Awfully Familiar

These days, lots of people seem to be reading from the same script:

"CBI Says Worst of British Recession Over" (Reuters)

"China's Premier Says Economy Better than Expected" (Associated Press)

"Dubai's Ruler Says the Worst Is Over" (Financial Times)

"U.S. Officials Suggest Worst of Recession Is Over" (Reuters)

"Italy Employers See Signs Worst Over in Crisis" (Reuters)

"Worst Over? Just Maybe" (Associated Press)

"'Worst Is Over; India to Be on Recovery Path in 2-3 Quarters'" (Business Line)

"US Hopes the Worst Is Over" (The National)

Hmmm, those words sound awfully familiar...ah, yes, now I remember:

"Lehman CEO Says Worst Is Over, Yet Troubles Ahead" (Reuters)

"Bear Stearns Says Worst Is Over After Writedown" (CNBC)

"Citigroup Chief Says Worst of Crisis Is Over" (Evening Standard, May 7, 2008)

"Legg Mason's Miller Sees Recovery for Stocks; 'Worst Is Behind Us,' Famed Fund Manager Tells Beleaguered Shareholders" (MarketWatch, April 23, 2008)

"Is the Worst Over for Detroit?" (SmartMoney, July 18, 2005)

Comments

[roger]

none of theses imbeciles saw it coming,how do they know its over ?

[Peter of Lone Tree]

Whew! I'm glad that's over!
The lyrics to "Happy Days Are Here Again" by J. Yellen and M. Ager, written in 1929 and used by FDR in his 1932 campaign, can be found at http://kids.niehs.nih.gov/lyrics/happydays.htm

[tjo]

The worst is over? You ain't seen nothing yet.
More unemployment; massive deficits at the local, state and federal level; more corporate losses and fraud; more stock market losses. C'mon!
It ain't over until the fat lady sings, and she's nowhere to be found.

[Snoop-Diggity-DANG-Dawg]

Crack-smokers all. This is like listening to a Ben Bernanke feed-back loop for the last three years.

Just do EXACTLY THE OPPOSITE of anything he says, and you be fine. This economic train-wreck is just getting started.

[Jr Accountant]

LOL - Michael, you're such a freaking doom and gloomer. Come on, drink some of the Kool-aid, you'll feel better!

This is hilarious that despite all evidence which points to the contrary, the powers-that-be still feel compelled to proudly announce that the worst is over and everything will be ok.

If you buy that, I also have a bridge you may be interested in...

[TomK]

The world has an endless supply of conguys dressed in 3-piece suits, and an endless supply of fools to follow them. Just survey the headlines everyday and all is confirmed.

"Worst is over!"

Let me translate:

"Now is the time to separate what's left of your money from the fools."

[doug]

Are comments like this ever made on days when the stock market indexes are throwing a party?

It's sort of like bank closures, they only report them 5 minutes after the markets close on Fridays. Why is that?

Markets are down in the early going after a big down day and suddenly the jawboning begins. While some of the stupidiest people work on wall street and immediately start gunning stocks higher because everything is hunky dory. Reality is a far more different matter.

regards.

[roger]

The fascination with (doom & gloom )comes from the
spectacle of superficial appearances being disassembled
exposing a new reality in the making,a very exiting
dialectical movement far superior to kool-aid

[Peter of Lone Tree]

We've just equalled last year's total of 25 bank failures.
Read about 'em all at The Bank Implode-O-Meter.
(http://bankimplode.com/blog/category/fdic-failed-banks/)

[minieconomics]

Eureka – there can be no conventional recovery from the depression!
In the 1970s I remember going to Monty Python’s third final farewell tour, a paradox of words, how can it be their third final tour? Well, I have just found my third final piece of the complicated economic and financial jigsaw puzzle. From 1978 I have been collecting the pieces and, in 1990, I felt that I had found the last piece when I developed my theory of Minieconomics, based on different economic sectors with homogeneous characteristics of velocities of circulation of money and economic and financial multipliers, sector monetarism and psychology.

Working in the financial markets in London I realised that the macroeconomists could not see the trees for the woods, and that the microeconomists could not see the woods for the trees. It was obvious to me that some trees, such as Red Oaks, had completely different characteristics as regard to strength and growing rates than, for instance, Poplars. The gap between micro and macro was too large to be useful and that from a Minieconomics standpoint it was easy to ‘see’ upwards to the macro and downwards to the micro. That the developed property sector was completely different to the construction, technology or auto production sectors in respect to economic contribution and velocities of circulation of money. That money was not homogeneous, its effect depended on its velocity and economic impact when it was spent and that, in turn, depended upon confidence.

Then in 2008, when playing around with the possible issuance of secondary monies in Argentina, I realized that ALL of the bank, and non bank private sector creation of debt was indeed a form of secondary money or virtual money and was impossible to convert into ‘real’ money; that issued by the government. It was a giant ‘Ponzi’ or pyramid selling scheme.

Now in 2009, when rethinking my analysis of the effect of confidence on the velocity of circulation of money, its creation and its economic impact, I realized that ALL SECONDARY MONEY IS SELF DESTRUCTIBLE. That means that it has to be repaid and that if it is not reissued in the form of new debt then the amount of money in the system has to reduce and the economies have to go into long term depression.

For economies based on debt and the hyper efficiency of the use of money, in terms of its speed and financial multipliers, the ECONOMY CAN ONLY EXPAND IF THERE AN INCREASING INCREASE IN THE CREATION OF MONEY THROUGH DEBT AND/OR VELOCITY.

This means, in effect, that the financial system can not cope with any money being repaid; it has to be continuously refinanced and increased and new areas of creation of debt have to be continuously found – the derivative markets for example – then the super derivative markets etc. etc. Mortgage credits for houses have to be continuously lengthened to avoid avalanches of repayment that have to be replaced by other debt. In order to continue with the increase in debt issuance there has to be a corresponding increase in number of houses, the value of assets, such as houses, in order to provide the security for that debt and/or the confidence to give loans representing a higher percentage of the value, such as in Spain or the UK where they increased to up to 150% of the value.

In a closed economic system this increased creation of secondary money has to cause inflation and that is what has been seen in all the asset markets, such as property, bonds and shares and then in the service markets. The more the inflation spills over into the real economy, the less the increase in house prices, and the more difficult it is to keep increasing the house lending. In a more open economy the problem appears in the form of commercial deficits. The problem with the system is that the creation of money is in secondary, or virtual, form but all the taxes paid in respect of the use of that money, possibly over 50% for secondary lending on inflationary houses profits, are in real money and the equivalent real money is not being created. THIS MEANS THAT THE PUBLIC SECTOR DEFICITS, AND THE CORRESPONDING NATIONAL DEBT, ARE BEING HUGELY UNDERSTATED!

Confidence is responsible for the velocity of circulation of money and also the financial or economic impact of that money. From the industrial revolution, the 1st world has had a nearly uninterrupted period of increasing confidence, and that, combined with the increased bancarisation of the people, has produced an ever increasing increase in the velocity of circulation of money and its financial and economic multipliers. Confidence is not, however, a natural state, it has to be hard earned over time and can be lost in seconds. The financial, economic and justice systems of the 1st world have recently taken the level of confidence or overconfidence to extreme levels and this can be seen in the past performance of the housing, automotive, derivative and share markets. Over confidence, when lost, is not replaced by confidence, it is replaced by disconfidence, a word that is not in the English dictionary. The problem with the 1st world is that without over confidence its financial, economic and justice systems cannot now function. It is like ‘just in time’ production when one of the suppliers is unable to produce what is needed on time. The effect is a type of ‘economic and financial suspension’. The problem is that the whole system collapses because it cannot cope with this event, the same as in ‘just in time’ production of sophisticated products like cars. The money and products cannot get to where they have got to go at the time they should go. This fall in trade then produces a natural protectionism because it is easier to purchase what is required locally especially when there is little international finance available.

The results will therefore be as follows, according to my analysis and theories:-

Suspension of the derivative market

Banking problems that turn into economic problems that turn into banking problems

Huge fall in international trade

Large fall in high economic multiplier economies such as Japan, South Korea and Germany

Large financial fall in high financial multiplier economies such as USA, UK, Spain and Ireland

With a banking multiplier of 10 times it requires the Government to reproduce the total amount of ‘real money’ for each 10% fall in velocity of circulation of money and this is just for the economy. To support the level of world asset pricing is impossible.

The major problem here is that everybody thinks they are worth in ‘real’ money what they have calculated they are worth on paper, or virtual money, and that with ‘fungibility’ it is possible to sell something and convert it into real money to repay their loans or taxes. This is not possible. The price, or value, of something is between a willing buyer and a willing seller. When there is no extra creation of debt then it produces a deflationary environment and there are not the buyers for the sellers. There is no way the Governments can protect existing financial and economic values, and even service values, because there will always be someone who will have to sell or offer services at a lower price and therefore there cannot exist the level of activity required in the new markets for cars, construction and retail markets etc. for the economy to maintain its level of employment.

Deflation is the Federal Reserves biggest concern, and rightly so, but the problem is that it, together with the 1st world, cannot support economies that have been subject to up to 150 years of economic and financial distortion that have been significantly exacerbated over the years since Bretton Woods and financial deregulation, and that have produced service dominated economies and no real productive ability to produce what is now required for the ‘real’ economies and purchased with ‘real’ money.

Copyright 2009 www.minieconomics.com

15th April 2009

[tjo]

I think minieconomics might have something there regarding secondary money. I bet if we look hard enough we might find some little old lady with some primary money stashed in a mason jar in her root cellar, money that she did not borrow--you know, 'real' money, possibly in silver or gold. Wow! Wouldn't that be something!