Canadian banking haven myth exposed

Canadian banking haven myth exposed

"One of the reasons that Canadians (and international commentators, other finance ministers and global financial institutions) buy this Canadian banking fairy tale is the way the government accounts for the money borrowed to support the banks." The sorry spectacle of Conservat

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Get rid of your mortgage, loans, because interest rates set to rise

Get rid of your mortgage, loans, because interest rates set to rise

Get rid of your loans, guys and gals, because we are going into a high interest rate period. Very high. It will be the equivalent of going into the double digit interest rates we had in the 80s where many people threw their house keys at the bank and we had record numbers of ba

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E-cigarettes save lives, money

E-cigarettes save lives, money

"We know that cigarettes have thousands of chemicals in them and we know that they are killing us. They have been for over a hundred years. So now, the e-cig industry comes along with only one or two chemicals in their mixture and people are freaking out over these as well. Whe

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US inches closer to big bank charges

US inches closer to big bank charges

Federal prosecutors are nearing criminal charges against some of the world’s biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades. In doing so, prosecutors are confronting

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Canada’s home sales top predictions; why a real estate crash is inevitable

Canada’s home sales top predictions; why a real estate crash is inevitable

“The assurance of relatively low borrowing costs has likely given home buyers confidence while rising home values have kept new listings at a healthy level. Stable employment has provided some assurance to owners and buyers alike.” Our website is back after many months of

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Comparing today’s recession/depression to the 1980 recession

Comparing today's recession/depression to the 1980 recession

"Much like today, Americans were concerned not only with high unemployment but increasing budget deficits in the early 1980s. A September 1983 Gallup poll found that three-fourths of the public agreed that the federal government's budget deficit was a great threat (42%) or some

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Why savers are getting screwed

Why savers are getting screwed

"Without the intervention of economic policymakers, interest rates would be naturally higher. That would increase the cost of borrowing for businesses and consumers, but there would be some offsetting economic benefits. Savers are getting screwed by the current monetary policy

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Geithner admits USA bankrupt to US Senate

Geithner admits USA bankrupt to US Senate

"Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses

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World economies on verge of currency revaluations to deal with debt

World economies on verge of currency revaluations to deal with debt

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford Basically what the world central banks are doing is increasing their money by devaluin

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Is Obama the next Mugabe of Zimbabwe?

Is Obama the next Mugabe of Zimbabwe?

"America, Britain, Japan, Germany, France, Sweden, Holland, Norway, Canada and Australia make up the Fishmongers Group and their meeting on Tuesday will deliberate on the state of the inclusive government, debt relief, public finance administration and the controversial economi

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US raiding foreign countries with dollars, not soldiers

US raiding foreign countries with dollars, not soldiers

""The United States is going to China and saying: we want you to commit economic suicide, just like Japan did. We want you to follow the same thing: we want you to revalue your currency, we want you to squeeze your companies, we want you to go bankrupt,” says Michael Hudson,

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FDIC wants your retirement cash to save banks: Bloomberg

FDIC wants your retirement cash to save banks: Bloomberg

“The FDIC is constantly looking at structures where we can get the greatest opportunity to tap into capital that we have not had the success reaching through previous disposition methods,” FDIC spokeswoman Michele Heller said in an e-mailed statement. “We welcome and work

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21st century depression closed factory

“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.” — Benzinga

That’s what Paul Krugman says is on the horizon.  In a sobering article in Sunday’s NY Times Mr. Krugman says policy errors are leading us right off the cliff:

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”

Regular readers know my position.  I never thought the secular bear ended or that the credit crisis was over.  This has become abundantly clear as unemployment has remained stubbornly high and the credit crisis evolves into a full blown sovereign debt crisis.  The recent evolution of the Greek crisis and scare mongering of certain market participants is almost certainly walking us off the edge of the cliff.  Policymakers have misdiagnosed this crisis from the very beginning so it’s not surprising to see them continue down this same path.

china usd trade debt graph

It’s unfortunate that this is all unraveling with Greece at the epicenter.  Policymakers have utterly failed in understanding that the Euro currency system is fundamentally different from the others around the globe – specifically in Japan, UK and USA.  We’ve all become convinced that we are the next Greece (which is utterly insane).  The Euro crisis is staggering and beyond frightening in my opinion.  As I have maintained for years there is no true fix in Europe that doesn’t include full unity (a United States of Europe – which is impossible) or partial or full restructuring (full restructuring is inevitable in the long-run in my opinion).  There is no bailout that can fix the inherent flaws in the single currency system.  It is destined to fail in my opinion.  That’s a terribly frightening thought and the Euro’s death might very well be on our doorstep.  A swift death would be preferable in my opinion.  Unfortunately, I see this crisis playing out for a very long time as politicians hang on to their Euro baby for as long as possible.  The first step in rehab is always admission.  We’re not even there yet.

Sometimes this feels like a terrible dream to me.  It’s as if we are reliving the gold standard days all over again when countries realized the inherent restraints imposed on their nations via this foolish currency system.  Many are arguing that austerity is the only way out of the Euro crisis, but austerity is already proving futile in countries that have undergone austerity measures.  Exhibit A is Ireland where their budget deficit continues to expand.  The same will occur in Portugal, Italy, Spain and Greece where austerity measures are in the works.  Unfortunately for the Europeans this is a currency problem and not just a budget problem.   Europe appears doomed in my opinion unless a true currency fix is implemented.  That alone could bring us all to our knees.  Unfortunately, the problems don’t stop at the borders of Europe.


The Japanese, in fact, did exactly what the current US administration says it is doing. They kept their budgets balanced, maintained a tight monetary policy, and waited for the market to finish correcting itself. However, here’s the thing: it didn’t. They waited so long before doing anything that demand just died, and without lower interest rates spurring investment and without a devaluing currency encouraging exports, it continued to die. Only when the Japanese dropped their interest rates, spent huge amounts on public works to increase demand, and – and this is where i think we can both agree the US has gone wrong – let failing banks fail, only then did Japan emerge from a decade of stagnation.

The mistake the Fed and the US gov is making is not their expansionary monetary policy, which is needed to spur short-term demand and also to devalue the dollar a bit so US exports are more attractive, nor is it their stimulus. Those policies are meant to smooth out a recession, to make the peaks less high and the valleys less low, and they did this job quite well for decades.

It is three things: stupid deregulation, crony capitalism and corporate welfare on an epic scale, and Alan Greenspan’s policy of leaving interest rates ridiculously low, even in boom times, that caused this recession, and it is the first two that are going to make it worse.

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This entry was posted on Monday, June 28th, 2010 at 7:57 am and is filed under Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Comments

  1. July 1, 2010 @ 2:17 am


    There is no ‘absence of jobs’, only a surplus of people in relation to the livelihoods on offer. The equation has one variable, i.e. the number of people.

    Posted by Adelaide_girl
  2. January 30, 2011 @ 5:52 pm


    all government are so stupid and faviring the rich and they keep making study how stupid we are

    Posted by raymond

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