Nowhere to hide while losses spiral out of control. This is the mark of the derivative beast.

http://www.bloomberg.com/apps/news?pid=206...&refer=home
Washington Mutual to Take $1.6 Billion Writedown, Cut Dividend

Dec. 11 (Bloomberg) -- Washington Mutual Inc., the biggest U.S. savings and loan, will write down the value of its home- lending unit by $1.6 billion in the fourth quarter and cut about 6 percent of its workforce as mortgage-market losses increase.

Washington Mutual, led by Chief Executive Officer Kerry Killinger, also slashed its quarterly dividend to 15 cents a share from 56 cents and forecast a loss for the quarter, according to a statement yesterday from the Seattle-based bank. Provisions for bad loans will be $1.5 billion to $1.6 billion, more than the $1.3 billion the company previously predicted. It plans to shutter 190 of 336 home-loan centers.

They want to save the system, but they can't.

The only result of their desperate actions will be total loss of purchasing power of all currencies.

This is 100% correct, guaranteed.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Dec. 11 (Bloomberg) -- The Federal Reserve will probably cut interest rates today and lay the ground for more to prevent the economy from sliding into recession.

The Federal Open Market Committee will be loath to repeat language from its last meeting that risks between inflation and growth are ``roughly'' balanced, economists said. Keeping the phrase would open officials to criticism they're oblivious to the credit squeeze that's threatening growth.

``They pretty much tried to draw a line in the sand by going to a balanced-risks statement at the last meeting, and now the world's changed,'' said Keith Hembre, who used to work at the Fed and is now chief economist in Minneapolis at FAF Advisors Inc., which manages $105 billion. Officials will ``leave themselves the opening'' for further cuts, he said.

I should start to claim royalties.

http://www.telegraph.co.uk/money/main.jhtm...11/ccubs111.xml
Sub-prime monster pounces on UBS

Last Updated: 1:23am GMT 11/12/2007

UBS's latest $10bn writedown reminds Philip Aldrick of a horror movie - but which will be the next big bank to fall prey?

Sub-prime might just be the financial world's equivalent of a hammy horror film. Just when the beast looks dead, up it gets... again and again and again. Sub-prime, to coin a clichéd catchphrase, is back with a vengeance. Yesterday's victim was UBS, Europe's largest bank, taking a $10bn (£4.9bn) hit on top of the $4.4bn writedown disclosed in October. The question now is: where will sub-prime strike next?

CGNAO having read your posts for some time I am troubled by your hyperinflationary scenario as are a few others on this site. So I decided to spend a bit of time researching the Japanese recession of the early nineties and the more I read the more it seemed to me that history is repeating itself.

The one thing that Japan has that we in the UK do not have is a manufacturing sector that is in demand around the world but inspite of that it still fell in to a serious recession (wither our miracle economy).

The things that seem to be being repeated are

A large increase in non performing loans
A credit crunch
A rush to repay debt leading to a massive reduction in consumption
Indebted banks becoming highly risk averse

Since the inception of the Japanese recession the rest of the world has been preventing Japan from a catastrophic depression by reducing interest rates and increasing demand for thier products had we not done this for the last fifteen years Japan would have sunk to oblivion.

Inspite of International debt fuelled demand for Japanese products and stricter employment protection than in the UK or US thier economy has still been in trouble for over a decade. Who is going to our rescue? Who is going to buy our exports?

The question I have been asking myslef and on here is who is going to put the money in our pockets to create this hyperinflationary scenario. The Japanese scenario suggest that if you give people more cash they will pay down thier debts rather than use it to consume this then becomes a downward spiral.

Most people believe that commodity prices are frothy due to speculation and these speculators are now hurting and will have to start to repay thier debt. The Japanese scenario also suggets that the credit crunch will lead to a contraction in the money supply as there was a sudden reduction in the demand for new debt.

This is not the seventies with strong unions who are able to exert massive pressure on the Government globalisation is in charge which means the Chinese could buy Rio Tinto or BHP sack all the staff and relocate head office to Shanghai this would not have been possible or plausible in the seventies.

For those who are interested a link to an interesting (if bad english) paper on the Japanese recession it all gets a bit technical but might give some insight to what we maybe facing.

Japan recession

I think a global recession/depression is about 60% correct guaranteed

By the way I enjoy your posted links to other peoples work but I miss your own thoughts. You have helped to show people the gravity of the situation but I can't agree with your hyperinflationary conclusion.

No hyperinflationists have shown me the actuall mechanism for this outcome to occur no doubt you will be able to set me straight.

nice post gravity always wins.
I haven't read your japanese link at the time of writing this but I am aware of the circumstances surrounding their land price crash.

My immediate thoughts are that we are seeing some high-inflationary issues right now arn't we ? (which could change into hyper bearing in mind that we have just started the bad phase, so to speak) massive monetary injections into 'the system' these are supposed to be paid back aren't they so they don't actually exist long term & shouldn't cause any inflation woes BUT they are not being paid back imo therefore they are inflating that 'systems'(whoever's borrowing it) fiat & thus devaluing it at the same time ?

then we have very high inflation in food, services, oil etc.

so STAGFLATION is the outcome ? high inflationary pressures in some assets & deflation in others, like property & stocks ?

I am by no means an economist btw & I'm sure cg can answer this for himself. These are just my thoughts on what I am seeing 'on the ground' & from what I have learnt.

please correct me if I am wrong.

There has never been a contraction in M3 money supply in Japan. See attached file.

One thing to bear in mind when comparing with Japan is that you are doing so over a period of time under very specific world circumstances - one in which the canning of production in the west and shifting it to China led to cheaper production and thus dragged down inflation. Under those circumstances Japan got away with zero rates, I doubt they would have under higher general inflation.

That is why I say that simply lowering rates and promoting more infaltion is going to kick more people in the nuts than it will save and there will be more forced sales, more debt problems and a bigger collapse as a result.

My Problem with the Japanese deflation scenario presented in isolation, was that massive re-inflation DID OCCUR. Thing was, it didn't occur domestically in Japan, the inflation was EXPORTED to the rest of the world - the Carry Trade. Rather than reinflating already depreciating assets, the cheap money from the BOJ (and Japans' domestic savings) went to foreign assets that were still rising elsewhere in the world, and foreign debt in currencies with high yields (like the $NZ). And this is the problem. Government tries to reinflate, but they cannot control WHERE the money goes. Noone wants to catch the falling knife with borrowed money. So the cheap money ignores the newly burst bubbles and flows to wherever there is still a profit to be made. Energy, commodities, and/or food perhaps- whatever is still rising there the money will go. So when the tech bubble burst and the fed re-inflated, the housing market took off instead. The tech bubble never did a sudden about turn, and neither will the housing market. Hyperinflation in other assets is indeed possible IMO. Its not 1929 anymore, we are not on the gold standard anymore. Its all a question of How far Governments will go. If Central Banks were to start accepting en masse the toxic debts of the banks as collateral for loans at something much higher than their fair market value (ie, monetizing the debt), we could see hyperinflation easily enough. Velocity would go up again as banks would again be flush with liquidity (after unloading their burdens onto the taxpayer) and faith in the store of value of the currencies falls. In fact they've already started tentatively down this road. IMO basically, whether we have inflation or deflation, or a mix of both, is really a question of Central Bank policy - To trash the currency or trash the economy. The feel the full pain sooner or later. Assuming they have a choice, which do you think they would choose?

I stand corrected on that point. (domestically the money supply was non existant though) and yes the supply of money went abroad carry trade but that is a one trick pony isn't it?

But still no answer as to how indebted governments, Banks, Companies and individuals are all going to maintain the current levels of global consumption. Or are we all going to get massive pay rises next year? Will the Investemment Banks have the money to speculate on commodities?

Come on you hyperinflationists show me a road map as to how we get to this scenario. will the BRIC nations take up the slack? Will only the dollar and pound plunge? If we consume less of the BRIC nations resources are they going to consume it themselves? Will the government turn protectionist and guarantee all jobs? Will China carry on exporting and if so who to?

Unlike many on this forum I am open to opinion and am putting my head above the parapet. Shoot me down by all means but explain nicely (and simply) why I am talking s**t

I understand what you are saying but the global capacity to take on debt must surely be diminishing rapidly Japan had a number of inflating economies to soak up its money who will we have?

Do you think the Central Banks will be able to monetise thier debts at the expense of the tax payer (which means a higher tax burden) without giving something in return (credit contols for instance). I can't see the Banks being let off lightly this time.

I can't assume any longer that Governments or central banks even know the outcome or have a choice in this matter we are all in unchartered territory which is why we need to work logically through some scenarios.

Trashing the economy or trashing the currency in Japan or the US that may have two different outcomes but in the UK that probably leads to the same thing.

you put that so much more eloquently & precisely than I could drminky. I appreciate that you focused more on the Japan reference more than myself, perhaps I should have made reference to the carry trade, the problem is that I don't fully understand it's impact tbh.

good post.

ps - if anything changes on the 'flooding the system with liquidity' approach that seems to be apparent at the moment, then I would alter my pov to suit obviously. I am not rigid in my views, you can't be as things change.

Who knows what might happen next eh ?

Banks trading insolvently aren't being flooded with liquidity they are being propped up surely?

exlain the difference, no jargon though, just straight talking so that everyone can understand. **edit** sorry, I didn't mean to sound ar$ey with that sentence. I just know that you have a very good understanding of economics & most of us are novices.

it's also worth bearing in mind that we really don't know how much money is going into the system & where it's going imo.

Just remind yourself of 2-3 months ago. We had no sub prime & no issues with the housing market. This months 20 billion could be next months 100 bilion.

OK suppose I owe 10k and some one lends me £10k I can keep my head above water eg I am solvent just. but I owe £20K and am using the £10K to service the debt. I could just carry on as normal but the person who lent me the £10k the tax payer is going to take a very dim view of me using it to ramp up the price of items the tax payer uses in thier every day life. Nor are they going to be happy if they are allowed to go on another lending boom as some here think.

Suppose I owe nothing and someone lends me £10K well sh*t within reason I can do what I like. Invest in debt, commodities booze fags or whatever takes thier fancy.

Banks trawling the worlds central Banks for a bit of cash are not full of liquidity they are up to thier eyeballs in non performing loans.

This months £20Billion could equally look like £2Billion next year and I think we have had a problem with the housing market for a good eighteen months now.

thanks for taking the time (& choosing me as I am the weakest of the bunch that replied to your earlier post. )

but a nice easy way of looking at it is this:

approx % of the UK populas can't afford their lifestyle at the moment, lets be really conservative with this % figure & call it 10%. iirc I think the stats say 1 in 4 people are severely struggling with their finances.

what's 10% of the personal debt of the UK ?

then factor in the UK populas mortgage repayments, they are due for a reset(started in Sept 07 I believe), 2 million are due to reset in the next 2 years iirc.

do you really need to do the sums. Substitute LIBOR rate BoE rate when making your calculations. Remember to add that extra 4% above for the sub prime people. (we have sub prime now apparently)

you do not have to be a mathmatician or statistician, you just need to apply some common sense.

Ask yourself why it won't happen here, not why it will, then look to the US for reasurrance (or confirmation as the case may be, we owe more per capita head than them......waaaaay more.)

ps - like 'gravity always wins' 'history ALWAYS repeats'

my apologies gravity always wins, it appears I did not read your post thoroughly enough. I can see what you mean now & I mis-interpreted your post, so please disregard my last one.

I see we are singing from the same hymsheet, albeit with slightly different types of music, yours is in tune.

I hope I replied to all the other points adequately.

Not sure of your point above but re levels of debt

I believe some 8 million people are struggling with debt in the Uk and this is during one of the longest periods of economic growth since (whatever period nulabour like to troll out) this figure is going to increase dramatically as companies reduce thier overheads.

Unemployment will rise and consumption will decrease causing a downward spiral but it is not just in this country IMO this is a global credit freeze.

Anyway what is your guess Hyperinflation or deflation because to me it is the most important topic as I want to know what to do with my easy earned property gains

yes, many a long thread littered with ego's I'm afraid, be sure that this one will run & run for the next few years.

I thought deflation firstly, but we have to be careful when we bandy the 'flation' word around & add a prefix to it. I honestly don't understand enough to really argue a good pov, but my gut feeling at the moment is as stated before. High in some assets & deflation in others.

I have read only one book on the subject at the moment.

ps - is that you in the 1st vid on your sig ?

er, yes briefly

I would take those off if I were you gaw, the one with your pic in anyway.
unless you intend agreeing with everyone on this site for the next 10 years.

ps - that's not really me in my avatar pic you know.

I disagree oh!!

I will reserve your 'I Told You So' badge.

Double post. Mea culpa.

Is the choice really as stark as that, save the economy or save the currency? I don't think it is, and not only because "the economy or the currency" is no choice at all, you can't really have one without the other. But if the BoE steers the right course we'll all be here, in five years time, with both an economy and a currency. They'll be bruised all right, but they'll still be intact and functioning.

I agree but it would be nice to know now what path we will be taking to get there wouldn't it?

Good question, in fact pretty much the only question!

House prices are falling, that's good news for almost everyone on this forum. That job's done. But it leaves the issue of how we prevent a housing bubble developing in the future, and at the same time how do we have an economy that keeps us in jobs and able to get some benefit from those affordable properties?

We prevent another housing bubble through tighter regulation of the lending process. No more self-certification, no more 100+% loans, no more x5 and x6 income multiples.

And we keep the economy viable by trimming interest rates, we shore up confidence in the banking system by keeping Northern Rock trading, and we keep a lid on inflation by driving through the 1.9% civil service pay rise.

In the longer term there's some tough issues to be tackled, most importantly how do we re-ignite real productivity growth in the economy? Because without that we're left with nothing more than a debt based illusion of prosperity, which was the pointless exercise of the past decade.

You can argue with it if you want but this won't change the fact that I was, am and will be totally correct, and that central banks are hyperinflating all currencies in a futile attempt to placate the derivative beast.

This is all you need to know and is 100% correct, guaranteed.

http://www.bloomberg.com/apps/news?pid=206...Kc&refer=us
MBIA May Lose Up to $4.2 Billion More on Loan-Backed Bonds, Barclays Says

MBIA Inc., the owner of the world's biggest bond insurer, isn't ``over the hump'' of the housing market rout and may post additional losses of between $2.3 billion and $4.2 billion, according to Barclays Capital.

So what happens when this futile attempt to placate the derivative beast fails or haven't you got that far yet?

Bank runs and exponential price spiral leading to total public loss of confidence in all currencies and a return to a gold backed monetary system by popular demand.

Cgnao, if you allowed for just a little bit of uncertainty in your forecasts then you might be a touch more credible. None of us has the gift of foresight (99.9999% guaranteed!), but by ignoring that truth your theories move from the rational to the supernatural.

perhaps cg is a bit more than just a casual observer though.

The exponetial price spiral is a consequence of a falling currency rather than continued demand?

But if all currencies are falling then everything stays the same?

I still can't see how a world full of fiat debt can suddenly exponentially increase prices whilst demand is falling.

Unless I go into my customers and start demanding to be paid in coffee beans in lieu of pounds

Are you suggesting that cgnao is omniscient?

I would guess that casual obsrver is another poster, possibly banned.

As for why Cgnao thinks that fiat currency can hyperinflate, the answer lies in the fact that you must use it to pay debts. It is not optional until repudiation pushes the cost of enforcement beyond the affordable.

Whether it will or not time will tell.

Here is the code

C= certain
G= guy
N= never-failing
A= About the
O= outcome

There is no uncertainty. Just wait and see.

I think it's 100% guaranteed that you and I are going to die. Is it any less likely that the current financial system won't too ?

I can't maybe it's just me but I hate it when things happen that affect me and I am not in full control of the facts.

C'mon give the dog a bone.

That's a puerile, catch-all argument. By the same token the Church of England is going to collapse, Manchester United's support will dwindle to nil and people will stop listening to Mozart.

correct (although not banned) & Silver Surfer reminds me of someone.

stagnation, wage inflation, 70's references.

what do you say SS, are you CO ?

For those who keep asking where is the hyperinflation coming from, here is one of the sources.

This is 100% correct, guaranteed.

http://www.ft.com/cms/s/0/20c4c634-a81c-11...00779fd2ac.html
Bank co-ops keep US afloat

By Krishna Guha in Washington, Saskia Scholtes in New York and Gillian Tett in London

Published: December 11 2007 20:27 | Last updated: December 11 2007 20:27

A little-known network of government-sponsored bank co-operatives founded during the Great Depression is playing a critical role keeping the private sector US mortgage industry open for business – and some mortgage lenders out of financial trouble – in spite of the brutal slump in the housing sector.

The Federal Home Loan Banks are pumping hundreds of billions of dollars into the mortgage industry in the form of loans against mortgage collateral at a time when purely private sources of finance are offered only at punitive terms for many lenders.

...

The scale of the cash infusion by the FHLBs vastly exceeds the few billion dollars of cash lent to banks by the Federal Reserve through its direct lending facility.

Indeed some officials privately admit that the FHLBs have, in effect, replaced the US central bank as the lender of last resort for the financial system in the credit crisis.

Quality 'Fetch' that Nice one

Thankyou any more morsels like that. If I am going to be kicked in the face by hyperinflation I would at least like to know how it is going to happen. So as to prepare further.

Chuck Schumer (U.S. Senator, Chairman of the Joint Economic Committee) recently wrote a letter to the FHLB Chairman expressing his concern at the amount of loans being made to Countrywide Financial by the FHLB of Atlanta . Atlanta FHLB has loaned $51.1 billion to Countrywide, taking $62.4 billion of mortgages as collateral (78% of CFC's loan book). The FHLBs are meant to only hold genuine 'AAA' stuff, and as Schumer points out, it's hard to believe that Atlanta FHLB has got adequate collateral considering the crap that CFC has been involved in.

If there's a big default on these loans and the public ends up footing the bill then I think cgnao's case for a inflationary bailout in the U.S. will be strengthened considerably.

Schumer’s Letter to FHFB Chairman Rosenfeld

Jim Puplava from Financial Sense thinks they will stem one more reflation. After that, the system will collapse in a hyperinflation (around 2010).

Some Robert Prechter youtube fodder for the deflationists out there.

http://www.youtube.com/watch?v=bDTcXhyy7Ls...feature=related

Exhibit A: debt creation well in excess of economic growth

In doing so they have cushioned the impact of the credit squeeze and ensured that mortgage lending in the US has not come to a sudden stop.
By making vast amounts of cash available on a routine basis against a wide range of mortgage securities, with none of the stigma associated with going cap in hand to the Fed, the FHLBs have reduced the risk of a liquidity crisis at the most stressed institutions.

Analysts say this is one reason why the US has avoided a bank run of the kind that crippled Northern Rock, the crisis-hit UK mortgage lender.

As a result, US mortgage lending continued to grow right through the credit squeeze, increasing at an annualised rate of $732bn in the third quarter.

Madness.

the market is contracting (credit crunch(we don't have to argue that thats really happening do we?)) and yet mortgage lending is up?

This smells very bad to me.