Sigh, And Sigh …… Round Two In The Financial Crisis

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I wish I had more time to dedicate to this post, but, I’m running behind, as it is.  But, there are two articles I thought I’d bring to the readers’ attention.  The first one is this bit of stupidity ….

Mortgage lenders set to relax standards

Some of the largest U.S. mortgage lenders are preparing to further ease standards for borrowers after the release of new guidelines this month from mortgage giants Fannie Mae and Freddie Mac .

The new guidelines, to take full effect Dec. 1, resulted from an agreement in October meant to clarify when lenders would be penalized for making mistakes on mortgages they sell to Fannie and Freddie. Lenders have blamed the lack of clarity for tight credit conditions that have made it difficult for many consumers to qualify for a mortgage.

Relaxing the lending standards potentially could make it possible for hundreds of thousands of additional consumers to get mortgages. …..

Read more at the link.

Weird.  I seem to recall, back in the recesses of my memory, that the globe just recently went through a financial crisis, in part, due to the relaxed nature of the home loans issued to people. 

Dirk brings us this from Zerohedge. 

Financial Terrorists On The Road – Krugman And Rogoff Peddling Toxic Advice

It’s too lengthy for me to reproduce, so I’ll highlight some things ….

….. So start with Professor Rogoff ‘s incredible assault on the peoples’ cash and coins—a necessary prelude to even more fantastic rates of central bank monetary expansion. Here is exactly what he recently advocated at a “prestigious” international policy forum:

“Harvard economist Kenneth Rogoff even argues in the daily paper FAZ that cash currency should be banned altogether. Central banks could impose negative interest rates more easily that way, he explained. Tax evaders and criminals would also find life more difficult. From this perspective, banknotes and coins appear superfluous, he said at a presentation at the IFO institute in Munich.Measures to spur the economy could be implemented more easily that way.”

In short, central banks would like to escalate their devastating war on savers by driving interest rates even deeper into negative nominal and real territory. But they are now stymied for two reasons.

In the case of their preferred route of driving “real” interest rates more deeply into negative returns by cranking up consumer inflation, they are blocked by economic reality. Households are still buried in debt and can no longer borrow, spend and ratchet-up their balance sheet leverage ratios as they did in the 40 years preceding the 2008 financial crisis. Likewise, a deflationary global economy—–drowning in the excess industrial capacity and malinvestments that have been generated by nearly two decades of worldwide financial repression—– keeps a tight lid on the price of consumer goods. So the tried and true route of inflating governments out of their debt obligations has been precluded.

At the same time, interest rates are already at the zero bound in nominal rate terms, meaning that only significantly negative nominal rates can further reduce the burden of public debt. However, even central bankers are smart enough to realize that if the monetary and fiscal authorities of the state go too far in imposing negative rates on bank deposits or in threatening to “bail-in” depositors, they could incite a run on the bank. Yes, in this age of awesome technology in which people fuel-up at Starbucks by waving their smart phones at the cashier, our Keynesian masters are now worried about erupting stacks of fresh Ben Franklin’s. ….

…… And that gets us to Professor Krugman’s regrettable trip to Japan. They very last thing that the mad men of Abenomics need is another spurious Keynesian justification for even more deficit spending.

Honda, 59, an academic who’s known Abe, 60, for three decades and serves as an economic adviser to the prime minister, had opposed the April move and was telling him to delay the next one. Enter Krugman, the Nobel laureate who had been writing columns on why a postponement was needed. ‘That nailed Abe’s decision — Krugman was Krugman, he was so powerful’ Honda said… ‘I call it a historic meeting.’ It was in a limousine ride from the Imperial Hotel — the property near the emperor’s palace… that Honda told Krugman, 61, what was at stake for the meeting. The economist… had the chance to help convince the prime minister that he had to put off the 2015 increase.”

Let’s see. Since its original financial crisis in 1989, Japan has made deficit spending a way of life. During the last 10 years, for example, its budget has been in deficit continuously and has averaged new borrowings of nearly 7% of GDP annually.

Japan Government Budget

All of these giant deficits, however, surely did not “stimulate” Japan’s GDP in the slightest. In fact, its nominal GDP today is the same as it was two decades ago.

Historical Data Chart

Accordingly, Japan is now in a debt trap:  …….

As anyone can clearly note, deficit spending does not build an economy.  It never has, it never will. 

I’ve said it before, and I’ll say it again.  Japan is done.  The only thing Japan is good for today is to demonstrate to the world how not to run an economy. 

But, to the larger point.

Debtor nations depend on inflation to finance their largess.  They can’t pay back the money borrowed in real value.  But, to get inflation, one has to spur financial activity.  They have to make people believe they have more value than they really do.  Read the first link. 

All of this leads to the enslavement of the public and dependency. 

Much more to say, but, I’ve gotta run.  I’ll be back shortly.

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9 Responses to Sigh, And Sigh …… Round Two In The Financial Crisis

  1. DirkH says:

    Yes, Japan is done, but we see now WHO BROUGHT THEM DOWN. Krugman now appears less as an idiot but more like a hitman. He was so crazy he played the idiot better than Rogoff and Stieglitz and other Soros mouthpieces.

  2. omanuel says:

    Thanks for your excellent cartoon showing Stalin’s clever 1945 design for taking control of the entire globe.

    Here’s a reconstruction of our path from the end WWII in 1945 to the start of Climategate in 2009:

    Click to access From_WWII_to_Climategate.pdf

  3. Bruce of Newcastle says:

    Rogoff is a nutcase if he wants to restrict the citizens’ ability to control their own source of value.

    Currency is our protection against theft by the government. If he doesn’t believe me, think back to Argentina stealing all the 401(k) accounts of its citizens. Obama would love to steal the savings of citizens to use for his ideology. The defense is to hold cash.

    And negative interest rates would be pure theft if the citizenry could not escape to cash.

    • DirkH says:

      Notice that in EU and USA and likely in Oz as well, “holding cash” in a bank account means you have granted the bank UNSECURED credit. Rules came in this year in EU, maybe earlier in USA. You are last in line on bank failure!

      Holding papermoney in physical form seems safe until it doesn’t, when trust in store-of-value function vanishes, people offload their cash as fast as they can and a slow deflation turns into a quick inflation from one day to the next.

      • Bruce of Newcastle says:

        I know it well. I keep most of my portfolio in dividend yield stocks, since they aren’t stealable.

        Holding cash is not a strategy it is a threat, as is capital flight. Its about deterring the government by making it too hard, too slow and therefore too politically costly.

        Remember when personal ownership of gold was made illegal? Same thing. Now you can’t realistically shift to gold because most of it is locked up from citizens and the governments are wise to the issue, hence the manipulation and reserve accumulation. There also isn’t enough around because of the rise of the Asian middle class.

        • DirkH says:

          In that case, watch oil price and the level of indebtedness of your energy companies if you have any. Oil is getting wacked every day, with it go other commodities, profit margins oil, coal, copper mines might all go negative if they are not already. At the same time the rising USD means their debt is rising in value, regardless of ZIRP – or rather caused by ZIRP with no QE.

          In other words the stocks will drop. Saudi stock index, Dubai index all crashing already.

        • kelly liddle says:

          Bruce
          What are you talking about? Everything is stealable as you put it. Tomorrow the government could (in theory) change the taxation system in Australia to be the same set up as the US but keep the Australian marginal tax rates and you would immediately lose half your dividends and the shares would move in the same direction.

  4. cdquarles says:

    Let me get this insanity straight. They’ve pushing on a string. Since pushing on a string has done nothing real, they want to push on that string harder? ROFLOL. This is one of the best economist jokes that I’ve heard in a while.

    On a more serious note, the effect of this would be confirmation of Scripture.

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