, 2016 9:35 AM  

@25 Dave, actually, you can predict wars. And possibly banking crises.

Check out Figure 3 here: http://www.socionomics.net/wp-content/uploads/2010/11/nutshell-2.pdf and read "peace and war" beginning on page 3. (It's short and sweet, I promise.)

Prechter was fooled several times during the last 21 years. He grossly underestimated the ability of this system to "flip heads" time after time. But the larger theory remains viable; an unconscious, collective mood drives human history, and the stock market is a decent barometer of that mood.

The problem has been those 50 years I keep whining about. As long as collective trust remained (remains) in the value of the Bond Ocean, dollar wealth sloshes around the globe and stocks can boom, then bust, as liquidity flows in, then out, but as long as bond prices stay high (and therefore rates stay low) then stock prices are simply swamped by dollar-bond-wealth inflation.

FTR, both Charles Hugh Smith and David Stockman have connected corporate borrowing ---> share buybacks ----> the chart of the S&P500 perfectly. (Over)Confident people managing public corporations indenture their firms (borrow) to drive up share prices via repurchases, which paradoxically leaves shareholders with a major hot potato. In the event of liquidation, creditors will walk away with whatever value is left, and shareholders will get zero.

This is the dynamic that will occur to take the DJIA from 19,000 to 600 someday.

Anonymous Iron Spartan September 28, 2016 9:35 AM  

Ever notice how the timeline keeps getting shorter, never longer.

Not long ago (last 6 months or so) were the powers that be not claiming that any problems were at least a decade off?

If the official time line is 8-68 months, the real time line is 2-24 months.

Blogger dc.sunsets September 28, 2016 9:37 AM  

Trump can't do anything about the coming collapse, which is baked in the cake. I'm not voting for him with any delusions that he's going to salvage the situation. Indeed, it will probably speed up the collapse (the slaves must be punished for getting uppity). I'm voting for Trump because if the current demographic trend is not halted, indeed reversed, there is no hope for my progeny.

This times 1000.

Blogger Duke Norfolk September 28, 2016 9:39 AM  

dc.sunsets wrote:If that were to occur now, with tens of trillions of dollars in openly acknowledged long term debt, interest payments alone would bankrupt most corporations and governments. It will finally be Game Over for this 50 year period of Monetary Madness. Borrowing will become impossible because the collective trust required to sustain it will be gone.

Excellent comments as usual, dc. We're in an era of ponzi finance, and we all know how ponzi schemes end, eventually.

Blogger Duke Norfolk September 28, 2016 9:41 AM  

U PC BRO? wrote:I'm voting for Trump because if the current demographic trend is not halted, indeed reversed, there is no hope for my progeny.

Ditto. That's the most important issue and the bottom line. Fortunately I think the coming "reset" is going to help our cause in this.

Blogger James Dixon September 28, 2016 9:42 AM  

> This is the dynamic that will occur to take the DJIA from 19,000 to 600 someday.

Possible, but something more in the lines of 1900-3800 is more likely. Even the sell off of the depression only took the markets down 90%. But such a crash will almost certainly happen again eventually. It's the nature of the market to have such swings.

Blogger Johnny September 28, 2016 9:45 AM  

Trump is about stopping internationalism, not liberalism, because he is a liberal but not an internationalist. You take what you can get. And as stated he, " can't do anything about the coming collapse."

Blogger Mr.MantraMan September 28, 2016 9:48 AM  

The Obama Bubble out of the depths of the Lehman collapse fraud wholly concocted to let some shit bank fail without FED intervention of an orderly asset sale and at the same time withdrawing liquidity out of the system. Out of crisis comes the Black Messiah to relieve of us our sins (distract us) while the banksters plunder value over the entire world.

Fun fact Obama is the world's best ever market timer, he literally called the bottom in 2009 of the stocks market.

Anonymous A Deplorable Paradigm Is More Than Twenty Cents September 28, 2016 9:58 AM  

All is well! No cause for alarm! Just look! Wait, don't look!

http://www.finviz.com/quote.ashx?t=db&ty=c&ta=1&p=d

Blogger dc.sunsets September 28, 2016 10:12 AM  

@34 James as you know, I have no more clue what's coming than anyone else. The last 35 years have no precedent in history so everything is conjecture on my part (and I largely plagiarize others on this anyway.) My "600" (570, actually) is based on two general principles (neither of which may apply):
1. "Corrections" in markets, according to Elliott Wave Principle, tend to hit the "4th wave of one lesser degree." I'm going with the notion that the entire move from 1974 is a 5th wave to be corrected, 1966-1974 was thus the "4th wave of lesser degree," so the low of 1974 should be equaled or exceeded. When we're near DJIA 19,000 it's a rounding error to discuss 570 vs 961 (give or take.)

2. The unsustainable credit build-up in the 1920's that led to the 90% stock collapse during the deflationary wave of 1930-32 was an anthill compared to this Mount Krakatoa now in place. It is entirely unknown what fraction of debt-based "wealth" existing today will survive wave after wave of distrust likely to wash across the world. I also have no clue what our Monetary Madmen will do in response to their temple walls crashing onto them. Hell, they could attempt to monetize the entire world's debt in the form of a single printed "Quadrillion dollar bill" and then publicly light a match and burn it.

[Not that doing so would change anything. The debt's existence isn't the problem; it's that everyone is counting on it being serviced in the present and honored in the future, and monetizing it destroys both, the same as if the debt was simply allowed to evaporate naturally.]

All I know is that today everyone perceives a galaxy of wealth in existence, at the coming low (who knows when, I've been abysmally wrong on the timing so far) that galaxy will have shrunk to a neighborhood (and most of us still won't live there.)

Everyone will play his or her assigned role. Manic trust will change to enraged distrust, and people will act to destroy what credibility they still enjoy (the MSM's treatment of Trump is the most open and obvious example of casually destroying their own credibility I could imagine.)

I have long wondered how I'd avoid the personal consequences of my own participation in this negative social mood. Sadly, I'm no more immune than the next guy. I get into on-line debates and feel the rage rise inside me.

Rising rage is, I think, the magma flowing toward the top of Krakatoa's next eruption.

Blogger Aeoli Pera September 28, 2016 10:30 AM  

One white pill here: I'd rather see big finance in bed with state agents than in bed with church hierarchs.

Blogger Escoffier September 28, 2016 10:42 AM  

Johnny wrote:Trump is about stopping internationalism, not liberalism, because he is a liberal but not an internationalist. You take what you can get. And as stated he, " can't do anything about the coming collapse."

Maybe maybe not. I thought Trumo had some extremely cogent things to say in the debate about the state of our economy. Let's not forget that this is all happening under and umbrella of choking taxes and regulation which Trump said he would slash.

I seem to recall a lot of similar talk in the seventies which got cancelled out by the steps Reagan took.

Blogger dc.sunsets September 28, 2016 10:51 AM  

@37 Not to worry, DB has a long way to go.

For reference, consider Fannie Mae:
http://finance.yahoo.com/quote/FNMA/history?period1=970117200&period2=1475038800&interval=1mo&filter=history&frequency=1mo

Topped in 2004 at $74.53, fell 99% (yes, that's ninety-nine percent) and then fell ANOTHER 97% into its low of $0.02 in July 2010.

Yes, Virgina, a 99% collapse does not necessarily mean it's a buying opportunity. (grin)

Blogger James Dixon September 28, 2016 10:54 AM  

> The unsustainable credit build-up in the 1920's that led to the 90% stock collapse during the deflationary wave of 1930-32 was an anthill compared to this Mount Krakatoa now in place.

Entirely possible DC. I'm just pointing out that on a historical basis a 90% drop is the worst we've ever seen. Also, don't forget to factor inflation into your figures. What happens with inflation/deflation will make quite a difference in the actual bottom, whatever it turns out to be.

The real concern isn't whether the market will drop or how much. As I've said, those are a given (though the timing and degree are never certain). The question is whether the collapse will take the entire ownership system with it. If you still own your shares in the companies and the companies survive, the actual value of your ownership share is still there, regardless of what the market says they're worth at that moment. If the collapse completely destroys the stock ownership system, then the stocks become worthless. The bonds that are defaulted on will become worthless, regardless.

Blogger dc.sunsets September 28, 2016 11:10 AM  

No argument here, James. Uncharted waters, and all that.

The inflation we've seen is almost entirely credit inflation. Unlike banknote inflation, credit inflation isn't "sticky." It has no physical existence. This makes it an unusual animal. The deflation of the 1930-32 period occurred in a hard-money environment. We actually have no precedent for a credit collapse of this magnitude because never has there been a credit inflation in a fully fiat monetary environment. In fact, the "fiat environment" was IMO a necessary precondition for a credit bubble this big. It was impossible without both fully fiat money and a secular trend toward lower bond yields.

I absolutely agree that the question is if this coming reset button will also reset the structure of legal title and ownership too. I sincerely hope not, but it's an open question.

As to retaining equity ownership, I think what will happen (esp. given the debt-enabled stock buyback craze of the last 7 years) is that firms will hit bottom, be reorganized and equity owners (stockholders) will get stiffed as the residual accounting value of the firm is transferred to creditors.

I've seen this happen before, even in good times. A company has "book value" of significant $$, gets reorganized and all of that book value evaporates. Share price drops to a penny or two, trades for a while up to $0.10 and down to $0.01 a few times and then when the firm emerges from bankruptcy the stock is canceled, anyone holding it gets NOTHING, the bondholders split what's left and a new symbol is created for the newly issued stock.

In the aftermath of the American Revolution some smart people bought up the then-worthless "Continental" currency laying around (it had been issued to help fund the war, but by war's end was considered worthless paper, engendering the phrase "worthless as a Continental.") They they used their buddies in CONgress to get it honored, thus reaping an absolutely massive windfall.

Something similar is apt to occur after the nadir of whatever comes. Possibly "vulture capitalists" will swoop in and buy up the near-worthless debt of major firms, thereby obtaining legal ownership of the industrial might of the world as the crisis finally passes. Such people are always joined at the hip with the emergent political authority, whose "help" in greasing the legal gears to their windfall gains is usually essential (and paid for handsomely.)

Anonymous A Deplorable Paradigm Is More Than Twenty Cents September 28, 2016 11:22 AM  

dc.sunsets
We actually have no precedent for a credit collapse of this magnitude because never has there been a credit inflation in a fully fiat monetary environment. In fact, the "fiat environment" was IMO a necessary precondition for a credit bubble this big.

We can get hints from the past. John Law's notes for the king of France, which led to both the Mississippi Bubble in France and the South Seas Bubble in England. Or the Assignats of Revolutionary France, documented by White in Fiat Money in France.

None had a happy ending, and as you say this volcano we sit on is gargantuan in comparison to anything in the past.

Anonymous A Paradigm Is More Than Twenty Cents September 28, 2016 11:24 AM  

dc.sunsets
Something similar is apt to occur after the nadir of whatever comes. Possibly "vulture capitalists" will swoop in and buy up the near-worthless debt of major firms, thereby obtaining legal ownership of the industrial might of the world as the crisis finally passes. Such people are always joined at the hip with the emergent political authority, whose "help" in greasing the legal gears to their windfall gains is usually essential (and paid for handsomely.)

Uh, that looks a lot like a description of Russia in the 1990's.

Anonymous Sazerac September 28, 2016 11:37 AM  

DC.Sunsets

Regarding the 'vulture capitalists' in the countries that don't collapse completely in such an event I suspect the power will be held by the people which can enforce their will via violence due connections to a local military or para-military force, however this will also require the owners of agricultural production, resource companies (as in for energy) and crucially logistic networks and possibly for the modern age tele-communications networks if still operational to support them as well.

Combine those things with a tele-communications network outfitted with something similar to the emergency response system Israel has and power can be reconsolidated fairly quickly and a new state formed. I might be over-looking some things though.

Blogger dc.sunsets September 28, 2016 11:38 AM  

@ A Paradigm,
I subscribe to the view that we're living through the topping phase of a long rally in social mood that began at the end of the 64 year bear market (on the London Stock Exchange) set off by the bursting of the South Sea Bubble...so I'm on the same page as you for sure.

The overall trend has been up since ~1784. That's a long time to embed permanent expectations for ever-rising living standards, widespread peace and Utopian social experiments. In this context, the Great Depression was a minor correction in the trend. If this theoretical construct holds water, what is coming will be a century or more of largely sideways movement, to include at least two massive financial/economic collapses that should dwarf that of the 1930's.

Personally, I think this all topped in 2000 and the nominal new highs of 2007 and now are simply artifacts of the largest credit bubble ever. In terms of gold, stocks topped in 1999 (but I consider that of academic interest only, I'm not a gold bug.)

I think we all are pretty resigned to things getting a lot worse before they get better. I'll admit that I have "doom and gloom" fatigue in spades, though.

Anonymous Psychedelic Cat Hair September 28, 2016 11:41 AM  

"If Frankfurt suddenly starts erecting a large number of lampposts near Deutsche Bank headquarters, "contingency" takes on a whole new meaning."

@22 Heh.

"Trump can't do anything about the coming collapse, which is baked in the cake. I'm not voting for him with any delusions that he's going to salvage the situation. Indeed, it will probably speed up the collapse (the slaves must be punished for getting uppity). I'm voting for Trump because if the current demographic trend is not halted, indeed reversed, there is no hope for my progeny."

@23 It's progeny or bust brah.

Blogger Ingot9455 September 28, 2016 12:06 PM  

As I have said, last time we had the opportunity to hire a corporate turnaround ecpert (Romney). We declined. This time we have a chance to hire a bankruptcy expert (Trump).

A national bankruptcy would be just the thing to cut a mass reamload of government programs that can't otherwise be cut.

Blogger Ingot9455 September 28, 2016 12:06 PM  

As I have said, last time we had the opportunity to hire a corporate turnaround ecpert (Romney). We declined. This time we have a chance to hire a bankruptcy expert (Trump).

A national bankruptcy would be just the thing to cut a mass reamload of government programs that can't otherwise be cut.

Anonymous BGKB September 28, 2016 12:14 PM  

Refugesees...Well obviously if the first million didn't help, they need a million more. Surely it will work then!

The problem is the racist Germans wont hire people that are illiterate even in their mother tongue

In the aftermath of the American Revolution some smart people bought up the then-worthless "Continental" currency laying around (it had been issued to help fund the war, but by war's end was considered worthless paper, engendering the phrase "worthless as a Continental.") They they used their buddies in CONgress to get it honored, thus reaping an absolutely massive windfall.

The same people are doing it with debts that have been forgiven in African nations.

Anonymous Jack Amok September 28, 2016 12:35 PM  

...equity owners (stockholders) will get stiffed as the residual accounting value of the firm is transferred to creditors.

Yes, though there will be two complicating factors making how this plays out unpredictable. One, the creditors themselves, as well as the currency they use for accounting, will be busy failing at roughly the same time as the firms they're trying to gain ownership of. Cascading defaults (not to mention the likelihood a lot of existing debt is poorly documented) will confuse the hell out of things.

Two, productive workers will be at an absolute premium and command high salaries denominated in whatever the strongest currency ends up. The wake of the Black Death led to many reforms in serfdom and the rise of a middle class in England because the lack of productive people forced the Lords to be more appreciative of those that were left. We're going to have war, and we may very well have famine and pestilence as well, but even if we don't, in the West we have a dearth of skilled, productive people coupled with a glut of paper-pushers, fixers and rentiers.

From a supply and demand standpoint, the wheel-greasers will be a dime a dozen (and not one of those pre-64 dimes with real silver either). Wheel-greasing is going to be a winner-take-all game, but the players will have to bid very highly for the resources they need to win, so I'm not sure how fat their margins will end up.

Yeah. Like you said, we don't really have a clue how it ends up. Too many moving parts.

Blogger James Dixon September 28, 2016 12:54 PM  

> As to retaining equity ownership, I think what will happen (esp. given the debt-enabled stock buyback craze of the last 7 years) is that firms will hit bottom, be reorganized and equity owners (stockholders) will get stiffed as the residual accounting value of the firm is transferred to creditors.

That's standard procedure for bankrupt companies, yes. But not all companies will go bankrupt or be reorganized. There are lots of smaller and some large companies out there that produce goods and services which will still be needed. Let's take one example off the top of my head, will John Deere go under? It's not like tractors and construction vehicles will become worthless or unnecessary. And if they do, will all of their competitors? As you said, this is largely uncharted territory.

> Personally, I think this all topped in 2000 and the nominal new highs of 2007 and now are simply artifacts of the largest credit bubble ever. In terms of gold, stocks topped in 1999 (but I consider that of academic interest only, I'm not a gold bug.)

Yes. Adjusted for inflation the stock market has been essentially flat since 2000.

> A national bankruptcy would be just the thing to cut a mass reamload of government programs that can't otherwise be cut.

That's coming. Though I expect the government to abolish the Fed and simply start printing money again first. Whether they'll stop before we get hyperinflation is anyone's guess.

Blogger Mountain Man September 28, 2016 1:18 PM  

"As I have said, last time we had the opportunity to hire a corporate turnaround ecpert (Romney). We declined. This time we have a chance to hire a bankruptcy expert (Trump)."

And most of Bain Capital's turnarounds were accomplished by forcing the businesses into bankruptcy.

Blogger residentMoron September 28, 2016 1:19 PM  

In post-revolution France they stopped when the printers, who were working 24 hours a day, went on strike, dragged the presses into the street, smashed and burned them.

Blogger dc.sunsets September 28, 2016 1:32 PM  

That's coming. Though I expect the government to abolish the Fed and simply start printing money again first. Whether they'll stop before we get hyperinflation is anyone's guess.

I subscribe to Prechter's take on this: Since "government" is the ultimate committee it is always the last entity to act on a new trend. This suggests to me that the deflationary collapse in wealth will be complete before enough "consensus" evolves to "do anything" about it.

How this should play out, logically, is that the inverted pyramid that is debt-based money performs a pancake collapse, whereby higher order forms of debt collapse in dollar value, then the next layer, then the next layer.

In 2008 it was the commercial paper market that froze up basically overnight. The same thing should occur, with the dollar value of debt instruments of the weakest issuers leading the way---junk bonds should go first (or off-balance-sheet derivatives, CDO's and such, evidenced by a rapid rise in the cost of Credit Default Swaps.)

Sovereign debt of weak governments, then moderately strong, then eventually strong governments should see interest rate increases of growing amplitude.

US Federal Reserve Notes (greenback cash and base-metal coins) and some old EE Savings Bonds are probably the only US debt-money with actual physical existence. Everything else (including demand deposit bank balances) exists only insofar as the "borrower" is willing & able to make good on it. Your $10,000 CD isn't worth much if the bank puts a "closed" sign on the door. Your $965 checking account balance isn't worth much if a crisis impedes check clearing.

It's like ammo resupply. What you enter battle carrying is what you're certain to have. Promises for resupply are just that. Promises. Our financial system is an impossibly complex, interactive web of promises until you have the little green ink-stained piece of paper in your hand. Like all games of musical chairs, especially those where the music hasn't stopped for 86 years and so most of the chairs have been sold off or broken down for the bonfire, we have no idea who is going to end up with whatever MONEY survives the reconciling of the books.

How far that inverted pyramid collapses before it reaches a place where the consensus "trusts" what is left is anyone's guess. I strongly suspect that our Financial Alchemists will deem the crushing depression stems from "a lack of money" (they'll have moved heaven and earth to try to restart the credit cycle, but such efforts will fail because credit requires trust that will simply not exist until the down cycle is complete.) They will eventually, once the bottom has been reached, seize control of the Fed and attempt to reflate the economy using banknotes.

Blogger dc.sunsets September 28, 2016 1:33 PM  

While the modern US economy cannot run on cash, it can certainly be collateralized by it. I look for the first signs of this (years and compound castastrophes from now) to be "special" banknotes, meant only for use within the banking system, of vastly higher denomination than the $100 bill. I'd be surprised if we didn't see million dollar bills used to represent monetary value in the physical world as "money" moves from bank to bank.

When this happens, the low (in deflation) is probably in. My guess is that printing money-as-wealth will follow the same trajectory as every other iteration, and after a period of perceived return to normalcy a hyperinflationary period and secondary collapse ensues.

This is obviously conjecture, but it's consistent with the kind of thinking that saturates policy-making in crises. Recall that in the 1930's economists concluded that it was "low prices" causing the crisis and FDR's brain trust assholes ordered crops and livestock to be destroyed in an insane attempt to drive up agricultural prices via shortage.

It never occurred to those morons that it was a collapse in trust, causing a collapse in the credit component of the money supply (a condition the Fed couldn't cure because the Fed was the disease in the first place) that led to low prices.

By 1932 the deflation was over. Left alone, the economy would have recovered just like it did in prior busts. I figure that the FedGov was afflicted with fleas (idiot ideas) back then, but today's world is saturated with such highly educated morons. I figure the "government" will make things far worse for us than FDR's brain trust did for our grandparents.

Blogger Sheila4g September 28, 2016 1:39 PM  

dc.sunsets: Your comments are always interesting, but I find yours in this thread particularly illuminating (and I'm fairly ignorant economically speaking anyhow). Your explanation of what you see happening, particularly regarding the "vulture capitalists," reminds me of what I've read of the Weimar Republic. I realize I should use Google, but could I trouble you to compare/contrast what happened then/there with us/now? Did they have a form of fiat enviroment? I'm particularly thinking of something Vox linked to long ago, WWII a Jewish Creation.

Blogger Snidely Whiplash September 28, 2016 1:41 PM  

The denial is a classic non-denial denial. They don't deny the need, they don't deny the strategizing, they don't deny the request. Deutsche Bank deny that specific things were requested in a certain way. "At no point did the chairman ask for support."
So teh Controller of the CEO or the Governmental Affairs Liason or the Comptroller or the head auditor or their captive regulating agency asked. Everyone over the age of 12 knows how to ask for something without directly requesting it.

"So tell me Georg, just as a matter of contingency planning, what would the ministry do in the event that we lose this lawsuit and have to pay out 1B?"

Blogger dc.sunsets September 28, 2016 2:16 PM  

@58 Sheila4g, I claim no special knowledge on this subject, it's just an interesting line of inquiry because it really pushes the depths of the abstractions involved.

As I understand it, the Wiemar Republic was being crushed under the reparations demanded by the Treaty of Versailles (itself an artifact of US intervention, without which the European war would have ended in a stalemate & more evenly-negotiated peace) and they were inflating their money via the usual way: printing physical banknotes, where each new note diluted the purchase value of prior notes and (all other things being equal) led to hyperinflation.

Ironically, the National Socialists didn't exactly fix things. They were SOCIALISTS. I've read that Germany began its recapture of lands lost to the Treaty of V. earlier than planned because the Nazi regime, too, was starting to ramp up monetary devaluation (just like its predecessor.) Hitler was forced to act because economic conditions were deteriorating and just paying the bills was getting difficult.

What has happened in the USA these past 50 years has no precedent. Japan has outdone us (issuing mortgages of such long duration that the grandkids will be expected to pay them off) and China has probably gone even further (East Asians are very bright, but they're inveterate followers; they copy or reverse-engineer Western innovations, even the idiotic ones, and then "improve" on them...which is hilarious in this context.) The world joined the merry band of crooks, criminals, extortionists and thieves running the USA and England, and an entire fairy castle of "economics" resulted.

In 1922 Mises published, "Socialism," his irrefutable critique of the impossibility of economic calculation under socialist principles. The same could be applied to the current monetary system. It is irrefutably not, in any way, a "monetary system" but is in fact a vast rent-seeking and rent-extracting con game.

I like to think in metaphors and analogies, but I lack a consistently good one for this situation. The closest I can come is that credit inflation that flows into asset prices (rather than into CPI-type products) is like the less your money buys of houses, land, stocks, commodities, etc., the richer you feel even if you don't own any houses, land, stocks, commodities, etc.

Contrast that to tales of Wiemar Germany where a wheelbarrow of Marks were the price of a loaf of bread. It's just not the same animal. Part of this is the collapse in US consumer goods prices as manufacturing transferred to low-wage countries. Part of it is the import of "workers" to compete with Americans and keep wages stagnant for over 20 years. Without these two conditions, CPI prices would probably have rise enough to distress people and focused attention on the con game.

Anonymous deplorable six pan September 28, 2016 2:16 PM  

(((Vulture Capitalists)))?

Blogger dc.sunsets September 28, 2016 2:24 PM  

I actually prefer "Conspiracy Theories" to approved history. While I realize I'll never know the truth about anything I didn't see with my own eyes (and even then, you never know), I tend to think the Holocaust might have been a result of "pure" Jews using their inter-married half-Jews as cannon fodder to obtain a Narrative by which World Opinion could be molded to support turning part of Palestine into Israel.

There are always wheels within wheels, and I don't think Israel, Jews or any other "group" is half as monolithic as we sometimes think.

In the larger context, WWII was simply Phase Two of the European War begun under the Kaiser. The US joined WWI right as the usual stalemate was reached.

One could "blame" the conflagration of the World Wars on Lincoln. Had the South peacefully seceded there would have been no large Nation-state called the USA for Wilson to employ to smash the stalemate of WWI and eliminate hereditary monarchy at least from the visible, top-line rule of any significant nation.

Slavery would have been eliminated eventually, most likely via some sort of central buy-out and who can imagine what our world would be like now. It didn't happen that way, so who knows? Maybe we wouldn't have the scourge of the atomic bomb.

Blogger Sheila4g September 28, 2016 4:25 PM  

@60 dc.sunset: "The closest I can come is that credit inflation that flows into asset prices (rather than into CPI-type products) is like the less your money buys of houses, land, stocks, commodities, etc., the richer you feel even if you don't own any houses, land, stocks, commodities, etc." Compared to the hugely inflated value of a loaf of bread, I see your point that it's a "different animal."

However, I was thinking more about your point re vulture capitalists and retaining equity ownership. The essay I linked to notes that "'It was the Jews with their international affiliations and their hereditary flair for finance who were best able to seize such opportunities.. They did so with such effect that, even in November 1938, after five years of anti-Semitic legislation and persecution, they still owned, according to the Times correspondent in Berlin, something like a third of the real property in the Reich. Most of it came into their hands during the inflation." I'm trying to imagine, from the globalist perspective, the result when it all comes crashing down, because it seems obvious they're confident they'll come out of things just fine. Weimar Jews appear to have thought so too, although "Every year it became harder and harder for a gentile to gain or keep a foothold in any privileged occupation. At this time it was not the 'Aryans' who exercised racial discrimination. It was a discrimination that operated without violence. It was exercised by a minority against a majority. There was no persecution, only elimination.. It was the contrast between the wealth enjoyed - and lavishly displayed - by aliens of cosmopolitan tastes, and the poverty and misery of native Germans . . ."

So if equity owners get zip when the bubble bursts, and the paper IOUs are written off, and the global banksters buy it all up, it seems they'd be repeating the same errors and yet assuming entirely different results. The more I re-read that article, the more parallels I see: "Douglas Reed, Chief Central European correspondent before WWII for the London Times, was profoundly anti-German and anti-Hitler. But nevertheless he reported: 'I watched the Brown Shirts going from shop to shop with paint pots and daubing on the window panes the word "Jew", in dripping red letters. The Kurfrstendamm was to me a revelation. I knew that Jews were prominent in business life, but I did not know that they almost monopolized important branches of it. Germany had one Jew to one hundred gentiles, said the statistics; but the fashionable Kurfrstendamm, according to the dripping red legends, had about one gentile shop to ninety-nine Jewish ones.' (Reed Insanity Fair (1938) p. 152-3). Reminds me of some comments I've read regarding the ((())) furor.

Sorry, now we're getting out of purely economic terms, but I keep seeing echoes of the past everywhere I look, and your comments provided more.

Blogger James Dixon September 28, 2016 5:02 PM  

> Our financial system is an impossibly complex, interactive web of promises until you have the little green ink-stained piece of paper in your hand.

Even then you're dependent on people accepting them as payment. That's not a certainty. Trust is required for that too.

Anonymous jOHN MOSBY September 28, 2016 8:45 PM  

"There are always wheels within wheels, and I don't think Israel, Jews or any other "group" is half as monolithic as we sometimes think."
The "tribe" is always on the same page, they do not care what the minority within thinks. It's set in stone, dontcha know.
Even then you're dependent on people accepting them as payment.
"That's not a certainty. Trust is required for that too."
yup.

Anonymous Jack Amok September 29, 2016 12:43 AM  

... it seems they'd be repeating the same errors and yet assuming entirely different results.

If they made the same mistakes to get into the situation as previous fools did, it won't be a surprise if they make the same mistakes trying to get out of it as those precursor fools did.

Anonymous Discard September 29, 2016 1:43 AM  

57. dc.sunsets: My 1960 encyclopedia tells me that there was such a thing back then as a $100,000 bill, with Woodrow Wilson's picture on it. It was used only between different branches of the Federal Reserve, just as you describe.

Blogger Dwain Dibley September 30, 2016 4:20 PM  

dc.sunsets stated:
"The inflation we've seen is almost entirely credit inflation. Unlike banknote inflation, credit inflation isn't "sticky." It has no physical existence. This makes it an unusual animal. The deflation of the 1930-32 period occurred in a hard-money environment."

That's not entirely true. The deflation of the 1930's was a cascading collapse of credit being used as if it were money. Like 2008, the 1930's collapse was 100% credit based, there wasn't enough gold or paper notes to cover the credit generated by the Fed, banks or Wall Street. And we're in the middle of seeing that same thing happen again. Bank generated asset backed, debt based private credit, is not money, it's debt.

Blogger Dwain Dibley October 02, 2016 3:41 PM  

57. dc.sunsets stated:
"While the modern US economy cannot run on cash, it can certainly be collateralized by it. I look for the first signs of this (years and compound castastrophes from now) to be "special" banknotes, meant only for use within the banking system, of vastly higher denomination than the $100 bill. I'd be surprised if we didn't see million dollar bills used to represent monetary value in the physical world as "money" moves from bank to bank."

The Federal Reserve does not own the FRNs, they are the property of the U.S.G. The Fed is required by law to post and hold collateral equal in value to the notes it receives from the Treasury. Currently that collateral is U.S. Treasuries and Agency Mortgage Backed Securities. This means that there will be no notes higher denominations than the $100 as that would require the Fed to hold greater amounts of collateral, collateral that would otherwise be held by the banks to generate new credit and to meet their reserve and capital requirements. The collateral held by the Fed cannot be used for any other purposes by the Fed. The reserves held by the Fed cannot be used to generate credit, but they can be used in interbank settlements.

Legal Tender Status
https://www.treasury.gov/resource-center/faqs/currency/pages/legal-tender.aspx

Please read the link. "Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them.

Extrapolate the implications. All the debt based credit generated by the Fed and the banks, is not a part of the U.S. money supply, it is 100% private "Free Market" credit. For 83 years they've been lying and stealing from you, in collusion with the progressive, non-federal, centralized government.

http://carl-random-thoughts.blogspot.com/
the Frog

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