For reasons which aren't worth going into now, I'm reading through a recent report by Deutsche Bank Global Markets Research entitled "From The Golden To The Grey Age" this afternoon. The report (all 100 pages of it, many thanks to researchers Jim Reid and Nick Burns who produced the thing) looks at the extent to which a variety of macro indicators - like GDP growth, inflation rate, equity yields, etc - may have been influenced by demographic forces over the last 100 years or so. It is certainly one of the most systematic reports of its kind I have seen, and well worth losing a Saturday afternoon to read.
But in the middle, there is an argument which caught my eye, and I thought it worth reproducing. Basically the starting point is this chart, which if you haven't seen by now (or something like it) I'm not sure where exactly you've been during the last 2 or 3 years.
Obviously, just the most cursory of glances at the thing should lead even the most untrained of eyes to get the point that what is going on around us is not some passing phenomenon, and that there are deep structural factors at work.
As our Deutsche Bank researchers put it:
As can be seen (from the above chart) there was a step change in the US economy’s indebtedness from the early 1980s onwards and then an additional one in the late 1990s/early 2000s. A similar picture is apparent across most of the Western World.
Basically from the early 1980s to the onset of the Global Financial Crisis the economy added on more debt every year and business cycles were extended as a result. Indeed the Fed and Central Banks around the world were afforded the luxury of operating in a secular falling inflation regime (globalization) that allowed them to cut rates, further allowing the accumulation of debt, every time the economy may have naturally been rolling over into a normal recession consistent with those seen through history. This debt accumulation undoubtedly helped smooth the business cycle and contributed to the period being known as the ‘Great Moderation’. This period came to a spectacular end with the onset of the crisis and it is possible that going forward we will revert to seeing business/credit cycles more like they were prior to the ‘Great Moderation’.
Now here comes the clever part. Our researchers then go on to take a look at the the average and median length of the 33 business cycles the US economy has seen since 1854. For the overall period they found the average cycle from peak to peak (or trough to trough) lasted 56 months (or 4.7 years). However, the averages are boosted by an occasional elongated "superbusiness cycle", and thus the median length is a much smaller 44 months (3.7 years). As they comment, such numbers must look very strange to those who have only ever analyzed business cycles over the last 25-30 years. Within these 33 cycles the contraction period lasted 18 months on average or 14 months in terms of median length. This equated to the economy being in recession 31% or 32% of the time depending on whether you look at the averages or the median numbers. Taking just the period before the “Great Moderation” the average US cycle lasted 5 months less at 51 months (or 4.3 years) with the median at 42 months (3.5 years). Over this period the US economy was in recession 35% and 36% of the time respectively depending on whether you look at averages or the median.
Now we used to think that all of that was behind us, but then we used to think that the "Great Moderation" had gotten things under control, and not simply temporarily extended the cycle length by facilitating long-term-unsustainable levels of indebtedness. So in fact, given that, as they say some sort of cycle or other has been with us since at least biblical time, what we might now expect are more "normal" cycles (in historical terms), which put a little better means shorter ones with more frequent recessions.
"Given all we know about the ‘debt supercycle’, it is likely that the onset of the Global Financial Crisis ended the “Great Moderation” period. Unless we find a way of continually adding more debt at an aggregate level in the Developed World it is likely that we will see much more macro volatility and more frequent business cycles going forward. Given the fact that Developed World Government balance sheets are under pressure, and given that interest rates around the Western World are close to zero, the post-crisis ability to fine tune the business cycle is extremely limited. We may need to put an immense amount of faith in the experimental force of Quantitative Easing to deliver economic stability. This will be an experiment with little empirical evidence as to how it will turn out. For now the base case must be that we revert more towards business cycles more consistent with the long-term historical data".
So then our authors do their calculations concerning the average length of US cycles since 1854 in order to make a rough estimate of when the next few US downturns will start, as illustrated in the following chart.
Now, without dwelling on the gory details, if we look at the spread between the upside, median, and downside cases, we could pretty rapidly come to the conclusion that the next US recession has a high probability of starting sometime between next summer, and the summer of 2012 - which, as you will appreciate, isn't that far away. I am also pretty damn sure that Ben Bernanke and his colleagues over at the Federal Reserve appreciate this point only too well, and hence their imminent decision on more easing, since a recession hitting the US anytime from next summer will really come like a jug of very icy water on that very fragile US labour market, not to mention the ugly way in which it might interact with the US political cycle.
I think the mistake many analysts are making at this point is basing themselves on some sort of assumption like, "if the recession was deep and long, then surely the recovery should be just as pronounced and equally long", but, as the DeutscheBank authors bring to our attention, business cycles just don't work like that.
Now, why I think this is an interesting argument is that the starting point for looking at the recovery is rather different from the norm, in that instead of peering assiduously at the latest leading indicator reading, they do a structural thought experiment, and work backwards from the result. Now, one thing I'm sure Ben Bernanke isn't is stupid, so it does just occur to me that either he, or someone on is team, is well able to carry out a similar kind of reasoning process.
Watch Out, Here Comes The QE2In fact, it would be an understatement to say that the forthcoming QE2 launch is causing a great deal of excitement in the financial markets. As the news reverberates around the world, it seems more like people are getting themselves ready for some kind of "second coming". Right in the front line of course are the Europeans and the Japanese, and the yen hit yet another 15 year high (this time of 81.11 to the dollar) during the week, while the euro was up at 1.4122 at one point. Greeks, where are you! Can't you engineer another crisis? We need help from someone or we will all capsize in the backwash created by this great ocean liner as it passes.
But joking aside, a weaker USD is going to be both the natural and the intended consequence of the coming bout of additional QE by the Fed, and it will have a strong collateral effect on the already weakened and export dependent economies of the EuroArea and Japan.
With this prospect as the background, it should not come as a surprise that talk of currency wars and competitive devaluations is rising by the day. Japan only last week threatened "resolute action" against China and South Korea, Thailand has placed a 15% tax on bond purchases by non resident investors, and central banks from Brazil to India are either intervening to try and keep their currency from rising too fast, or threatening to do so.
And the seriousness of the situation should not be underestimated. Many have expressed disappointment that the recent IMF meeting couldn't reach agreement, and hope the forthcoming G20 can do so. But really what kind of agreement can there be at this point, if the real problem is the existence of the ongoing imbalances, and the inability or unwillingness of the Japan's, Germany's and China's of this world to run deficits to add some demand to the global pool. Push to shove time has come, I fear, and if this reading is right then it is no exaggeration to say that a protracted and rigorously implemented round of QE2 in the United States could put so much pressure on the euro that the common currency would be put in danger of shattering under the pressure. Japan is already heading back into recession, as the yen is pushed to ever higher levels, and Germany, where the economy has been slowing since its June high, could easily follow Japan into recession as the fourth quarter advances.
Indeed, I think we can begin to discern the initial impact of the QE2 induced surge in the value of the euro in the August goods trade data. The EuroArea 16 have been running a small external trade surplus in recent months, and to some extent the surplus has bolstered the region's growth. It is this surplus that is now threatened by the arrival of the QE2. The first flashing red light should have been the news that German exports were down for the second month running in August, but now we learn from Eurostat that the Euro Area ran a trade deficit during the month.
"The first estimate for the euro area1 (EA16) trade balance with the rest of the world in August 2010 gave a 4.3 bn euro deficit, compared with -2.8 bn in August 2009. The July 20102 balance was +6.2 bn, compared with +11.9 bn in July 2009. In August 2010 compared with July 2010, seasonally adjusted exports rose by 1.0% and imports by 1.8%".
Basically the euro-zone countries had been managing to run a timid trade surplus (see chart below, which is a three month moving average to try and iron out some of the seasonal fluctuation) and this had been underpinning growth to some extent. Now this surplus is disappearing, and with it, in all probability, the growth. Maybe we won't get a fully fledged "double dip" in the short term, but surely we will see a renewed recession (and deepening pain) on the periphery and at the very least a marked slowdown in the core.
In fact the current situation is extraordinarily preoccupying. We are now in the fourth year of the present crisis (however you choose to term it, the second great depression, the very long recession, or whatever) and there seems to be no sustainable solution in sight. The underlying problems which gave birth to the crisis are excessive debt (both private and public) and large global imbalances between lender and borrower countries, and neither of these issues has so far been resolved, nor are there proposals on the table which look capable of resolving them.
And unemployment in the United States (which is currently at 9.6%, and may reach 10% by the end of the year) is causing enormous problems for the Obama administration. The US labour market and welfare system are simply not designed to run with these levels of unemployment for any length of time. In Japan the unemployment rate is 5.1%, and in Germany it is under 8%. So people in Washington, not unreasonably ask themselves why the US should shoulder so much extra unemployment and run a current account deficit just to maintain the Bretton Woods system and the reserve currency status of the US Dollar.
My feeling is that the US administration have decided to reduce the unemployment rate, and close the current account deficit, and that the only way to achieve this is to force the value of the dollar down. That way it will be US factories rather than German or Japanese ones that are humming to the sound of the new orders which come in from all that flourishing emerging market demand.
I think it is as simple and as difficult as that.
The problems created by the way the crisis has been addressed now exist on a number of levels. In emerging economies like Brazil, India, Turkey and Thailand, ultra low interest rates in the developed world are creating large inward fund flows which are making the implementation of domestic monetary policy extremely difficult, and creating sizable distortions in their economies.
At the same time, a number of developed economies like Spain, the United States, the United Kingdom became completely distorted during the years preceding the crisis. Their private sectors got heavily into debt, their industrial sectors became too small, and basically the only sustainable way out for them is to run current account surpluses to burn down some of the accumulated external debt. Traditionally the solution to this kind of problem would be to induce a devaluation in the respective currencies to restore competitiveness, but in the midst of an effectively global crisis doing this is very difficult, and only serves to produce all sorts of tensions. As Krugman once said, "to which planet are we all going to export".
At the same time, two of the world's largest economies - Germany and Japan - have very old populations, which effectively means (to cut a long story short) they suffer from weak domestic demand, and need (need, not feel like) to generate significant export surpluses to get GDP growth and meet their commitments to their elderly population. The very existence of these surpluses also produces tensions, and demands for them to be reduced. But this is just not possible for them, and Japan is the clearest case. For several years Japan benefited from having near zero interest rates and becoming the centre of the so-called global "carry trade", which drove down the currency to puzzling low levels, and made exporting much easier. Large Japanese companies were even expanding domestic production and building new factories in Japan during this period (a development
which had Brad Setser scratching his head at the time, trying to work out how the yen could have become so cheap).
Then the crisis broke out, the Federal Reserve took interest rates near to zero, and the United States became the centre of the carry trade. The result is that every time the Fed threatens to do more Quantitative Easing the yen hits new 15 year highs, even while the dollar continues its decline, with the result that Toyota are having a change of heart, and are now
thinking of closing a plant in Japan to move it to Mexico. The present situation is just not sustainable for Japan, which is basically being driven back into what could turn out to be quite a deep recession.
Unfortunately I think there is no obvious and simple solution to these problems. As we saw in the 1930s, once you fall into a debt trap, it can take quite a long time to come out again. You need sustained GDP growth and moderate inflation to reduce the burden of the debt, and at the present time in the developed world we are likely to get neither. In the longer term, the only way to handle the presence of some large economies which structurally need surpluses is to find others who are capable of running deficits, but this is a complex problem, since as we have seen in the US case, if the deficit is too large, and runs for too long, the end result is very undesirable. Basically the key has to lie in reducing the wealth imbalance which exists between the developed and the developing world, but this is likely to prove to be a rather painful adjustment process for citizens in the planet's richer countries, so policy makers are somewhat reluctant to accept its inevitability.
Basically, the structural difficulty we face is that all four major currencies need to lose value - the yen, the US dollar, the pound sterling and the euro - and of course this basically is impossible without a major restructuring of what has become known as Bretton Woods II. The currencies which need to rise are basically the yuan, the rupee, the real, the Turkish lira etc. But any such collective revaluation to be sustainable will need to be tied to a major expansion in the productive capacity of the economies which lie behind those currencies.
In fact, the failure to find solutions is increasingly leading to calls for protectionism and protectionist measures. The steady disintegration of consensus into what some are calling a "currency war" is, as I said above, another sign of this pressure. On one level, the move to protectionism would be the worst of all worlds, so I really hope we will not see this, but if collective solutions are not found, then I think we need to understand that national politicians will come under unabating pressure from their citizens to take just these kind of measures. The likely consequence of them succumbing to this pressure, which I hope we will avoid, would be another deep recession, possibly significantly deeper than the one we have just experienced. And, not least of the worries, the future of the euro is in the balance at the present time.
The structural imbalances which we see at the global level, between say China and the United States, also exist inside the euro-zone, between Germany and the economies on the periphery (Ireland, Portugal, Spain, Italy, Greece). These latter countries failed to take advantage of the opportunities offered by the common currency to carry out the kinds of structural reform needed to raise their long run growth potential, and instead they simply used to cheap money available to get themselves hopelessly in debt. At the same time the crisis has revealed significant weaknesses in the institutional structures which lie behind the monetary union, weaknesses which go way beyond the ability of some members to fail to play by the rules when it comes to their fiscal deficits. Steps are now being taken in a night-and-day non-stop effort to try to put the necessary mechanisms in place, but it is a race against the clock, and it is not at all guaranteed that the attempt will be successful, especially if the volume of liquidity about to hit the global financial system drives the euro onwards and upwards beyond supportable limits.
Saturday October 30, 2010
FINANCIAL TERRORISTS: Federal Reserve [PRIVATELY OWNED] and Citibank
UNITED STATES of America - It can now be reported that the criminal banking elite that occupy America are once again involved in major financial criminal activity that involves NON-margined bogus electronic trading and terror threats aka "False Flags" designed to promote the financial agenda of this criminal banking elite.
Note: The U.S. Federal Reserve is currently considering a new round of proposed economic stimulus known as "QE2". This alleged stimulus program involves purchases of U.S. bonds.
Translation: QE2, which was recently defined as nothing more than a Ponzi Scheme by Bill Gross of Pacific Management Inc., is nothing more than a back door bail out of the criminal banking elite aka Goldman Sachs and U.S. Citibank.
QE2 actually involves the purchase of various mortgage-backed securities aka derivatives that are commonly known now as toxic assets.
These derivatives are now used as margin aka collateral in various electronic high frequency trading platforms parked in various offshore trading locations.
Item: None of these financial transactions aka trades involve any actual denominated currency that is used for margin aka collateral for these transactions.
So the question is: What is being used as margin and collateral by the criminal banking elite in these alleged trades aka spoof trades.
The answer is Letters of Credit from numerous banks across the world in which the Letters of Credit are flipped from one bank to the other on a nightly basis as to effect the price fluctuation in the worldwide financial markets.
Now we are going to deal with yesterday's chronology in what we will define as "Financial Terrorist Activity".
Item 1. At exactly 7:47 a.m. EST on 10-29-10, two massive electronic trades were placed aka purchases of December gold Comex futures that pushed the price of gold up $9 in less than 50 seconds (1343 to 1352).
Reference: This type of price fluctuation on what is commonly known as the night board trading session is unprecedented.
Again, the trades took place 7:47 a.m. EST and gold Comex futures begin actual day session trading at 8:20 a.m. EST.
We can now divulge that these trades originated simultaneously at 7:40 a.m. EST from trading platforms in Dubai (United Arab Emirates) and Mumbai, India.
And, it gets worse!
The conspiratorial out-of-control, PRIVATELY OWNED Federal Reserve leaked the GDP report on the U.S. economy to its business partner, Goldman Sachs, at exactly 7:47 a.m. EST on 10-29-10.
Reference: Goldman Sachs, who along with the Federal Reserve, have a 3-second lead time on all overnight electronic trading, immediately piggy-backed these Comex gold trades.
Of course, folks, this is illegal. It is called "electronic bucketing".
Note: At this hour, the U.S. Senate Banking Committee is allegedly investigating this financial chicanery, as well as the relevant financial regulatory bodies that oversee financial trading transactions.
Let's hope that Christopher Cox, formerly BushFRAUD SEC Chairman, and Bernard Madoff are not sitting on the Senate Banking Committee.
This direct manipulation of gold and silver prices by the Federal Reserve and Goldman Sachs was designed to 'bail out' Citibank and the Saudi oil interests that currently hold billions of dollars of cross-collateralized EURO currency, gold and silver, gasoline, and crude oil derivatives tied to Citibank with Goldman Sachs being none other than the counter party to the derivatives.
Reference: 80% of Citibank stock is owned by none other than the Saudi Royal Family.
10-29-10 chronology continues
Midway through the Comex trading day session, during the regular Comex session, the corporate-controlled, fascist, extortion-friendly U.S. media began to bombard the airwaves with an alleged "terrorist" threat aka "False Flag" originating out of the nation of Dubai, United Arab Emirates, that dealt with an alleged explosive device in an ink toner cartridge on a UPS aircraft that allegedly flew out of the Yemenite capital Sanaa.
This video still allegedly shows the ink toner cartridge found in a package aboard a UPS cargo plane
that made a routine stopover at East Midlands Airport in central England yesterday. Photo: CNN/AFP
Fact: There is NO record of any cargo flight, including UPS and Federal Express, leaving the Yemen capital or anywhere in Yemen in the last 48 hours.
Fact: CNN had originally reported that the explosive found in the ink toner cartridge was benign.
Fact: The source for the current information and alleged evidence dealing with this incident is none other than the Dubai Police aka the Israeli Mossad.
With the eyes of the world on Yemen and officials pointing the finger squarely at the al-CIAda in the Arabian Peninsula (AQAP) group based in the nation’s south, Yemen’s government is cautioning against jumping to conclusions, and denying that the bomb plot packages came from Yemen at all.
A Yemeni official told Yemen Post that no U.S. cargo aircraft of any American company flew out of Yemen over the last 48 hours. "Whether UPS, Fed Ex, DHL or any other U.S. cargo company left Yemen over the last 48 hours."
One can only laugh at the desperation shown when a government resorts to “terrorist threats” whenever it needs to garner enough support for its sinister plans.
Mohammed al-Shaibah, Air Cargo Director for Yemenia Airways said to Yemen Post, "No UPS cargo plane left Yemeni lands over the land 48 hours. These accusations are false and baseless." He added, "No UPS or DHL cargo packages heading to Chicago through Yemen took place in the last 48 hours as well."
Question: Did the Dubai Police visit the noted Dubai trading platform before they began their investigation of this alleged "terrorist" incident aka "False Flag"?
The effect of this "False Flag" terrorist scare was to further the financial interests of the noted criminal banking elite. As soon as the terrorist scare hit the airwaves and news wires midway through the New York Comex trading session the price of gold, silver, gasoline and crude oil began to escalate. This was to enhance and disguise the derivative holdings of Citibank and, in effect, increase the balance sheet holdings of Citibank in advance of the Federal Reserve's decision concerning their stimulus package aka QE2.
P.S. At this hour we can report that Yemenite officials are holding two female suspects that relate to this alleged terrorist incident aka "False Flag". They were both traveling in Yemen on foreign passports and may have links to Saudi Intelligence and the Israeli Mossad.
We can also divulge that French Intelligence has absolutely confirmed, after reviewing the manifest, that NO cargo flights left Yemen in the last 48 hours.
The question is, where did the flight originate from?
The answer is: There may not have been a flight at all!
We now see how financial and political interests across the world have combined their forces in waging what is now FINANCIAL TERRORISM using bogus electronic trading and "False Flag" terrorist threats to enhance their globalist agenda.
They, of course, are assisted by the corporate fascist, Federal Reserve controlled, extortion-friendly worldwide media consortium aka FOX News and Bloomberg News.
So you see, folks, we have media "terrorists" too.
P.P.S. Question: Have you heard any politician in the United States, Democrat or Republican, talk about this overt financial terrorist war being directed against the American People by the out-of-control, PRIVATELY owned Federal Reserve?
The answer is: NO!
In my opinion there is only former California Governor, now Democratic gubernatorial candidate Edmund G. Brown Jr. aka Jerry Brown....?
...Dozens of Israeli Navy Commandos of Yemeni origin are roaming Yemen for years...
All the gas volumes have either been contracted, or have been formalized in binding obligations 
By: 
