“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."

Sunday, September 20, 2009

The Shell Game

I was wondering why, when the economy looks for the "green shoots" of consumer confidence and increased spending, the banks aren't lending. It seems that despite the need to stimulate the economy, the money is being used in a shell game to recapitalize the banks and finance the massive Federal deficit.

US credit shrinks at Great Depression rate prompting fears of double-dip recession

Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.

By Ambrose Evans-Pritchard, International Business Editor
Published: 11:59PM BST 14 Sep 2009

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

Chairman Ben Bernanke is an expert on the "credit channel" causes of depressions and has given eloquent speeches about the risks of deflation in the past.

He is not a monetary economist, however, and there are indications that the Fed has had to pare back its policy of quantitative easing (buying bonds) in order to reassure China and other foreign creditors that the US is not trying to devalue its debts by stealth monetisation.

Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn.

"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."

Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: "The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous."

US banks are cutting lending by around 1pc a month. A similar process is occurring in the eurozone, where private sector credit has been contracting and M3 has been flat for almost a year.

Mr Congdon said IMF chief Dominique Strauss-Kahn is wrong to argue that the history of financial crises shows that "speedy recovery" depends on "cleansing banks' balance sheets of toxic assets". "The message of all financial crises is that policy-makers' priority must be to stop the quantity of money falling and, ideally, to get it rising again," he said.

He predicted that the Federal Reserve and other central banks will be forced to engage in outright monetisation of government debt by next year, whatever they say now.

ht: Mark Levin

We have a failed international financial system, a plummeting dollar, unprecedented Federal spending, tight credit, and skyrocketing foreclosure rates. In the midst of all this, it looks as though the gamblers have deserted Las Vegas for the siren call of Wall Street.

Fasten your seat belts, it's going to be a wild ride.


  1. If I was a Banker I wouldn't lend a nickel to anybody. Not the first red cent.

    The fact is, we're, almost certainly, in for ten (or more) years of hell.

    Quite simply, if the bankers did Everything "Right," there still isn't enough oil available to lift us out of, and keep us out of, a Serious, Long-Going Recession.

    And, knowing the talent of our Political, and Intellectual Class, a Severe "Recession" might be the Optimistic Scenario.

  2. The U.S. is back up to consuming 19.5 million barrel Oe/Day. To "come fresh" will require, at least, 1.5 MBOe/day, and, probably 2.0.

    Europe's numbers are, almost, identical. Japan, Ditto.

    Chindia (China, and India) Are Going To Use an additional 1 MBDOe.

    Russia, E. Europe, and the Middle East, along with S. America, are going to use another 1/2 MBOe/Day.

    That's Six Million Barrels of Oil/Day, Minimum needed to get back to some type of minimum growth.

    We could maybe come up with 2.5 to 3.0 Million Barrels/Day for a short time. (I wouldn't bet actual money on more than 2, though.

    Every year into the future it gets uglier.

    I've looked at these numbers "Six way to Sunday," and this is the best I've got.

  3. Rufus: Every year into the future it gets uglier.

    Let's all hope for a swine flu pandemic could kill millions if not a billion....

  4. No, let's hope for some sensible energy policies.


  5. It's funny, Greenie Elites (or, those that think they are) always hope for the "Death of Billions."

    What they don't realize is, anybody that dumb is, almost surely, going to be one of the "Billions."

  6. rufus said...
    It's funny, Greenie Elites (or, those that think they are) always hope for the "Death of Billions."

    No, I am just thinking about natural selection...

    China, India, Arab world & Africa all are square in line for plague...

    Overpopulation, over taxed water supplies et al..

  7. "Overpopulation, over taxed water supplies et al.."

    From my perch up here in Canada that sounds a lot like the USA

  8. How's them water supplies out there in Alberta looking, Ash?

    You know the ones. A . . Atha . . . Athabasca! Yeah, that's the ones.

  9. That link didn't seem to work Rufus, but, yeah, for sure it takes a load of water to get tar sand into oil. Takes a load of energy as well. Still, Canada, with a land mass larger than the US and a 10th of the population with water coming out our yin yang make the US look over-populated and water deficient.

    Water, even more precious than oil.

  10. Be careful for what you wish, Ash.

    Nature abhors a vacuum.

    If I were in a large underpopulated country, rich in resources, bordering a large "overpopulated" country with limited resources, it would get me thinking.

  11. rufus said...

    Every year into the future it gets uglier.
    You can't have much inflation while the banks are recapitalizing.

    The US gas reserves have increased from about a 10 year supply to 100 years supply in the last 24 months. There have been some stupendous discoveries in the appalachians louisiana & the rocky mountain states. Alaska of course has much more.

    If the US shifted trucks over to gas, demand for oil would drop 40%.

  12. No wishing going on here 2164th just a response to WiO's dream of natural selection only occurring 'elsewhere'. Canadians are quite aware of the ramifications of residing beside such an enormous, strong, and thirsty elephant.

  13. ...actually, it is more like sleeping in the same bed as said elephant...

  14. On water, the US is only about 5 years from collapsing the cost of water desalination. The drop in price will be so profound that pulling water down from canada won't be necessary. The drop in cost will be so profound that 20 years from now california will export water to arizona. and the intermountain west.

  15. I hope the technology advancements proceed as you envision Charles!

  16. 5 years ago, Charles was predicting that GM would electrify the World w/revolutionary electric powered transportation. (POVs)
    I predicted GM was headed for bankruptcy.
    Just Sayin!
    ...Charles has excellent taste for working vacation vistas, however!
    (AND he's right about Nat Gas.
    ...not that that means squat to the Dems.
    ...they're too pure to exploit domestic energy sources.)

  17. I'm not a prolific poster on desal issues. Only about once a month.

    I think the offshore oil drilling industry will become the offshore water desalination industry.

  18. Doug said...

    5 years ago, Charles was predicting that GM would electrify the World w/revolutionary electric powered transportation. (POVs)
    I think that was only 3 years ago. We still have 2 to go. imho GM made a mistake in not grabbing the Tesla while they had the chance.

    right now the fud is so high with automobiles -- its hard to say what's going to happen next.

  19. The Feds pumped money into Banks/Wallstreet who used it to paper over their massive investments in Toxic Assets and pay Billions in bonuses.
    Said Fiat Money should have gone to citizens.
    Banks now rationally are not lending to people who are unemployed, or for homeowners who have Mortages which are upside down.

    Whatever geniuses reside in DC, they still have managed to duplicate the errors that Japan just used in recent history.
    The result there was 20 years of negative growth/low growth.
    ...but we did it better than the Japs did.
    ...and the Japs did not have Rufus's energy problem to deal with 20 years ago.

  20. "I think that was only 3 years ago."
    Hope springs eternal!
    ...but you're right, Charles.

  21. (Wish I had money to bet you on DeSalinization, tho!)

  22. rufus said...
    All the supposed "chess" players are missing the picture.

    1) "Our" exporters (Mexico, Venezuela, Norway, Nigeria) are Cratering.

    2) We've increased our imports from Russia by about 600,000 Barrels/Day in just the last couple of months.

    3) Russia is the No 1 Oil Producer in the World.

    4) China's Auto Production (for Domestic Sales) is Exploding at the rate of 80%/Year.

    5) Europe is in the same boat, or worse, as we are.

    6) Russia is in the "Catbird Seat."

  23. If we were Chi-Coms, we'd be exploiting Charle's Nat Gas.
    ...but Dem progressives are commies compared to the rationally capitalistic Chi-Coms.

  24. We'd also mimic the Socialist French wrt to Nuclear Electricity.
    ...but we live in what was once the land of the free and home of the brave.

  25. He went to paris lookin for answers
    To questions that bothered him so
    He was impressive, young and aggressive
    Savin the world on his own

    But the warm summer breezes
    The french wines and cheeses
    Put his ambition at bay
    The summers and winters
    Scattered like splinters
    And four or five years slipped away

    Then he went to england, played the piano
    And married an actress named kim
    They had a fine life, she was a good wife
    And bore him a young son named jim

    And all of the answers and all of the questions
    Locked in his attic one day
    cause he liked the quiet clean country livin
    And twenty more years slipped away

    Well the war took his baby, the bombs killed his lady
    And left him with only one eye
    His body was battered, his whole world was shattered
    And all he could do was just cry

    While the tears were a-fallin he was recallin
    Answers he never found
    So he hopped on a freighter, skidded the ocean
    And left england without a sound

    Now he lives in the islands, fishes the pilins
    And drinks his green label each day
    Writing his memoirs, losin his hearin
    But he dont care what most people say

    Through eighty-six years of perpetual motion
    If he likes you hell smile and hell say
    Jimmy, some of its magic, some of its tragic
    But I had a good life all the way

    And he went to paris lookin for answers
    To questions that bothered him so.

    jimmy buffett

  26. Charles: On water, the US is only about 5 years from collapsing the cost of water desalination.

    Difficult to see. Always in motion, the future.

  27. It Has Begun... Romney Taunts Dems - Compares Obama to Failed Jimmy Carter Administration

    Unfortunately for us... Not even Jimmy Carter left the US with this:
    (Graph of US Deficits)

    Barack Obama will at least triple the US federal budget deficit in his first year.

    Former Massachusetts Gov. Mitt Romney reflects conservatives' growing confidence when he taunts Democrats, saying "I'll bet you never dreamed you'd look back at Jimmy Carter as the good old days."

    Republicans at the Values Voter Summit Saturday talked of a growing political rebellion in the country, even as they acknowledged Democrats currently have the upper hand.

    Romney recalled the euphoria among Democrats at the time President Barack Obama was elected.

    "A year ago, there were quite a few people who were ready to write off this movement. They were enthralled by Barack Obama's promise of near-Biblical transformations," Romney said in comments prepared for Saturday's meeting. "Well, he can still spin a speech, but he can't spin his record."

    Romney said Obama's spending and borrowing have weakened the nation, noting that Obama's plans will greatly increase the deficit. The deficits combined with coming problems for the country's entitlement programs will cause more severe economic problems, he said. Romney's reference to Carter recalled the economic and international troubles at the time Carter lost his bid for re-election to Ronald Reagan.

    Glenn Reynolds adds, "A Carter-rerun is now looking like a best-case scenario."

  28. Huckaby walked away with that meeting. 28 to 12 to 12 to 12 to 12.

    I'll tell you right now, if it comes down to a "Communist," or a "Bible-Thumper," I'll vote for the Communist every time.

    Huckabee might be the only Republican, alive, that has absolutely NO chance of beating a banged-up Obama.

  29. I'll tell you rat now


  30. I'll tell you right now, if it comes down to a "Communist," or a "Bible-Thumper," I'll vote for the Communist every time.

    so the communists can pay for your free healthcare hoss?

    Perhaps if some of you worked a little more and blogged a little less, you'd have more economic means to meet your needs or conversely, you could contribute more of your own money for "free entitlements"

  31. I'll tell you right now, if it comes down to a "Communist," or a "Bible-Thumper," I'll vote for the Communist every time.

    This lifelong jewish American would vote for the Bible thumper in a flash...

    oh yeah, according to rufus, i aint an American

  32. Still no murray?

    Damn. Figured he'd be stepping up, by now.

    Oh well.

    Think Obama can carry FL, AGAIN?

  33. Obama walks into a bar with a parrot on his shoulder.

    The bartender says, "Wow! Where'd you get that?"

    Parrot says, "Kenya!

  34. Just bought an UV water purifier...

    real cool...

  35. I paid for my healthcare with 13 months in Indian Country, "Hoss."

    And, I send Uncle Sam a pretty good check every month, "Hoss."

    But, I don't like "Fundamentalists" in power, anywhere, much less my country; and I know a country that lets its citizens die from lack of healthcare doesn't have much of a future.

    And, since I put in my due, "Hoss," you can go fuck yourself.

  36. 204. luddy barsen:

    RW/192; The locus of the evil was the bad turn of the Chernomyrdin Commission, set up to take private the USSR assets. Clinton, in response to the pivotal political event of the postwar 20th century, handed USA’s invited, honored, seat on this commission (which carried the hopes of thr Russian people) to VP Al Gore (incidentally, Gore has yet to comply with USA law to furnish congress with the minutes of his private meetings with fellow commissioners, but that’s vanishingly small an error compared with the direction the C.C. took overall –toward oligarchia and the underworld).

    Gore’s career of course was inherited from his family, which of course had made its fortune as protege of Armand Hammer, whose Occidental Petroleum dealings with the brand new USSR had made him a personal associate –a de facto agent –of both Lenin and Stalin (the actual men –not just the metaphors).

    Al Gore the Greenman –an unfortunate accident that his campaign against domestic American energy production has so enormously increased the relative geopolitical power of Russian oil? Fat chance. The public record is a powerful hint that he’s been a KGB project at least dating from his long ago, career-igniting enviro book (with so many on the left, always there’s that early “book”) “Earth in the Balance” –which was certainly cleverly-named you must admit.

  37. rufus: and I know a country that lets its citizens die from lack of healthcare doesn't have much of a future.

    and I know that a country that keeps making illegals, legal just so you can call them "citizens" and provide free health care doesnt have much of a future either...