Monday, May 8, 2023

Emerging Modified Consensus

 Reducing Expectations,

  Dr. Tim Morgan at Surplus Energy Economics presents: The emerging ‘modified consensus’, Inching towards acceptance?
  As you may know, the interpretation long set out here is that the underlying ‘real’ or physical economy of products and services has deteriorated, via stagnation, into contraction. Partly because of a mistaken belief that monetary gimmickry can promote material expansion, a huge gulf now yawns between the ‘real economy’ and its ‘financial economy’ proxy. The financial system itself, understood as an aggregate stock of monetary ‘claims’ on the real economy of the future, is poised to fall into this chasm...
..A perennial question about this situation concerns how much ‘they’ – meaning decision-makers, or ‘the powers that be’ – know about these trends, as they are understood here.
  A much better question, though, is ‘what would they do if they did understand it?’ The one thing of which we can be sure is that, if the situation was indeed understood, nobody in a position of authority could possibly come out and say so. To do this would be to precipitate a market crash, itself a prelude for the onset of generalised chaos.
  In this situation, the only realistic course of action for the authorities would be a gradual retreat from over-sanguine assumptions around economic growth. They would need to manage expectations downwards, and this would require the crafting of a modified consensus. The authorities would not, and could not, say that economic growth has ceased, let alone that it has gone into reverse, and neither would any practical purpose be served by doing so. Instead, they would seek to steer expectations towards successively, but gradually, lower levels.
  The view set out here is that this modified consensus has started to emerge.  
[It's weird, but everything that happens these days just makes people poorer.]

  4 US Banks Crash in 2 Months: Banking Crisis Explained by Economist Michael Hudson 
[Interview excerpted]  Thanks Christine.
  Hudson:  And the reason the banks are insolvent now is because of President Obama’s program and his Secretary of the Treasury, Tim Geithner, who appointed the current Federal Reserve President, Powell.
  When President Obama decided to bail out the banks, instead of writing down the bank loans to what would have been reasonable levels, instead of saving the junk mortgage victims from their houses, he decided to go along with his boss, Robert Rubin, the former Treasury Secretary under Bill Clinton, and save Citibank and the other big banks that were the most troubled banks of all.
  And they’re still the most troubled banks of all, except they have a government guarantee, just like Obama gave them, that no matter how much they lose, they will not lose the money. No matter how much the banks lose in negative net worth, the economy will lose, not the banks.
  All of that became implicit when the Federal Reserve decided to help the banks that were insolvent in 2008 and 2009, to help them recover their net worth by quantitative easing.
  That is creating $9 trillion worth of Federal Reserve balance sheet support of the banks to enable the banks to drive down interest rates to near zero...

..And the banks used all of this increasing liquidity. What were they going to do with the [liquidity]?
  Well, they lent them out largely to private capital firms. In other words, they lent them out to operators on Wall Street who borrowed from the banks to buy out companies and take them private.
  Then they would have the companies borrow money from the banks for billions of dollars of money and pay this money out as special dividends to the private capital companies that had bought them out, leaving companies as bankrupt shells, such as Bed Bath & Beyond...
..What happened then was that the Federal Reserve, under the lawyer, Mr. Powell, he’s not an economist, he’s a lawyer, serving his clients, which are Chase Manhattan, Citibank, and the big banks, to decide, well, there’s a danger of wages rising and we’ve got to keep wages down in order to maintain the profit of the stocks that are fueling the stock market gains.
  The Federal Reserve decided and announced that it was going to begin raising interest rates from 0% to 4%...
..Everyone I knew moved into short-term government bonds, that is, Treasury bills, three-month Treasury bills, or maybe two-year Treasury notes, because they didn’t want to take the loss that occurred if you’re holding a 30-year bond.
  And holding a 30-year mortgage is just like holding a 30-year bond. All of a sudden, interest rates are going up, but you’re holding a security, a mortgage or a bond that pays a very low interest rate and whose price has fallen by 30%, maybe even 40%.
  Now, that means that if you’re a bank and you have depositors and your assets are reduced in market price by 40%, what are you going to do if your deposits aren’t reduced? You have negative equity.
  Well, just about every bank in the country moved into a negative equity position, because all the banks have made fairly long-term loans...
..Now, after Silicon Valley Bank went under, for instance, Yves Smith on Naked Capitalism ... said, — Well, Silicon Valley Bank just hopelessly mismanaged their portfolio in holding on to these long-term government bonds. Why did they do it?  
  Well, here’s why they did it. Imagine what would have happened if Silicon Valley Bank or any bank in America would have acted just like the private individuals who move their personal retirement accounts or their personal financial accounts into short-term treasuries.
  They all would have begun to sell their 30-year mortgages or other long-term mortgages. This by itself would have crashed the price of 30-year mortgages...
..Well, the act of selling them would have caused the prices to decline to a point where indeed, right away, they would have been yielding this 4%. Obviously, there’s very little they could do...
..In other words, nobody wants to lose any money. And the fact is, whoever held these long-term securities was going to lose money.
  Well, this is exactly what happened to the savings and loan institutions in the 1970s, in the 1980s. There was nothing the banks could do...
..The banks said, — Well, there’s only one way that we can avoid facing the fact that our assets are much less than our liabilities by just keeping the deposits there. Let’s keep paying the depositors what we were paying all along, 0.2%...
..Now, I know many people, friends of mine, who’ve taken their money out of the bank and invested in two-year government notes or short-term money market funds, and they’re getting 4%. Why on earth would they leave the money in the banks? ...
..So the Federal Reserve had painted itself into a corner during quantitative easing. By lowering interest rates to just about zero, the Fed has guaranteed that if you ever move out of this position, if you ever go beyond the Obama policy of saving the banks by inflating the capital markets, then you’re going to drive the capital markets bankrupt, insolvent.
  So we’re now finally facing the insolvency that Obama and Trump and Biden early on were able to avoid. And it’s just a seventh-grader, well, maybe an eighth-grader, could have done the arithmetic...
..And of course they’re moving it into banks like Chase Manhattan or Citibank, which indeed, as Pam Martens said, are serial abusers and violators of regulations.
  Of course they’re moving there because the government says, — No bank depositor, no financial investor will lose any money. We promise you that the economy will lose money, not the banks, not the financial sector.
  We promise you that if we have to pay more money to support the financial sector, we’re willing to cut back Social Security. We’re willing to get rid of Medicaid and Medicare.
  We’re going to get rid of social spending because the economy needs the banks not to lose any money, because that’s, to us politicians, they’re our campaign contributors. They’re who we’re really working for. They’re who we’re protecting. That’s our job as politicians...
..And the government and the media are not confronting the fact that the existing debt overhead of the banking system and the financial system and the private capital, that all of this is unsustainable, and we’ve reached the point of unsustainability.
  Well, if eighth graders can see that the banks are insolvent, even investors and even some economists can do the mathematics and see how insolvent they are and realize that we’d better take our money and run.
  So you’re now having the wealthiest 1% of the country taking their money and running, and that’s what’s causing this problem.
  You can expect the wealthiest 1% to contribute very heavily to the 2024 presidential campaign...
..I think you’re missing the point to put the blame on the regulators. The problem’s not that the banks control the regulators and regulatory capture. They’ve captured the government. And it’s the government that appoints the regulators...
..The regulators can only regulate within the existing legal system and the existing political system. They can’t change the political system. And the problem is systemic itself...
..So the government has basically announced, if you want to keep your money safe, move it to one of the five big systemically important banks. “Systemically important” means, it’s a bank that controls government policy of the financial sector in its own favor...
..So the bottom line is, the whole U.S. economy is being sacrificed to banks that have made bets, and they’ve been bad bets.
  Their bets have gone wrong, and they’re bailed out by the Treasury, saying, — Even if you make bad bets, no matter what, we’re going to rescue you, no matter what it takes for the economy at large...
..Pam Martens herself could look at the banks and say, this bank has negative equity, and the government can immediately take it over into the public domain.
  But the government won’t do that because they’ll say that’s socialism. And socialism, which we used to call democracy, but now they’ve [renamed] democracy socialism because they think it’s a bad term.
  And they say, no, we have to let private enterprise rule. And private enterprise is gambling.
  Most banks have not made money, as much money in interest as they’ve made in capital gains. And the biggest capital gains have been derivatives and short sales and options.
  So the financial sector isn’t about making loans to industrialists to build factories and employ labor to produce more goods.
  It’s made to make loans to gamblers, because that’s where most of the money is made. That’s what the financial system is. And to characterize the system as if it’s part of the economy is the sort of mythology of our time.
  The financial system is external to the economy. It’s like a parasite on the economy, using the government as a means of extracting money from the economy or using its own money-creation abilities to make sure that it creates enough money to make sure that the wealthy financial institutions cannot lose...
..But for the bank depositors and for the public to be quiescent, they have to be stupid. And that’s the role of The New York Times and The Washington Post and the other media...
..Don’t look at debt problems. They don’t look at balance sheet problems. None of the problems that are occurring today appear in the economic curriculum that people have to learn in order to see how the economy works.
  It’s all a mythology. It’s a fairytale. And you could say it’s sort of the superstition of our time. I won’t dignify it by calling it a religion, even though many banks look like the ancient Greek and Roman temples.
  It’s really just a superstition that the financial system works to help the economy instead of, how can we make money from the economy by taking over the government and capturing the whole government, not only the regulators.

  There is lots of information about Carlson's news reports here, just as there were a lot of sincere actions by JFK that got him assassinated. Powerful enemies.
Was This What Got Tucker Carlson Fired?

  Tucker Carlson Preparing For “War” Against Fox News
  Popular host is locked into a contract until January 2025.
  Carlson has not technically been fired since he has still not been released from his $20 million per year deal, which forbids him from working elsewhere in the industry for another 20 months.
  That means the popular host would be completely frozen out of being able to actively cover the 2024 presidential election.
   “His team is preparing for war. He wants his freedom,” a close friend told Axios, adding that Carlson had previously said he wanted to “get this done quiet and clean” but his team was now “going from peacetime to Defcon 1.”

  A New Version of an Old Story
 Consciousness of Sheep looks at how Hansel and Gretel were abandoned in the woods by their parents during a severe famine, and implications for the epoch we have now entered.  Thanks Red.
  In reality, and only for a brief period, a relatively small fraction of the human population has been able to pretend that we had somehow transcended the horrors of famine and war.  And – as always happens – growing affluence allowed us to pretend that our good fortune was entirely of our own making.  Even today, with a large part of the western population seeing its living standards decline, most of us find it inconceivable that we might once again be on the cusp of a new age in which hunger and famine become commonplace...
..For the time being, for the affluent sections of the population at least, food shortages have amounted to little more than a reversion to the seasonal availability of foods that was the norm prior to the spread of the supermarkets in the mid-1980s.  In the UK this winter, for example, shortages of salad vegetables like cucumbers, peppers and tomatoes were blamed by the establishment media on poor weather in Spain and Morocco… mostly neglecting to mention that the reason supermarkets had been forced to import in the first place was because the cost of imported gas and fertiliser for the hydroponic farms in England and the Netherlands had risen so high that farmers couldn’t afford to grow winter crops – a problem that is unlikely to go away any time soon.
  In any case, in a market economy, the first signs of shortage – which were visible to anyone paying attention in the wake of the 2008 crash – are not to be found in empty shelves, but rather in those at the bottom of the income distribution no longer being able to afford increasingly expensive food.  That is, the spectacular growth of foodbanks across the UK, along with the more recent shoplifting epidemic, is an indication of the growing number of people no longer able to maintain an adequate diet.
  Over the winter, even working households on relatively good incomes have resorted to foodbanks in the face of a 20 percent or more year-on-year increase in the prices of staples like bread, milk, and eggs.

  BBC: Climate change too important to be left to personal choice  
[More "consensus modification".]
  The ultra-low carbon lifestyle isn’t just for the eco-minded, it has to be for everybody. Or it isn’t going to work (“work” being defined as controlling the planet’s climate decades out). What do truly low-carbon lifestyles look like – and can they really be achieved by personal choice alone?“ the article laments.
  Well if the answer is “no” then that means the ultra-low CO2 lifestyle has to be  for everybody. How we do that is a matter of “both individual and systems change”. By systems change is meant that “with the right policies, infrastructure and technology in place to enable changes to our lifestyles and behaviour, we can reduce overall greenhouse gas emissions substantially by 2050…
  In richer countries, this means moving towards a far lower carbon lifestyle for most people
 (excluding homeless citizens).

  Pakistan is likely to pay for shipments of crude oil from Russia in Chinese yuan, local media reported on Saturday, citing government sources. The first cargo of 750,000 barrels is expected to dock as soon as in June.

  Iran’s non-oil trade with BRICS nations nears $40bn
  Non-oil trade between Iran and members of the BRICS alliance of emergent economies – Brazil, Russia, India, China, and South Africa – reached $38.43 billion in fiscal year 2022-23...
  This represents a 14 percent increase from the previous fiscal year.
  China remains Iran’s main trade partner in the BRICS alliance, with $30.32 billion in trade, an increase of 37 percent. India comes next with $4.99 billion, a 47 percent hike; Russia follows with $2.32 billion, Brazil with $466.55 million, and South Africa with $322.04 million.

California Defaults On $18.6 Billion In Debt, Saddling Employers With The Expense
"The state should have taken care of the loans with the COVID money it received from the government in 2021," said Marc Joffe, policy analyst.

  White House Warns Default An "Entirely-Avoidable Economic Catastrophe"  [Does this mean they'll do it this time?]
“Virtually every analysis we have seen finds that default leads to an immediate, sharp recession on the order of the Great Recession,” the CEA concludes.

​Hoarding Pocket Change (took this picture of Jenny with the first big tomato of the season)

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