Saturday, June 25, 2016

And In Darkest Tasmania. The Horror......

It's deja vu all over again.” (Yogi Berra)

Who could forget that moment in a classroom full of little black girls when the heroically unfazed or utterly clueless George W. Bush got the whispered word on 9/11?   He sat looking on quietly and stayed to fidget with and famously to read a chapter from the now famous “My Pet Goat“ to the kids.

Well, I personally forgot. My own memory had him looking up with a mix of shock and triumph, as if he had instantly grasped the significance; which was that he would be comfortably re-elected to enjoy unfettered spending and personal power as a 'wartahm president'.   And that he had then settled comfortably back to the book without bothering to have the airforce scrambled, appropriate red alerts issued, airports and government buildings locked down and commercial flights suspended including that of the scarpering Bin Laden family.

The shock Brexit vote has upended the markets; which had previously discounted the affair; it was to be business as usual thanks to the failure of pundits (and more inexplicably bookmakers) to notice the existence of inarticulate, uninformed aged, unemployed or working classes in regional England.  Did our own silver-spoon end -of- term somewhat brighter Prime Minister instantly twig to the chaos that would play into his electoral hands?

Only the coalition has the economic plan in place and credibility yada yada..... “

So he is to be a Depression Prime Minister.  Public demand will see to it that any remaining credibility on budget balancing will not tie his hands.   Conservative governments are often cursed by gaining office in hard times. That initial certitude, dignified restraint and responsibility is comforting to most until they discover the real upshot: for true believers ideology trumps everything but self- interest and between elections it will be business as usual, cutting services while throwing public money at already leveraged, friendly zombie corporations and every spiv who blows in with grand ideas to 'make jobs, and 'get the economy moving again.'  And of all the states Tasmania is an especially famous destination for such all over the world; where venture capitalists (if you can still call them that) supply ownership and unaccountable management expertise while the public supplies workers AND capital in return for growth and jobs; facilitated by elected party machine mediocrities.   But for a while Turnbull will fill the bill. Although the trogs in the party suspect his liberal inclinations he is still a very attractive candidate, as was Herbert Hoover – a potentially great man in the wrong place at the wrong time with the wrong paradigm.  Austerity and economic rationalism just didn't cut it when unemployment reached 30% nor was there a social security net.

All this is not to say that Brexit will be the cause of another financial crisis.   It's still the same old, the last one never went away nor did or could the governments of the world bite the bullet with meaningful reforms to themselves, institutional practices
and central bank ideologies.  But any coincidental but significant event that imprints on human consciousness like the crash of '29 is automatically assigned the blame. You can take that anywhere, like why not pin the whole mess on the bellboy who told Rockefeller to buy RCA in the lift; famously initiating his well- timed sell orders. In fact it was already written in stone and needed only Chaos Theory's 'flapping of butterfly wings in the Amazon.'

The interesting thing about the volatility following Brexit isn't so much the drop in share market indices but a more telling yield spread on German vs. Italian 10 year notes, the German yield now -.1 % from +.1%, the Italian equivalent 1.3 up to 1.5 percent which is a change of 40 basis points, (.4 of 1%) for a total spread of 1.6%.  Over 10 years that reflects significantly on book values of these things held by financial institutions.   So the market is announcing internecine frictions: yet more trouble for the PIIGS to finance deficits, more responsibility on Germans and French taxpayers to shore up weaker member states, more pressure from and on same to commit to austerity, PIIGS to bail so as to fly, large institutions to bail who made the wrong bets on expectations of community support; price fixing and on it goes. The Grexit kerfuffle was only the beginning.

Everybody's stylish young facebook friends in that hemisphere are gutted. The old and the ignorant have broken the dream of a united Europe, which is disturbing when you remember Coventry, Ypres and the Somme.   But like Walt Kelly's Pogo said, “We have seen the enemy and he is us.” Or the fatted fools in Bruxelles and our own faith or toleration of the same. To quote another commentator, the well-known Richard Smiley:

“Of course the world markets went a little wild on the news. This will pass. I want to say a word in favour of small.

“Does anyone really believe that the EU will dare punish Britain for voting to leave? In the days of interlocking economies, that would be shooting yourself in the foot. There are also a number of other countries that are planning their own exit votes, and I highly doubt that they would support onerous conditions being imposed on Britain which they themselves would have to swallow in the future. The world has hundreds of years experience in dealing with relationships between nation states: lessons learned through bitter experience and countless failures. If there is anything that we have learned from all this it is that one size doesn't fit all, that the potential of advancement through diversity is still not exhausted and is unpredictable.

“We are now asked to believe by the EU diehards that the artificial creation of a United Europe, the fruition of the dreams of many politicians, political scientists, and economists (three groups of people that I wouldn't trust as far as I could throw them) somehow both foresaw and prevented all possible permutations of failure and crisis, and its unraveling will mean the end of the world as we know it; a disaster for the region.

“Ask yourself a few simple questions: Did the EU prevent the banking contagion of 2008-9 or any of the other crises that have hit the world economic scene? The profligate economic policies of the states of Southern Europe? The destructive austerity imposed by the European Bank on these countries? The answer is no to all. If fact, they made it worse. The regulations promulgated in Brussels not only didn't prevent our sociopaths and psychopaths in the multinational banks and governments from gambling, they enabled them to increase their activities to the point that for normal people, the numbers no longer have any meaning. The notional value of derivatives - what has to be paid out if the gambling bets ever have to be paid off - in the global economy have ballooned by another 20% since 2008 to over 700 trillion dollars, and in some circles are believed to be twice that. The banks have become too big to bail out in the event of a crisis. Now ask yourself another question: What is the chance that there will never be another crisis?”

Another crisis? My own personal estimate is 50/50 in the next 6 months. $220 trillion actual corporate, consumer and govt. debt priced for crazy low yields such that the principles of longer government debt are leveraged for 50%, others risk up to 100% losses if you consider the 2008 failure even for SGE's like Fanny Mae.   This is only measuring against normal market rates WITHOUT considering panic spikes, currency collapse, derivative failures and fractional reserve privileges enjoyed by the financial institutions of the world. The US Fed, Euroland and Japanese central banks have no more interest rate bullets at zero percent (ZIRP and NERP) outside of desperate and massive quantitative easing as purchasers of last resort to hold the line. 

And yet on July 2 our pols want it all and so bad, still.   Maybe those 100 thou indexed pensions will still be there after retirement. But not if they have to give me back my stinking 70 bucks a week and yours.

Last night I had risen in the small hours to a crazy vibration in the ceiling, a ragged thrumming followed by a similar pause; incessantly, like someone snoring.  It was a rat in a cage trap and I had never heard anything like it; normally they only make random scufflings.   I climbed up a ladder to the ceiling hatch and he snapped at my arm through the mesh as best he could - several times as I reached over for the handle.  This morning I pulled the cage out of the frogpond and tried to reconstruct the noise.  My conclusion was disturbing – he was big and obviously old enough to know the score and he must have been concentrating exclusively on the door, grasping the bars with both hands; shaking furiously then pausing momentarily to recover his strength, just like a man.  Raging yet focused; never losing hope.    But there could be no raxit.

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