“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Monday, October 06, 2008

'Apres US, le deluge'

Folks if the US does not lead and enough of the EU does not follow, it ain't going to happen. Forget the nonsense and the rubbish about the foreign reserves of the hapless Russians or the inscrutable Chinese, it will be the G-5, in lockstep with G1 that will do it or not. It will not mean a squib on how many other G's follow. The US leads Germany, France, Britain and Japan and we have a shot or we go over the cliff.


Investors will learn today whether the Paulson bail-out - fattened to $850bn (£480bn) by Congress - can begin to halt the death spiral in the credit system. So far, the response looks terrible.

Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.

Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.

During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.

The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.

As the unflappable Warren Buffett puts it, the credit freeze is “sucking blood” out of the economy. “In my adult lifetime, I don’t think I’ve ever seen people as fearful,” he said.

We are fast approaching the point of no return. The only way out of this calamitous descent is “shock and awe” on a global scale, and even that may not be enough.
Drastic rate cuts would be a good start. Central bankers still paralysed by a misplaced fear of inflation – whether in Europe, Britain, or the US – have become a public menace and should be held to severe account by our democracies. The imminent and massive danger is now self-feeding debt deflation.

The lesson of the 1930s is that any country trying to reflate in isolation will be punished. The crisis will ricochet from one economy to another until every one is crippled. We are seeing it play again in this drama as our leaders fail to rise above their narrow, parochial agendas.

The European Central Bank – which raised rates into the teeth of the crisis in July – has played a shockingly destructive role in this enveloping slump. Its growth predictions this year have been, and still are, delusional. Neglecting its global role, it has vastly complicated the fire-fighting efforts of Washington.
It could have offered “cover” to the US Federal Reserve this spring when Ben Bernanke was forced by events to slash rates to 2pc. It could at least have signalled an end to monetary tightening. That is how an ally ought to behave.

Instead, it stuck maniacally to its Gothic script, with equally unhappy consequences for both sides of the Atlantic, as well as for China, Japan, and India. The euro rocketed yet further, which it turn set off an oil shock as crude metamorphosed into an anti-dollar with leverage.

The ECB policy was self-defeating, even on its own terms. It merely drove headline inflation even higher, while deeper forces of underlying debt deflation pulled the real economies of Germany, Italy, France, and Spain into a recessionary vortex.
Far from offering reassurance, the weekend mini-summit of EU leaders served only to highlight that nobody is in charge of this runaway train. There is still no lender of last resort in euroland. The £12bn stimulus package is risible.

Angela Merkel has revealed her deep limitations. It was she who vetoed French efforts to launch a pan-EU rescue package, suspecting that any lifeboat fund would prove to be Trojan Horse – a way of co-opting German taxpayers into colossal transfers of wealth to Latin Europe.

In that she is right, but it is too late now for dysfunctional EU political games. By demanding that those who caused the damage should pay for it, she crossed the line into caricature, or worse.

Her comments echo word for word the “we’re alright Jack” attitudes of Euro-pols during the first US banking crises in 1930-1931, until the storm hit Europe and the entire cast was swept away by furious electorates, or simply shot. Thankfully, this EU stupidity is at last drawing serious criticism.

“We have to make sure Europe takes its responsibilities, like the US: action must be taken quickly and in a concerted manner,” said IMF chief Dominique Strauss-Kahn.
As for the US itself, it has not yet exhausted its policy arsenal. It can escalate further up the nuclear ladder. The Fed can cut interest rates from 2pc to zero. If that fails, it can let rip with the mass purchase of US debt.

“The US government has a technology, called a printing press,” said Fed chief Ben Bernanke in November 2002. (His helicopter speech).

In extremis, the Treasury/Fed can swoop into any market to shore up asset prices. They can buy Florida property. They can even buy SUV guzzlers from the car lots in Detroit, and mangle them in scrap yards. As Bernanke put it, the Fed can “expand the menu of assets that it buys.”

There is a devilish catch to this ploy, of course. It assumes that foreign creditors will tolerate such action.

Japan entered its Lost Decade as the world’s top creditor, with a vast pool of household savings to cushion the slump. America starts its purge with net external liabilities of $3 trillion, and a savings rate near zero. Foreigners own over half the US Treasury debt, and two thirds of all Fannie, Freddie, and other US agency bonds.
But the risk of a dollar collapse is one for the distant future. Right now the world faces the opposite problem. There is a wild scramble for dollars as a $10 trillion pyramid of global lending based on dollar balance sheets “delevers” with a vengeance.
This is a “short squeeze” on those who have used the dollar for a vast global carry trade. International banks are facing margin calls on their dollar leverage. It is why the Fed is having to provide $1.25 trillion in dollar liquidity for the entire global system, according to estimates by Brad Setser from the Center for Geoeconomic Studies.
The crisis engulfing Europe, Asia and emerging markets, makes life easier for Washington. The United States is becoming a safe-haven again.

The Fed can now hope to pursue monetary stimulus “a l’outrance” without being slapped down by the currency, debt, and commodity markets. Take comfort where you can.


  1. I'd say we've been launched over the precipice long ago and we are just waiting to hit bottom. Was today the 'dead cat bounce'? I shore hope so but I sure ain't sure. My dad seems to think/hope we are seeing a 'capitulation', but, again, I'm not sure. As I advised him today, based on advice I got from a market veteran a number of years ago - 'Calling mkt bottoms (and tops) is a mugs to wait until a strong upward trend emerges -- no sense jumping in early only to be wrong -- best to wait til the trend what if you miss a few points at its apex'.

    a paraphrase of a conversation in a bar whilst drinking.

  2. p.s. how's that AIG bet workin' deuce?

  3. I sold covered calls locking in a guaranteed return. At this stage I have no downside risk but limit my upside if it takes off. Today I sold deep in the money calls on November Apple 80.

  4. Meanwhile, my latest brain-fart is down about 40%. Man, I'm Good.


  5. a true gamblin' man.

    Me, I bought awhile ago and thought of going all cash in the spring but didn't. Kept a bit o cash but let the rest ride...

    ...pretendin' to buffet in for the long haul...

    Running my own business is gamblin' enough for me - no need for casino's or in/out mkt plays. Just tryin' to protect my stash.

  6. What Brain Fart was that, Ruf?
    Was it recycled for more Green Energy, or did it just cause more Global Warming?

  7. A FORMER Mr Gay UK seasoned and fried a piece of flesh carved from a former lover's thigh after stabbing him to death, a court has been told.

    Chef Anthony Morley tried to eat the 20cm piece of flesh seasoned with fresh herbs and cooked in olive oil before throwing it in a bin, his murder trial at Leeds Crown Court was told overnight.

    Mr Morley, the first-ever Mr Gay UK winner in 1993, then walked to a kebab shop in a blood-spattered white dressing gown and flip-flops.
    He allegedly told staff: “I have killed someone, call the police. “Someone tried to rape me so I killed that person. What have I done?," The Sun newspaper reported today.

    Prosecutor Andrew Stubbs QC told the court that police who went to Mr Morley’s home found the body of Mr Oldfield, who worked for gay magazine Bent, naked on the bedroom floor.

    He had been stabbed dozens of times in his throat, chest, and thigh and had 19 wounds in his back.
    Mr Stubbs said there were no signs of struggle and that “sexual activity” had taken place.
    Not sure why Sam is censoring stories like this from his reading.

  8. Running my own business is gamblin' enough for me

    Now, there's a man after my own mind!

    No portfolio, no pain.

    Sleep well at night, dreaming of the rivers of Paradise.

  9. What Brain Fart was that, Ruf?
    Was it recycled for more Green Energy, or did it just cause more Global Warming?

    Don't you no take offense at that, Rufus.

    Your shit don't stink, just like Doug's does.

    And causes Global Warming, too!

  10. I wish I had something profound to say about all this, but I just don't. Other than to cast blame.

    I have no clue what's going to happen, or what the best policy might be.

    Try to be self-sufficient, is my best advice. But, that takes years of work and effort, not something you can do overnight.

    So, I just don't know.

  11. I'll putting my money into green energy stocks.

  12. Missed that one, Doug. Wonderful world, ain't it?

  13. MSNBC is reporting Palin may appear on 'SNL'

  14. Happy and Gay in a Tasty Way, Sam.

  15. Solar power is now worth US$28.6 billion and has experienced 199 per cent growth, according to research by New Energy Finance.

    Biofuels is worth US$19.2 billion and has recoded 92 per cent growth, while biomass energy is worth $11.5 billion and has grown at 97 per cent.

    The growth in green energy is being driven by Europe, which accounts for US$76.2 billion of investments.

    Big Results

  16. A "Green Energy" stock, that was rufus's "Last Brain Fart".

    The one with the debt, and thin margins.

  17. A "Green Energy" stock, that was rufus's "Last Brain Fart".

    WASHINGTON, Sept 23 (Reuters) - The U.S. Senate on Tuesday approved a package to extend $18 billion in tax credits forusing renewable energy sources like wind, solar and geothermaland also provide incentives to cut energy consumption.

    I'm expecting them to quickly rebound and explode to the up side.

  18. If you had purchased $1000.00 of Nortel stock one year ago, it would now be worth $49.00.

    With Enron, you would have $16.50 left of the original $1000.

    With WorldCom, you would have less than $5.00 left.

    If you had purchased $1000.00 of Delta Air Lines stock you would have $49.00 left.

    If you had purchased United Airlines, you would have nothing left.

    But, if you had purchased $1000.00 worth of beer one year ago, drank all the beer, then turned in the cans for the aluminum recycling refund you would have $214.00.

    Based on the above, the best current investment advice is to drink heavily and recycle.

    This is called the 401-Keg Plan.

  19. Watch this one:


    We'll talk again in 6 months to a year, when it doubles or triples. I'll buy the beer.

  20. Well, that is beautiful, Rat, but it doesn't place any blame.

    And, therefore, misses the whole point entirely.

    If I hand planted more potato plants last spring, I would have had more potatoes now.

    And, if I had turned them into potato beer, I would have more to drink.


  21. Just for the record:

    VNP - 5N Plus Inc. (TSE)
    6 Oct 3:59pm ET
    4.63 -0.19 (-3.94%)

  22. It's all alright to pontificate, like a smart ass like I pretend to be, and say shit like, "it was better before the farmers got it, and more spiritual too" but that doesn't negate the fact that this election is going to be a disaster to our freedoms, if we lose.

  23. And your electric cars in the Negev aren't going to mean a damned thing, when Tel Aviv goes up in a redioactive cloud, Mat.

  24. Say it ain't so, bob, there you go again pointing backwards again. Now doggone it, let's look ahead and tell Americans what we have to plan to do for them in the future.

    To paraphrase your Alaskan angel

  25. Israel would not exist, without the United States, that's a fact.

    Would have been gone long ago.

    Sober up.

  26. What can your government plan to do to you?

    Or is it for you

    They're from the government, and are here to help.

  27. BHP Billiton said that power shortages in South Africa had caused a decline of 8.2% in total production at its three aluminum smelters. The three smelters, two in South Africa and one in neighboring Mozambique have a combined capacity of some 1.43 million tonnes or about 3.7% of world output.

    BHPB said that it is providing 15 million tonnes per annum of coal to Eskom but it was not affecting its coal export production. It said it would be difficult to agree to power buy back proposals put forward by Eskom.

    It further added that it had safety concerns about deep mining ventures in gold and platinum sectors. Political stability in Zimbabwe, Angola, DRC and Guinea was critical for future investments in those countries.

    South African Production

  28. Work with them, and help protect them, as we have, that's what I say.
    Because they are the only sane people in the middle east, our friends.

  29. Oh, bob, those Israelis are movin' into the future with China and India, they're real allies.

  30. Work with them--the Israelis--as we have done.

    They can't make it forever alone.

    They are good people.

    They have a right to free trade too, and to deal with others.But China and India don't give a damn really, but we should, having the same outlook on freedom, women and etc., important topics.

  31. And your electric cars in the Negev aren't going to mean a damned thing, when Tel Aviv goes up in a redioactive cloud, Mat.

    Bob, America will get back the baton. Israel will make sure of that. Israelis love america and love Americans, truly and honestly. We're probably the only ones that do. ;) You have no better friend on this planet.

  32. For weeks, Reuven Merhav slept only fitfully. Distraught by the film made by Orly Vilnai-Federbush and Guy Meroz, "Musar hashilumim" ("The Morals of Restitution: The Struggle Continues"), he woke up at three o'clock every night and wandered about his home in a daze.


    Reuven Merhav (born Markowicz) was 16 years old when the Claims Conference was established in 1952. Born in Haifa, the Holocaust cast a shadow over his life: His father, Walter, managed to flee Germany in 1935, but lacked 500 pounds sterling in order to obtain a certificate to allow his own father, Julius, Reuven's grandfather, to leave for Palestine.


    Until this stage, few if any allegations were raised against the Claims Conference, as it had no discretionary power and served as a conduit for funds from the German government to the survivors. The complaints began when the organization was given the power to make decisions and when an independent budget was placed at its disposal.

    Perpetuated as the Truth

  33. For me Mat, likewise, back at you.

  34. EBITDA is not defined by Canadian generally accepted accounting principles and cannot be formally presented in financial statements. EBITDA means earnings before financing costs, interest income, income taxes, depreciation and start-up costs. The definition of EBITDA used by the Company may differ from that used by other companies.

  35. That is a tad scary, for the only footnote, mat, on the 5N Plus Inc. report.

  36. I'm farklemt.
    Talk amongst yourselves! :D

  37. A top official from the Insurance Institute for Highway Safety, a research group funded by the auto insurance industry that is pushing to raise the minimum driving age to 17 or 18, found the key intriguing. IIHS says car crashes are the leading cause of death among teenagers.

    "Research we've done has shown that speeding is a major factor in teen crashes, especially novice teen drivers," said Anne McCartt, the institute's senior vice president for research. "So I think a system that tries to correct the speeding behavior has the potential to improve safety."

    More than 5,000 U.S. teens die each year in car crashes. The rate of crashes, fatal and nonfatal, per mile driven for 16-year-old drivers is almost 10 times the rate for drivers ages 30 to 59, according to the National Highway Traffic Safety Administration.

    Speed Control

  38. What is the Government going to plan to do for US, before we begin to secede from the Union?

  39. I thought you were going to Panama.

  40. Winners: Two of this year's top spots share a single address:

    Columbus Circle's Time Warner Center. Thomas Keller's New American Per Se was voted No.1 for both Food and Service, and Asiate was chosen No. 1 for Decor.

    Economics 101:

    At $40.78, the average cost of a meal in New York City is up 3.3% over last year's $39.46 and well above the Zagat national average of $34.09. The only U.S. city more expensive is Las Vegas ($44.44).

    Cheap Eats:

    To give diners' strained budgets a break, a spate of economical restaurants such as pizzerias, burger joints and BBQ places have been popping up around town. There were upsets in each of these three hotly contested genres with first-time winners: Top Hamburger went to DuMont, Top Pizza to Lucali, and Top BBQ to Fette Sau.

    Restaurant Survey

  41. What is the Government going to plan to do for US, before we begin to secede from the Union?

    Tue Oct 07, 12:04:00 AM

    Well, nothing, of course.

  42. dRat,

    United States of America - Good.
    United State of America - Not good.

    My feeling is that you will see a migration of the talented away from the untalented. America is not the only country of immigrants. If we can absorb a million plus Russians, we can certainly absorb a million or two yankees. (Provided, of course, you have talent or good genes. Levi's, err,.. Levites are fine :)

  43. In a fresh effort to loosen dangerous credit clogs, the Federal Reserve said it will significantly expand its loan programme to squeezed banks, increasing one programme to as much as $900 billion by the end of this year.

    The Fed also said it will begin paying interest on commercial banks' reserves, another way to expand the Fed's resources to battle the worst credit crisis in decades.

    The statement from the president's working group laid out a number of initiatives that the Treasury, the Fed and other government regulators including the Federal Deposit Insurance Corp would be undertaking.

    US Crisis

  44. Speed Control--MyKey

    Ford arrived at the 80 mph limit even though freeway speed limits are lower in most states because it wanted to leave a margin in case an unusual situation arises, Buczkowski said. In some states, freeway speed limits are above 70 mph, Sherwood said.

    I can think of many instances when I had to speed up to avoid a catastrophe. Late once for a departing ferry, I jumped my motorcycle over the gap between the pier and the outbound ferry ramp, to cheers from the poop deck.

    Racing a train, I punched into passing gear to beat it to the crossing. Pride was involved.

    Countless times I've been doing 65 in a 40 zone as I approach a traffic signal going to amber. Knowing if I braked I'd skid into oncoming traffic, I appreciated that little safety margin under my right foot.

    And, who among us hasn't imagined the elevated freeway or bridge deck behind them collapsing in pursuit, like a chain of falling dominoes, and wondered if they could outrun the road?

    I proudly drive a '65. Ford, that is.

  45. To clarify my opinion of teenage speed controls, set them at 55, not 80.

    The problem is real. Ford's solution seems risible. One time I did a quick mental survey of all my kids' friends, trying to determine if any were accident free. The results were dismal. Judgement and distractions seemed bigger factors than raw speed, but up here it's often hard to get up a good head of speed without flying off the road.

    Meanwhile the college administrators here are pushing for a lowering of the drinking age to 18, claiming illegal under-aged binge drinking is a problem on their campi. I guess legal binge drinking is safer.

  46. "Real" people (by which I mean people who don't do this for a living) who are asking the questions may be harder to rough up. Or maybe not.

    On Tuesday night, if Son of Ponytail Guy asks a question, he can rest assured that he will receive a thorough going-over in the blogosphere. So I suggest all prospective questioners Google themselves, make sure they're on good terms with their co-workers, and wipe clean their Facebook page.

    If they don't—or even if they do—they could become the story very quickly.

    Town-hall Debates

  47. RCP - Obama - +190 in delegates.

  48. Still may, trish.

    But the ineptitiude of the US banking regulators have required a postponement of the plan.

    We do not live in a vacume.

    Gotta get that $100,000 back, that the policies of Mr Bush and Mr Paulson made to vanish.

    Poof, it was gone, to DC.

  49. After all the reading and study, Speaking to bankers and business associates ...

    The BlAME that bob wants to establish, it falls squarely upon Phil Gramm, most of all. That amendment to the 2000 Budget Act, the one that outlawed regulation of derivative trading.

    Phil Gramm and those that supported him in his endevours, People like John McCain, Chairman of Phil's campaign to be President.

  50. Is it not interesting, duece, the way that PJ Media limits your freedom to post a link.

    Those boys are running scared, over there. That you all continue to particpate and support him and his censor, funny stuff.

  51. The economic fundementals are sound, you whiners.

    Paraphrasing both John McCain and Phil Gramm. They think it is time to turn the page, back to 1968.

  52. Even Rich Lowry agrees with the basic premise that going back to 1968 will not get 'er done.

    Life ain't fair, it's said.

    ... it doesn't matter how many times Sarah Palin rips Obama for consorting with Ayers or if the McCain campaign runs exclusively Ayers and Wright TV ads for the next four weeks - the subject of the campaign will remain resolutely unchanged.

    With a falling stock market shedding hundreds of billions of dollars of wealth every other day and with headlines dominated by a financial crisis threatening banks around the world, no one is going to be distracted from the economy for long.

    People will focus on their drastically diminished 401(k) and stock statements - and why shouldn't they? Few things are quite as important to their material well-being.

    McCain will have to demonstrate that he understands this during tonight's debate.

    Of course, it wasn't McCain's fault that, after he pulled even with Obama, a bunch of toxic collateralized-debt obligations fell on his head. "Life isn't fair" was McCain's diagnosis of the politics of the financial mess the other day, and he's right.

    This is the same John McCain that said his familiy income of $3.3 million, last year, put him squarely in the middle class. Why a fella would have to earn $5million, annually, to be considered "rich".

  53. McCain needs to rip Obama a new one...

    Ayers, Rezko, Acorn, Carter, Kennedy, Rev Wright, Bow Tie Louie Farrakhan & more....

    McCain will not convince the koolaid drinkers...

    It's time to use all POSSIBLE (legal) means to derail the non-citizen take over of POTUS.....

    If Obama IS in fact a US citizen, then let's see the proof...

  54. How does this affect everything we know has been happening in Pakistan?

    Pakistan has enough money for 30 days.

    After that, it's "Ugly." No imported food. No imported oil.

  55. Obama's Lawyers File Fancy Footwork In Eligibility Lawsuit

    Where are the good court reporters? Hard to understand what is going on.

  56. deuce, Corsi being arrested in Kenya means something, either along the lines of a cover up, or, just showing how deeply the tentacles of the Obama campaign spread across the world.

    They've shut Corsi down, for now.

    They didn't detain him for stealing ivory.

  57. This really pisses me off, arresting Corsi, who is an American citizen.

    Surely this brings to mind the behavior that might well be expected in future years from an Obama administration.

    And those that think there are no differences among the candidates should take notice.

    First they came for Corsi, then for Bob, and .....Rat.

  58. I'd certainly go to Panama right now, were it an option. So tired of rain, cold, and wind I could spit.

    That's interesting, rufus, about Pakistan. Something tells me no one's going to let them starve.