Trump has changed into a World Leader

[Dan Warnick + 6,100]

2 hours ago, 0R0 said:

So you can argue all you like about the political contribution of the various folks in office, but it wasn't them, but the professional Administrative Class, in the global central banking and regulatory structures that did it as an incorrect response to wild reckless monetary expansion in China, being exported as thin global manufacturing margins, high oil prices and enormous capital flows.

Thank you for taking the time to share.  It is always interesting to see how the "levers" work and, possibly more importantly, what history shows to have been the real result vs. the theory going in.

[Dan Warnick + 6,100]

18 minutes ago, Tom Kirkman said:

In Major Deal, The Babylon Bee Purchases Competing Satire Site CNN

Now that brought a smile to my face.  Thanks, Tom!  (I can just hear Anderson Cooper giggling!)

[frankfurter + 562]

3 hours ago, 0R0 said:

There are 3 major components to the creation of the great financial crisis. NONE of them were primarily political, no president and not congress made it happen. They only contributed a slight bit by repealing Glass Steagall and putting in the community reinvestment act, both of which are Clinton era changes. Everything else was outside the US or political hands, but was central bank policy.

1. The China -> commodity bubble. China used low exchange rates after its devaluation in 1995's bank recapitalization, to generate loss making export led economic growth where the only item of account was oil contract and physical oil reserve accumulation. 

2. Tight monetary policy in the US and EMU trying to fend off inflation generated by China's externalization of its enormous monetary expansion. Which resulted in overwhelming capital flows into the US. Those filled the demand for garbage mortgages, not the US banks.

3. Regulatory policy from the Fed and ECB and the Basel III accords that applied volatility based asset pricing models to regulation, particularly a fictional mark to market rule that tied all bank's balance sheets into one, making interbank trade impossible. There was no replacement for the regulatory function of commercial banks supplying credit to investment banks when the repeal of Glass Steagall made them competitors rather than clients. Thus funding shifted to wholesale money markets. The final nail in the coffin was Dodd Frank in the US and the imposition of a cap on FDIC insurance and the "bail in" of failed banks in EMU with the massive demonstration project of Cypress and Iceland where large depositors lost 30% of their account balances. Thus suspending deposit insurance. With devastating results for banks and the economy.  

China monetary policy resulted in enormous growth of money supply and reserves. Reserves created cash on Eurodollar banks' balance sheets, which they levered up by lending everywhere. US markets received their usual share. The reserves were also posted as collateral for forwards and futures on commodities, particularly oil. Thus creating the commodity bubble which destroyed business margins across the globe and thus pressed down corporate profits and real wages, as China produced exports without regard to profits. . 

China M3 + reserves in dollars vs. US M2 (US has no meaningful reserves)

Growth rates for both.

This was not a new invention. It was copied from Japan, S. Korea, Italy, Spain, Greece etc. who had monetary growth of 20-30% for decades during the 1970s commodities bubble (1965-1985). Volcker invented the incorrect response of tightening US monetary policy to evacuate US competitive demand in order to suppress price inflation. Which had mostly to do with OTHER countries' monetary inflation, NOT American inflation. The inflation broke because of oil projects coming online to compete with OPEC. Volcker delayed funding for them and made things worse. He gets the credit for creating the Rust Belt in America. The Bundesbank of the time was that much worse.  Bernanke, having written extensively about such errors, repeated them with an even tighter hand.

In the business margin sphere: You can see the evaporation of unit margins and then employment as the China commodity bubble crushed business globally.

 

With Chinese reserves levered up in the Eurodollar bank system along with the parallel petrodollars recirculating in it (the cash paid for reserves + the reserve assets posted for collateral for oil contracts + the petrodollars created as a result = 3X leverage, or $12 Trillion of additional assets in the Eurodollar system just from China policy alone over a decade's time). With higher than market rates in the US imposed by Bernanke doing precisely what he warned against, capital flows gushed in. Average flows were 10% of US GDP per year 2003-2007, peaking at 17% of US GDP SAAR for one quarter in the US.

Acting as if the Eurodollar market didn't exist, Bernanke kept raising rates well above market, and paid no attention to the shrinking of money supply growth and the resultant elimination of clearing cash (checkable accounts) from US holders, as they all were used by Eurodollar correspondent banks directly or through repos. The FREE clearing cash for the US banking system and economy shrank under Bernanke from <$700 billion to $188 B at the start of the Great Financial Crisis. As you can see in the chart Eurodollar banks sucked out the cash that the QE reserve injections provided. only a marginal portion stayed in US hands till 2014 when US banks started to expand and not lose all the cash to transfers to the Eurodollar system via payments for oil imports. 

In credit leverage to money supply, it was immensely irresponsible for Bernanke and Greenspan before him to respond to inflation caused by China with tightening of US rates. The foreign capital flows crowding out US banks for nearly 3 decades created a Debt/money supply ratio that was destined to collapse. The "Minsky Moment" came when the credit to cash ratio  hit 4.4. Higher than it was when Japan's bubble collapsed in 1989, which they are still trying to fix ever since. . 

 

So you can argue all you like about the political contribution of the various folks in office, but it wasn't them, but the professional Administrative Class, in the global central banking and regulatory structures that did it as an incorrect response to wild reckless monetary expansion in China, being exported as thin global manufacturing margins, high oil prices and enormous capital flows. 

thanks. excellent. worthy of purples. I may debate you (not here) on the China side of things, but purple-worthy nonetheless. 

[Tom Gagnon + 3]

James Regan is romantically disillusioned.  Many Americans are, and there will be a price to pay.  trumpster-the-dumpster is the worse excuse for a leader we have ever had.

 

[Ward Smith + 6,615]

On 1/25/2020 at 2:57 PM, 0R0 said:

Regulatory policy from the Fed and ECB and the Basel III accords that applied volatility based asset pricing models to regulation, particularly a fictional mark to market rule that tied all bank's balance sheets into one, making interbank trade impossible. There was no replacement for the regulatory function of commercial banks supplying credit to investment banks when the repeal of Glass Steagall made them competitors rather than clients. Thus funding shifted to wholesale money markets. The final nail in the coffin was Dodd Frank in the US and the imposition of a cap on FDIC insurance and the "bail in" of failed banks in EMU with the massive demonstration project of Cypress and Iceland where large depositors lost 30% of their account balances. Thus suspending deposit insurance. With devastating results for banks and the economy.  

 

^ This ^

[0R0 + 6,251]

Which portion?