Wednesday, November 9, 2011

The Pale Horse makes money as the market goes up and as the market goes down, you get Death

The Dow fell almost 400 points today and the European markets faired worse as bond rates in Italy shot past 7% and into death spiral territory. The high interest rates trigger margin calls among bond traders forcing sales regardless of the losses. This could also start the derivative avalanche where somewhere in excess of a quadrillion dollars in contracts that were designed as bets on future events start unwinding.

All of this didn’t happen from chance or nature or even incompetence, it was planned to happen all along. You see the talking point stressed in the corporate media today is that Italy has been living the “good life” with much wine and little work, and they tick off all the benefits that Italians enjoy, from maternity leave, to healthcare, to early retirement (in Republican terms that means retiring “before” you die). How absurd that the peasants should expect the things reserved for the 1%.

In reality Italy is not Greece, their economy has been healthy, profits up, and the budget has been in surplus for years. They do have a lot of bonds out but they aren’t in debt the way that many countries are that are still considered healthy. Their crime is that the total amount of their bonds being traded is small enough to be captured by Wall Street bond traders, and this is simply as irresistible as Death on a Pale Horse.

A big part of this problem is that much of the debt is held in long term bonds, and while this should be a sign of stability this does ironically make Italy more vulnerable to capture by the bond traders, who can take advantage of the relative small number of bonds that need to be reissued. Five billion dollars to be sold this week and ten billion next week could end Italian democracy once and for all.

Interest rates are climbing fast to levels where it simply becomes impossible to refinance debt. Bonds are sold by auction at a price that reflects the interest rate as if it is paid up front. If the interest rate accrued over a number of years gets high enough, then the sale price of the bond produces too little money to cover the needs of government. In fact the issue of bonds simply creates more debt and little else.

In case you haven’t guessed, the big US banks are making out like bandits from all of this. Or should I say the bankers are, the banks themselves will ultimately fail or be bailed out from the pockets of the middle class even if there is no appropriation from Congress. After all we are talking about the people who “create” the money and determine its value, and I’m not talking about Congress as called for in the Constitution. As warned against by the founding fathers, the creation of money is firmly in the hands of bankers and corporations.

Today’s drop in the stock market cost the average 401(k) holder a bit over $4000. Before Reagan, people had pensions for retirement but people bought into the “capitalism” of the 401(k) instead. You put the money in and Wall Street bleeds it out. It happens everyday as the market goes up and down and the “wisdom” reported in the news today was the we can expect to see these wild swings on a daily basis. Everyday thousands drain from your retirement account and from the reserve accounts invested by local governments.

You see the real truth, the one they won’t tell you ever on the news, is that when the market goes back up after one of the regular falls is that you aren’t making back any money. The Wall Street banks and hedge funds make money going up or down, but you have nothing until you sell, and you will always get less than you put in, if you get any thing at all.


Dave said...

Does everyone realize that a quadrillion dollars only has meaning because we say so. Raccoon don't know what a quadrillion dollars is. Neither do Blue Jays. Both groups, if they could be made to understand the concept, might very well think it was stupid.

The point I am making is that all the people who are stealing the money better realize is that all it takes is a big enough paradigm shift and they either don't have it anymore or there's no longer such a thing as money. In order for that to happen, the rest of the people's circumstances would have to be so ugly that the calamity of complete annihilation of the economy wouldn't be so bad. So how close are we?