The calm before the storm

I am a volunteer weather observer for the cocorahs network. We picked up 6.5" here last night and the highest total amount our local Wyoming stations seems to be 15" in Thermopolis and Absarokee. Billings MT had 22". Still snowing with a winter storm warning still in effect. I thought the image of a guillotine seemed appropriate to the punishment we would like to mete out to the rogues gallery of incompetents, neocons and financial physicists who have brought us to this point. I would like to include a link to a wonderfully bright and compassionate blogger who has composed a fairy tale of the past financial events which is probably an instant classic. He is Timothy Kailing and he has some experience wring children's stories:http://seekingalpha.com/author/timothy-d-kailing. Scroll to "A grimm bedtime story." Mike Fitzsimmons who is a fellow climber and writes with clarity that few can emulate has a recent summary of shrub and the fallacy of the conservative republican neocon mantra. He of course concludes that it is a betrayal of conservatism. It is something perilously close to Fascism. I urge all of you to read this recent blog.
http://thefitzman.blogspot.com/
I did this post partly in response to a request from my brother who wanted names, places and dates. He is not happy.
The blogosphere is aflame with opinion as the server farms add backup cooling to cope with the workload. Up in Canada Stoneleigh and her fellow blogger Illargi on Automaticearth have some sensible perspective on where we go from here. And if you still have time, Jeremy Grantham and Nouriel Roubini give more scholarly background which has been entirely accurate for some years on what would happen. As for me, I have been consumed by the drama going on in Iceland as you know. I have been listening to the receiva.com radio portal(37 stations), the public radio station in Reykjavik and streaming web TV when it is broadcasting. Google appropriately if you are interested. You will need to be fluent in Icelandic of course which I am not but the emotion in their voices can be stirring. They have some great radio stations which stoop to english on occasion. The streaming TV from Europe Scandinavia and Ireland especially is great. I did hear that there will be a huge jump in homes with negative equity there. No surprise. When the krona starts trading again it will be interesting how it trades with the Euro. With all the turmoil in European Banking markets I sold my euro positions and I think the jury is out on whether European Unity can survive this Tsunami. I'm only somewhat confident in the Swiss Franc, the Yen and temporarily at least the dollar. We still don't know any specifics from the G-6 + Italy meeting here this weekend and the keystone cops will move their jalopy over to the continent next week. I am guardedly pessimistic so far. So far the so called solutions have involved attempted bailouts and partial nationalization of the banks and financial institutions and the rest of the plutocracy that got us here in the first place. They are clinging to their wealth and power with the strength in their fingernails but I fear in the end it will be to no avail. Of course the bulk of the blame goes to the Republican Party and shrub and the gang who destroyed America and the pusilanimous, pathetic dems who signed off whining all the way. The attempt to restore the status quo by trying to return debt and credit is doomed in the long term although it may temporarily get our debt junkie economy back on its feet. Bush exhorted us to spend and consume after 911 just as Barney "google" Frank, Schumer and the rest of these criminals are frantically trying to get us back on our consumption treadmill. But it wont work. At some point our overseas trading partners will realize that the gig is up and stop buying TBill s and agency debt. If and when that happens, only then you will know that the Party is over and we will have to go back to square one and rebuild our banks and our economy. We will have to start saving as Americans to fund what we need to sustain a semblance of a future. We will become more local as James Taylor says in a recent Rolling Stone interview. We will consume less, much less. We will travel much less as Peak Oil issues become dominant in how we consume energy. The drop in worldwide and national oil consumption may buy us some time on the backside of Hubbert's Curve
http://en.wikipedia.org/wiki/Hubbert_peak_theory
perhaps providing some attenuation to the looming supply demand issues but there may be delay and cancellation of projects which will reduce and delay supply and negate that attenuation. There may be bankruptcy of producers and suppliers as their credit dries up. My real fear beyond the world walking away from funding our deficit is the return of the brownshirts and the sound of jackboots in the streets. If you heard Sarah Palins inciting of the mob the other day, you heard some in the audience yelling "traitor!" and "kill them!" "Kill him" referring to Barak Obama. Dupont and JP Morgan attempted to try to raise an army in the 30's and depose FDR which failed when an army general revealed the plot to FDR. The same could happen here if the rage in the unwashed uneducated hating masses builds. I fear for our immigrants, legal and illegal as they will be blamed and I pray that they will return to their countrries while they still can. YOYO and stay tuned.

Shrub's Big Weekend

Well, the G-7 is meeting in DC with shrub and the rest of the cops. The G-7 are ministers from the US, Japan, Canada, Germany, France, Britain and..........Italy? Are you kidding me. How did they get in there? While the world is holding their breath, they are putting out announcements that they will do what's necessary to save the world from this financial death asteroid. Like what, for example? Details are sketchy but Paulson and the shrub have just about shot their wad nationalizing everything in sight.It's gotten so bad that Hugo of the jungle and his press are calling bush "Comrade Bush," and holding their tummies rolling in the aisles but they might want to keep an eye on their national coffers with oil falling through the floor. The time to enjoy their Schadenfreude may be short lived. Ditto Judo instructor Putin. The markets are signaling their lack of confidence with Washington selling everything in sight. Monday on the trading floors should be interesting. I'll tell you what my level of confidence is. My wife and I are taking a trip to the grocer to stock up on 3 months of staples. We are at the tail end of the supply chain here in this high alpine valley and if the grocer's credit dries up I don't think I could stomach Meals ready to eat brought in by my our Wyoming national guard who is over in Iraq anyway. Gordon Brown has seized Iceland's financial assets in England using a statute designed for terrorists. That is new way to think of bankers. Probably very accurate. You can imagine how that went over in Reykjavik. We're under a winter storm warning. The wind is howling and the snow is flying with 2 to 3 feet predicted over our neighboring Wind River and Gros Ventre Mountains. Quite a metaphor for what's going on in DC and New York.

Good Morning America

This is the captain speaking! Everybody to the poop deck where the band has assembled. They would like to play for you a few songs. Apparently we have hit something. Maestro: Auld Lang Syne!
And What a voyage this has been.. Reminds me of the old road runner cartoons where he runs off the cliff but doesn't drop until he looks down, and then he drops. The dow was down 5% right after the bell this morning in a good road runner impersonation. Meanwhile back in Reykjavik..............
The Prime Minisher Geir Harde addressed the nation a few days ago and warned of national bankruptcy. Their on again off again purchase of the banks is definitely on. The biggest bank Kaupthing has been nationalized and the Chairman of Kaupthing Sigudur Einarsson(great names!) is really pissed. Yesterday he accused the government of ruining the country's financial system. Now all three banks, Kaupthing, Glitnir and Landsbanki are owned by the guvment. I checked on some numbers. The liability of Iceland's banks is $61 billion. There are about 310,000 Icelanders give or take a few blondes. Let's do the math. $61 bil divided by 310,000 blondes is $196,774 owed by every man, woman and munchkin.Whoa!
One of the reasons I am so fascinated by Iceland's story is that I happen to be reading Jared Diamond's book "Collapse" in which he in very long winded fashion is writing about the fall of different world civilizations and he has been championing Iceland's fascinating history of near collapse to top of the heap as measured by per capita income and "livability",whatever that means.. The book was written in 2005. It's a great story and I can't wait for the DVD. In Reykjavik the blondes are crying in their cafe' but over in another Celtic stronghold, tonyblairland, people are fuming. It seems that Kaupthing Bank had been paying high interest on savings accounts and a lot of brits had put their savings in these ICESAVE accounts including some local governments in England and Wales. http://www.moneyweek.com/personal-finance/which-bank-will-give-you-52-on-your-savings.aspx
As I write, a lot of these authorities are on their way to Reykjavik to kick some butt. And the ironies just keep rolling in. Iceland was one of the founding members of NATO and where have they been begging? Yup. Putinland. Old Black belt himself. I will continue to cover this compelling story because it's on a scale I can understand, real Shakespearean tragicomedy.
Over on the continent The ECB has been firing up helicopters and Volvo front end loaders dumping Euros into banks, $50 Billion euros 2 days ago and $100 Billion yesterday. Nada.
And in bushville the Keytone Cops are still running around madly trying one so far futile solution after the other. The banks are all in free fall, Insurance got hit yesterday big time and with everybody lining up at the federal trough the deficit could hit $2 trillion by early next year or sooner. Some of those insurance companies have big medical insurance arms. What happens when the health insurance business starts to sink beneath the waves? MY son who works for Dell got a 150% premium increase yesterday from Blue Cross. Hmmmm..... I'm not an economist but the whole process seems so puzzling.It seems some companies have lots of cash on hand. They make payroll, buy what they need to keep afloat with no problem. Companies like Microsoft, Exxon, Wallmart. And others have to pay all their bills with the commercial paper market which as you know is "frozen." No credit. So the guvment needs to unfreeze it. So it gives money from Bernanke's Chinook helicopter to the banks and the commercial paper market and nothing happens. The bankers rush back to their Manhattan apartments and stuff it under the mattress. Now what? I think it might be a good time to bring back some of those nice 19 year old national guard troops from Iraq and march them up to Goldman Sachs and JP Morgan and point their laser sighted rifles at the bankers and say"Lend!"
But I have a wee little voice that is whispering in my ear which is saying..."Let see. All this lending and credit is what got us to this point in the first place. So the solution is more lending and more credit?..... How does that work? Isn't that like going out to the poor junkie in the street who has been days without his fix and giving him a packet of white powder and saying "Here. Take this junk. You'll feel a lot better." As I say. I'm not an economist.
I see this morning that this market plunge is the biggest year to date drop in the history of the S&P. Bigger than the 1930's, bigger than 1974 and 1987 and 2002. And the bobbleheads keep insisting that all this depression talk is nonsense. Even plump avuncular Alan Sloan of Fortune who I really like with his goofy crackly voice told Suzy Garob on Nightly Business Report that there was no chance of a depression. This is the same Suzy who has to ask every single guest if we are having a recession. Bobble bobble, gobble, gobble.

Paul Kedrosky

I have another economic author to introduce. He is Paul Kedrosky who has an impressive resume who writes clearly and concisely. He has a post on the seeking alpha investment website which I urge readers to examine. He is recapitulating much of what I have written in past posts regarding the debt to GDP issue. It is Thursday morning and it looks like snow here in Jackson Hole with a winter storm warning tonight. The storm going on over in Iceland continues to worsen and its leaders are frantically passing the hat to anyone who will listen including the IMF and Russia. Trading in the Icelandic Krona has ceased. Icelands equity markets are closed until at least next week. Things are not much better over in Putinland. Their equity markets seem to also have been closed more often than they have been open and though the oil boom has given them a half of trillion in foreign currency reserves they are falling with the rest of us and now a report on Bloomberg this morning on Siberian grain production falling and debt problems in their agricultural sector is alarming. The suddenness and rapidity of this economic asteroid could only have occurred with the aid of computers and the internet and meanwhile the keystone cops over in bushville race around crashing into each other with firehoses against a backdrop of the resurgent SNL and the amazing Tina Fey. Interesting times here at what is looking like the end of empire. Here is Paul's article in seekingalpha:
http://seekingalpha.com/article/99090-the-beginning-of-the-endgame-for-monetary-policy-redux

Cargo Bikes

I guess I will keep doing daily posts as long as this financial hurricane continues on its relentless path into, through and over our lives. The presidential debates were of low import with McCain wanted to Federalize bad mortgages of all stripes which would be trillions not billions and he will apparently do that by cutting taxes. Obama gave me a glimmer of hope when he listed energy as a top priority. The markets are still tanking everywhere and now a moment of silence for poor Iceland, the land of geothermal city heat, pretty women and volcanoes. Their debt to GDP ratio of 12:1 exceeds the current runner up, good ole US of A at only 3.5:1. Either the country of some or all of its banks may default as early as this week. So it's time for a cheery link from the LA Times:Cargobikes! Where can I get one? YOYO
http://latimesblogs.latimes.com/bottleneck/2008/09/weve-posted-ple.html

Meet Professor Daly

Professor Herman Daly is a well known economist who wrote a recent post on theoildrum.com dealing with among other things steady state economics, a concept of real wealth and the unfolding disaster in our financial system. He is a former senior economist at the World Bank and he wrote a seminal book on the emerging field of ecological economics entitled "Steady State Economics". I think his post in the oil drum is excellent and I will provide the link here:http://www.theoildrum.com/node/4617#more.

I wrote a comment to his article in response to a comment by Gail the Actuary who is one of the fine staff members on the Oil Drum in which she mused on possible consequences of Daly's ideas. My response follows.

Gail points to some consequences of Herman's ideas. It does seem obvious that there will be less credit but it will take VASTLY less credit and debt to bring the system back toward a steady state. It is the sheer huge size of our combined government, corporate and individual debt about $50+ trillion vs our GDP $13 or $14 trillion) that daunts me.That is a ratio of over 3.5 to 1. At the nadir of the Great D that ratio had soared to only 2.5 to 1. Most TOD ers believe that cheap energy has allowed the kind of productivity that has converted that oil drum into a drum of something more valuable but if that cheap drum of oil isn't replaced with another cheap drum of a different energy, then where will the productivity emanate from? If growth slows or stops or becomes negative, that debt will never be repaid unless the currency is expanded, ie inflation. I think we have here not a problem but a "predicament" as JM Greer has pointed out in his latest book,"The Long Descent." Greer points out that problems may have solutions but predicaments do not.We know what expanded debt and credit did to the economy when the expansion was out of phase with real wealth creation and we fear what the consequences of pulling the plug on debt and credit might be, but what other choices are there? The huge majority of the nation opposed the banking bailout by a treasury secretary who was a Goldman Sachs former CEO. The problems were created and advanced by investment banks and bankers such as Paulson and his tribe so here we had the ludicrous spectacle of a banker bailing out himself paid by us using a hurry up offense. He promoted the banking bailout to prevent something worse.But he advanced no evidence to support his assertions that something worse might happen. Something worse may happen anyway but at least his former bank and his former tribal members are sleeping better.The morons and crooks who devised and promoted this debacle are not being punished but most of their employees are, as well as most of the country. The wall street banking industry owned the government and now the positions are reversed. They have the cash and we have the trash. As to How Prof Daly would handle a transition......well how can we transition from a situation of debt and credit created wealth to wealth? We can't. There is no easy way to erase wealth. Most of our wealth was chimera. It was never there anyway. Should we punish the banking axis of evil? Of course. Would it yield much money? of course not but sending a horde of these bankers and buffoons to the guillotine would send a message.This hurried and poorly thought out propping up of a failed financial system just delays the inevitable collapse. The investment banks should have been allowed to fail. There would have been huge financial harm to all manner of people and not just the investment banks who were leveraging and trading their own securities but innocents like the Norwegian Teacher's union and pensioners in Japan and Korea and other banks and insurance and pension funds and even governments worldwide. But they bought those securities. I didn't nor did 99% of my citizens. You choose. You lose. Will the world ever trust the US financial system again? Not in my lifetime, with or without a bailout. Daly points out the obvious that for wealth to be real, it has to be real. Real wealth is created by people doing real work not pushing paper oops! I mean hitting a keyboard to create a CDS to insure against a default which the bogus insurer can't pay anyway. GDP will fall and fall hard. There will be no way to balance a trade deficit that is 70% due to our purchase of imported oil any more than we can have energy independence by drilling off Virginia or California. YOYO folks. You're on your own. Hugh in Jackson Hole.

Depression thoughts

Today a veritable mushroom field has sprung up using the debt to GDP figures I noticed several weeks ago that compelled yesterdays post. There is a an excellent article by James Quinn on the seekingalpha investment website which lays it out far better than I did and he gives detailed historical perspective to the problem which is illuminating. Dupont and JP Morgan trying to raise an army? MY, MY. The ad hominem attacks which follow in the comments were ludicrous but good for a few laughs. People simply cannot abide a messinger of bad news. I am sorry that my graph of debt to GDP did not display the years after 2002. Use the link here to see them better.
http://seekingalpha.com/article/98769-our-coming-depression?source=email#comment-275646