Currency Wars: Debase, Default, Deny!
by ilene - October 29th, 2010 3:18 am
Currency Wars: Debase, Default, Deny!
Courtesy of Gordon T Long of Tipping Points
In September 2008 the US came to a fork in the road. The Public Policy decision to not seize the banks, to not place them in bankruptcy court with the government acting as the Debtor-in-Possession (DIP), to not split them up by selling off the assets to successful and solvent entities, set the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar through undisciplined fiscal policy, the US ignited an almost riskless global US$ Carry Trade and triggered an uncontrolled Currency War with the mercantilist, export driven Asian economies. We are now debasing the US dollar with reckless spending and money printing with the policies of Quantitative Easing (QE) and the expectations of QE II. Both are nothing more than effectively defaulting on our obligations to sound money policy and a “strong US$”. Meanwhile with a straight face we deny that this is our intention.
It’s called debase, default and deny.
Though prior to the 2008 financial crisis our largest banks had become casino like speculators with public money lacking in fiduciary responsibility, our elected officials bailed them out. Our leadership placed America and the world unknowingly (knowingly?) on a preordained destructive path because it was politically expedient and the easiest way out of a difficult predicament. By kicking the can down the road our political leadership, like the banks, avoided their fiduciary responsibility. Similar to a parent wanting to be liked and a friend to their children they avoided the difficult discipline that is required at certain critical moments in life. The discipline to make America swallow a needed pill. The discipline to ask Americans to accept a period of intense adjustment. A period that by now would be starting to show signs of success versus the abyss we now find ourselves staring into. A future that is now significantly worse and with potentially fatal pain still to come.
Unemployed Americans, the casualties of the financial crisis wrought by the banks, witness the same banks declaring record earnings while these banks refuse to lend. When the banks once more are caught with their fingers in the cookie jar with falsified robo-signing mortgage title fraud, they again look for the compliant parent to look the other way. Meanwhile the US debt levels and spending associated with protecting these failed…
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Ok, I Recant: Derivatives
by ilene - May 14th, 2009 4:42 pm
Fading optimism… courtesy of Karl Denninger at The Market Ticker
Ok, I Recant: Derivatives
Grrrrr…. Yesterday it looked like we were going to get something sane for the OTC Derivatives market.
Nope:
May 14 (Bloomberg) — U.S. regulators may impose the same price reporting and transparency requirements on over-the- counter derivatives that reduced bank profits by almost half in the corporate bond market when the Trace system was adopted seven years ago.
That ain’t enough. It will drive spreads inward (which is bad for the scammer, I mean, banker profits) but it does nothing to guarantee nightly margining and therefore de-fang the "systemic risk" problem.
It also allows the lies to continue about counterparty solvency well beyond where functional insolvency happens, which is why we’re in this mess in the first place.
Treasury Secretary Timothy Geithner, Schapiro and Michael Dunn, the acting chairman of the Commodity Futures Trading Commission, called for increased oversight of over-the-counter derivatives to reduce risk to the financial system. Lax regulation contributed to the failures last year of Lehman Brothers Holdings Inc. and American International Group Inc., leading to the seizure of credit markets and causing more than $1.4 trillion in writedowns amid the worst financial crisis since the Great Depression.
The only way to stop this is as I have repeatedly said:
All such "products" must be traded against a central clearing exchange, much like with listed options, so there is never a question about solvency because that central counterparty will not permit either agent on the "wings" of the trade to operate without posting margin on a nightly basis.
That is the only way that we will see the risk become one of losing money instead of "blowing up the world".
“Significant gaps in the basic framework of oversight over critical institutions” helped cause the financial crisis, Geithner told reporters. “A series of comprehensive reforms to create a stronger system, less vulnerable to crisis, with stronger protections for consumers and investors” will be hashed out with Congress, he said.
Those "significant gaps" were intentional acts and Geithner, despite the crooning yesterday, has proposed exactly nothing to get rid of them. Indeed, he is up to his neck in
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.