Should Congress be focusing on the "fiscal cliff" rather than big daddy of a massive Derivatives Black Hole sinking the trans-Atlantic banking system, JP Morgan?
Hardly. However, today's extraordinarily transparent conference call held before the Senate Banking Committee, attempting to stop the bleeding at JPM simply will not do. New lipstick applied in a hearing turned hedge is a pig venturing to stave off sharks circling a crippled whale. But two weeks time risk truth of whether JPM's 2nd quarter will be profitable, as Mr. Dimon projects. Two weeks is a long time when $125 billion cannot buy love in Spain.
"No one on earth thinks JPM will fail," this according to Rob Cox of Reuters today. Right, and no one saw the sub-prime crisis coming, according to Dimon at the depths of the '08 crisis. The more things change, the more they stay the same.
Once again, it cannot be said enough: Team Fraud is trapped. A rising rate environment is the death knell of the trans-Atlantic banking system. The name "Volcker" soon could be used less frequently in conjunction with some "rule," and more in comparison to rates when he was Fed chairman back in the early 1980s. This time, however, the hyperinflationary backdrop will pale in comparison.
Returning to Doug Noland's "Pavlovian," the fundamental backdrop we can expect will accompany this anticipated rising rate environment (already hitting Europe) is forecast by this read of history...
In studying past monetary fiascos, I've often been struck by the predictable nature of Credit inflations. Credit booms would be followed by busts – and the arduous downside of the Credit cycle would invariably provoke aggressive policy responses. Historically, governments would resort to printing larger amounts of currency (or simply incorporate more zeros), in increasingly desperate attempts to support post-Bubble faltering economic output, rising unemployment and sinking prices levels (goods and asset prices).
Often it would come down to a critical dynamic: Policymakers would eventually recognize (admit) that their money printing operations were having deleterious effects. A consensus view would even develop that inflationary policies had to be wound down – if not scuttled altogether. Throughout history, there have been many derivations of the typical pronouncement, “Be on notice, this will be the last time this government resorts to the printing press.” And rarely would it ever work out that way. Indeed, not only would monetary inflations continue, the scope of the money printing would too often escalate to the point of being completely out of control. Once unleashed, monetary inflations take on a life of their own – and turn unwieldy on many levels. And this complex dynamic explains why monetary history is littered with worthless currencies.
Some "Rare Earth," indeed...
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