Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By Broad Oak Blog (Reporter)
Contributor profile | More stories
Story Views
Now:
Last hour:
Last 24 hours:
Total:

It's not about the banks

% of readers think this story is Fact. Add your two cents.


Like Scarlett O’Hara in “Gone With The Wind”, the banks believe their happiness trumps everyone else’s. The web of bank debt and sovereign bonds has come to dominate the agenda, to the extent that Italy’s government can be dismissed by foreign interests and replaced by a wholly unelected cabinet. ‘This is not the time for elections but the time for actions’, said Herman van Rompuy; no Abraham Lincoln he.

Not all banks have misbehaved, but many of the largest now appear to be ruined enterprises, determined to take rest of us down with them. I cannot explain why our politicians have poured resources into these colanders, except in terms of self-interest as current or future workers for the money establishment.

The banks’ self-absorption is assisted by news media such as the BBC, with e.g. their latest interactive infographic on the Eurodebt nexus. Here are some of the results, recast as a table – ranked by external debt to GDP:

The pundits’ talk is of the PIIGS, yet after Ireland the second worst case – by a long way – is the UK.

Something is wrong here. It’s not the facts (though in a fiat currency world, I’m not quite sure what a financial fact is), it’s the perspective: we’re forgetting to look at the balance sheet, i.e. the net international investment position (NIIP). Leslie Cuadra did this on Financial Sense at the end of August, and it paints a rather different picture. Of the 40 major countries he surveyed, the US is at the bottom, and Spain next up. Greece’s position is much better, scarcely worse than that of France. Hmmm…

Let’s widen the view a bit further. Here are Cuadra’s figures, reinterpreted in the light of the IMF’s data on GDP (click to enlarge):
This arrangement chimes better with our level of concern, at least with four of the PIIGS; yet it leaves us wondering why democracy has suddenly been abolished in Italy. And why are we worrying about Japan, when she looks so good on these rankings?

It would seem that there is no one picture that tells the whole story. And that, I would suggest, is because there are many stories, many competing agendas. There’s a sort of economic Great Game going on, with a full cast of tyrants, traitors, spies, revolutionaries and dumb foot-soldiers pepper-spraying harmless women. It is a time of great and unpredictable change, which is why gold has soared and the people are stocking their cellars and buying ammo faster than it can be made.

An increasing concern, for me at least, is that the system (if it is a system) may not be able to contain this degree of instability, or at least, some parts of it are more vulnerable to fluctuation than others . If I may offer a pictorial analogy?

Equilibrium can be achieved at many different energy levels, and this has implications for the participants. If one of the mice hops off, there may be no effect at all, given the friction in a real-life device. But if Jumbo dismounts abruptly, Nellie will be lucky to avoid a broken leg, not to mention a possible smashed plank. And if Jumbo then playfully steps on one end of seesaw A, we’re looking at a mouse in temporary low orbit, which is pretty much what happened in Iceland, Ireland and Greece.

Similarly, economic interconnectedness carries asymmetric potential perils, as shown in the table below, which uses the latest NIIP figures from the IMF’s database (click to enlarge). For a small economy like Greece, a trifling sum such as $100 billion (a mere seventh of a TARP) represents around a third of national GDP, whereas the same sum is only about 3% of Germany’s – chump change, almost. So it would be very easy for rich countries to forgive quite a lot of the debts of poor ones, and very beneficial for the recipients, especially those who have liabilities far exceeding their assets.

It would also be interesting to know to what degree, and in what ways, countries like Germany have benefited from tying peripheral European nations into the Eurozone. Perhaps it would be incautious of them to overplay, or over-rely on, the Protestant work ethic story in accounting for their dominance.

But the international web of finance has a further danger, for large and small economies alike. Those who are balancing mice, such as Russia (or even China, come to that) would not suffer a massive alteration to their NIIP if asset or liability valuations changed by a few per cent; whereas a 10% valuation change for the UK means a boost or hit of two-thirds of GDP. Compare that with Austria, which has about the same negative NIIP in GDP terms, but which is balancing smaller figures.

One invests to get a return, and unless it’s an in-and-out speculation the return is in the form of interest, dividends or rent. If your assets suddenly shrink – say because of relative movements in currencies – your income stream is pinched; if your liabilities swell, your outgoings become more burdensome. Clearly, Britain is exceptionally vulnerable to exchange rate fluctuations; but to a lesser extent, so are other countries such as Germany.

With share speculation, the growing volatility in the system can be insanely profitable for the gamblers – whose activities, far from being part of the steadying mechanism, may instead become a feedback loop that ends up smashing the engine. Andrew Haldane’s July 2011 presentation to the Bank of England (“The race to zero”) warned that as program trading in equities develops it will, mathematically, lead to more and worse “flash crashes”.

But the bond market is much bigger, and the derivatives market is maybe 20 times world GDP. Never mind elephants, this is more like balancing two pods of blue whales. There’s no room for error and there must be a political will to de-escalate. Sadly, I don’t see it happening, yet. And it won’t, so long as we think that the banks must be saved at all costs, together with their trading rooms.

INVESTMENT DISCLOSURE: None. Still in cash (and index-linked National Savings Certificates), and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Read more at Broad Oak Blog


Source:


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Lion’s Mane Mushroom Nootropic

Mushrooms are having a moment. One fabulous fungus in particular, lion’s mane, may help improve memory, depression and anxiety symptoms. They are also an excellent source of nutrients that show promise as a therapy for dementia, and other neurodegenerative diseases. If you’re living with anxiety or depression, you may be curious about all the therapy options out there — including the natural ones.Our Lion’s Mane WHOLE MIND Nootropic Blend has been formulated to utilize the potency of Lion’s mane but also include the benefits of four other Highly Beneficial Mushrooms. Synergistically, they work together to Build your health through improving cognitive function and immunity regardless of your age. Our Nootropic not only improves your Cognitive Function and Activates your Immune System, But it benefits growth of Essential Gut Flora, further enhancing your Vitality.



Our Formula includes: Lion’s Mane Mushrooms which Increase Brain Power through nerve growth, lessen anxiety, reduce depression, and improve concentration. Its an excellent adaptogen, promotes sleep and improves immunity.


Shiitake Mushrooms which Fight cancer cells and infectious disease, boost the immune system, promotes brain function, and serves as a source of B vitamins.


Maitake Mushrooms which regulate blood sugar levels of diabetics, reduce hypertension and boosts the immune system.


Reishi Mushrooms which Fight inflammation, liver disease, fatigue, tumor growth and cancer. They Improve skin disorders and soothes digestive problems, stomach ulcers and leaky gut syndrome.


Chaga Mushrooms which have anti-aging effects, boost immune function, improve stamina and athletic performance, even act as a natural aphrodisiac, fighting diabetes and improving liver function.


Try Our Lion’s Mane WHOLE MIND Nootropic Blend 60 Capsules Today. Be 100% Satisfied or Receive a Full Money Back Guarantee. Order Yours Today by Following This Link.

Report abuse

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    Total 1 comment
    • Anonymous

      The banks have to survive or their depositers might go bankrupt too. Banks buying government bonds have the right to expect repayment. It’s that simple. Governments don’t have the right to rob the banks to fund their spending excesses.

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.