Sunday, May 9, 2010

Of Cabbages and Kings....

Greetings good citizen,

Happy Mother’s Day to all of my (US) readers who also happen to be Moms!

As you are aware, the stock markets have been dropping like a stone due to renewed ‘fears’ over surging ‘Sovereign debt’. Specifically, Greece ‘will default’ on its debts if the rest of the Eurozone doesn’t provide Greece with a bailout.

Sadly, Greece isn’t the only, er, ‘developed economy’ that can’t, um, manage its budget.

Worse is an economic model that ‘bizarrely’ demands that all of these economies ‘compete’ with one another for a very finite pool of consumer, er, ‘discretionary spending’.

Is it any ‘surprise’ that some economies are ‘losing’ this (now global) competition?

What we’re witnessing here good citizen is ‘cause and effect’…now, just who, specifically, is behind this ridiculous game?

Well, good citizen, the answer is somewhat obvious, isn’t it?

This whole Kabuki Dance is brought to you by the global financial ‘syndicate’, the same people that use (their control) of your money to enslave you!

Let us proceed to tonight’s first offering where we have a look at how things might play out over in Europe…

Stoneleigh: The Imperial Eurozone (With All That Implies)

In the light of events in Greece, I want to address the structure and prospects for the eurozone, and specifically how the structure pre-determines the prospects. Talk about long term austerity measures in southern Europe by no means covers a worst-case scenario.

All aggregate human structures at all degrees of scale are essentially predatory. [Not that this is a requirement…] They all convey wealth from a necessarily expanding periphery towards the centre, where wealth is concentrated. The periphery may be either forced or enticed to join the larger structure, but that does not affect the outcome. Such structures are all inherently self-limiting, as the fundamental dependence on the buy-in of new entrants grounds them in Ponzi dynamics.

The Eurozone project is no different. The European periphery was sold an impossible dream - that they could by fiat have the same living standards as northern Europe. Perhaps the architects of the project believed that equalization by fiat would work, but whether their intentions were honourable or not is immaterial to the outcome.

The Ponzi scheme was very effective, because the impossible dream was so appealing. The euro project gave people and companies and governments in the periphery access to far lower interest rates than they had ever seen before, and encouraged them to enter the gingerbread palace. The result was a manic period of credit expansion where people borrowed vastly more than they could ever hope to repay, just like the US subprime borrowers who indulged in the same dynamic. Attempting to borrow yourself into wealth absolutely never works, no matter where you live. The developing debt slavery further enriches the centre in the meantime, though.

As we have discussed at The Automatic Earth many times, credit expansions create outward appearances of great real wealth. They do this by creating multiple and mutually exclusive claims to the same pieces of underlying real wealth pie. Many people feel wealthy, but that is perception, not reality. This wealth is virtual. The structure is Enron-esque. At maximum expansion it appears robust, yet it is destined to implode rapidly.

When such expansions happen on a small scale, borrowers can end up in long term debt slavery but a centre can hold, albeit after taking a haircut and perhaps seeing a change of control to some larger external entity able to absorb the impact. When the same thing happens on a large scale, or indeed an all-consuming scale as it has this time, it will take down both borrowers and creditors alike, in a climate of mutual recrimination. The debt exposure to the periphery is simply too large to avoid taking down the centre as well, especially as there is no external structure large enough to absorb the impact. This time we have created the first truly global Ponzi scheme, with a myriad local manifestations.

To revisit an earlier essay on Adaptive cycles in natural and human systems, the effect of a cycle turning to the downside depends on where it is positioned in relation to both the smaller-scale cycles it is composed of and the larger-scale cycles within which it is embedded. The deepest collapses occur when cycles at many scales move to the downside in a coordinated fashion, so it is not possible to cushion the fall. The erstwhile European Imperium is destined to fail, and it will by no means be alone in this, as it is but one component of a global financial structure of the same nature and at the same position on the brink. [So, when Western civilization is ‘pauperized’ by those who ‘own’ its banking system, then what? Do we ‘string up’ the old bankers (but not the owners) and start over with ‘new, more trustworthy bankers’?]

A credit expansion requires two sides - a predatory lending structure at the centre and and gullibility and greed in the periphery. They are mutually responsible for the outcome. In a collapse, the center attempts to blame the periphery and impose all the consequences upon it, while holding on to all the perceived wealth. This is toxic to the larger structure. The socioeconomic disparities created in the attempt to contain the consequences in the periphery will be politically impossible to sustain. Germany will not be able to continue business as usual while expecting the Greeks (and the Portuguese, Spanish, Irish, Italians, British, Eastern Europeans etc.) to live with drastic austerity measures for years.

The extent to which the attempt to do this will inflame destructive old hatreds is very much larger than people currently suppose in a place as apparently civilized as Europe. Collective memory is long. Remember Sarajevo - the veneer of civilization is very thin when push comes to shove.

What’s more disturbing good citizen is just who will we supposedly ‘owe’ when it comes to paying for all of these budget deficits…will it be the very same banks we provided trillions to?

WTF is up with that?

And so we arrive at tonight’s second offering

Feds Probing JP Morgan Silver Manipulation as Merkel Sounds Defiance to the Banks

"German Chancellor Angela Merkel accused the financial industry of playing dirty. 'First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to launch recovery packages, which increased our debts, and now they are speculating against these debts. That is very treacherous,' she said. 'Governments must regain supremacy. It is a fight against the markets and I am determined to win this fight.'"

UK Telegraph

The story of this crisis is the people versus the banks. The largest mistake that Europe made was in bailing out the banks, and not simply nationalizing them. But that would not have resolved the problem of the gangs of the New York and London, and their partners in the hedge funds and the ratings agencies.

The same man who wrote, "Power tends to corrupt, and absolute power corrupts absolutely" also wrote:

"The issue which has swept down the centuries and which will have to be fought sooner or later is the People versus the Banks."

Lord Acton

I do not wish to sound pessimistic, but it will be a surprise if the US under the Obama Administration does anything meaningful and significant to curb the abuses of the large Wall Street firms. While the corruption in the campaign financial process and the revolving door between government and the Street remains open the progress to reform will remain a diversion at best. [Well said Jesse!]

NY Post
Feds Probing JPMorgan trades in Silver Pit
May 9, 2010

Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

The probes are far-ranging, with federal officials looking into JPMorgan's precious metals trades on the London Bullion Market Association's (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.

JPMorgan increased its silver derivative holdings by $6.76 billion, or about 220 million ounces, during the last three months of 2009, according to the Office of Comptroller of the Currency.

Regulators are pulling trading tickets on JPMorgan's precious metals moves on all the exchanges as part of the probe, sources tell The Post.

JPMorgan has not been charged with any wrongdoing.

The DOJ and CFTC each declined to comment, as did JPMorgan.

The investigations stem from a story in The Post, which reported on a whistleblower questioning JPMorgan's involvement in suppressing the price of silver by "shorting" the precious metal around the release of news announcements that should have sent the price upwards.

It is alleged that in shorting silver, JPMorgan sells large blocks of silver option contracts or physical metal -- actions that would bring down the price of the metal -- closely following news that would otherwise move the metals higher.

Last week, The Post got a telling e-mail the Justice Dept. sent to a concerned investor. "Thank you for your e-mail regarding allegations that JPMorgan Chase, and perhaps other traders, are manipulating the silver futures market," the e-mail read.

Telling, indeed, as the concerned investor, in an e-mail to Justice's Anti-trust division, never mentioned any companies or traders.

Most of us have little choice when it comes to the amount of debt we carry. Neither our wages nor the prices we are forced to pay are under our control.

It should stand out in sharp relief that the ‘supreme penalty’ under A Simple Plan is the withdrawal of the benefits of civil society. That the offender is sent into the wilderness alone to survive as best as they can without any, er, ‘technology’, none whatsoever.

This is the ‘power’ the banks hold over your continued existence, and that of your children. This is the ‘tyranny’ our patriot forefathers sought to (but failed) to break.

For as long as the greedy live among us, the poor will always suffer, needlessly.

Thanks for letting me inside your head,


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