Southbound CRB Points to Transports Doom ~ The Risk Averse Alert

Monday, November 04, 2013

Southbound CRB Points to Transports Doom

Is today's global physical economy being sacrificed, with illegitimate financial claims on its output accelerating its shutdown while simultaneously sinking demand? Is a negative feedback loop forming through an increasing supply of claims still winning acceptance among an investment community whose confidence otherwise remains battered, today meeting a physical economy (and more broadly a capital stock) whose equally poor management has created a cruel conception called "excess capacity" targeted for destruction?

Demand for commodities lighting a fire under U.S. transportation stocks evidently continues to slip, while the effect of this decline appears to be accelerating. This should prove rather detrimental to wildly overvalued transportation issues to be sure. There is a cost incurred by our resource-rich, reserve currency nation exporting inflation exploiting our unique position in the global financial and political landscape. According to the CRB Index, this cost is fading demand for physical "things"—commodities.

Any wonder sovereigns have been, and will continue to be marginalized? Fading demand brings collapsing economies, which certainly go a long way toward weakening any sovereign's position.

Resource rich America with its abundance of scrap metal once productively employed commands a smaller price for its raw materials, and this in the face of profound U.S. Treasury support given the banking system these past several years, the likes of which simultaneously has stimulated a corporate debt bonanza—moving risk higher up in the capital structure and exposing equity investors to debt trap dynamics. News flash! This is the work of the same subversive, supranational banking dictatorship already well along imposing an intention whose objective is destroying sovereign nations. The United States is being set up, and through propagation of illegitimate financial claims supporting a banking system hinging on a Ponzi scheme the U.S. Treasury is being readied for its destruction.

The only thing being accomplished by lenders of last resort is their demonstration of a truly suicidal tendency. Allowing an increase in financial claims on production while impinging on the means of increasing demand for production's output simply is a recipe for disaster. There are not enough slaves on the planet to sustain this arrangement indefinitely. Either global consumption somehow expands, or the mountain of claims on production is doomed to collapse. With its collapse will come sovereign nations falling, including the United States itself. A constitutional crisis provoked by the 14th Amendment, Section 4 easily could arise by the fact the U.S. Treasury will have no means of honoring its obligations once the U.S.'s dominant financial economy implodes, taking down what remains of the global physical economy. Then, an insolvent Federal Reserve will lack power to provide any help whatsoever.

We really need come to our senses! The first order of business is admitting we have an irreconcilable problem characterized by a banking system propped up by an unsustainable Ponzi scheme. Unfortunately, the Fed is not ready to take the leap. Truth is they're paid to play make believe, and the Fed's "2013 Resolution Conference" more than amply demonstrated this. None of the Fed's key players evidently is capable of connecting the dots joining [increasing] financial claims on production and [declining] demand on its output. All talk of the desirability of avoiding a Dodd-Frank resolution, yet none show any inkling of understanding the physical dynamic necessary to ensure the desired outcome they claim. Thus, it rather appears some form of "resolution" is a foregone conclusion, and whether these monetarist hacks realize it or not, the paradigm containing their useless ideas and actions will not spare their careers once its destructive course is inevitably manifest.

According to Richmond Fed President Jeffrey M. Lacker, "A veritable army of professionals has been devoting considerable time and effort to crafting and evaluating Title I resolution plans." These describe a financial institution's "strategy for liquidation or reorganization under the U.S. bankruptcy code, without extraordinary government assistance, in the event of material financial distress or failure." Lacker admits, "A critical success factor for resolution plans is that, in the event of financial distress, policymakers will view them as making bankruptcy preferable to alternative approaches, such as Title II, in which government funding protects some creditors, the prospect of which blunts incentives [whereby large financial firms will prefer to be less leveraged and less reliant on short-term funding]." Lacker never proposes how a banking system now more concentrated than ever and choking on "assets" marked to fantasy will ever reach such a goal. Platitudes suggesting, "Title I resolution planning is a strong complement to the array of ongoing enhancements to prudential supervision that are aimed at reducing the likelihood of failure" are nothing more than so much hot air in the face of the Fed's abysmal record of "prudential supervision." The understatement of the year Lacker delivered at his speech's conclusion saying, "Substantial work remains to be done ... and substantial issues remain to be sorted out before regulators and policymakers can convince market participants of the credibility of these plans." Indeed! And an $85 billion per month subsidy from this august body of "prudential supervisors" is one giant vote of credibility FAIL.

Some confirmation of just how tenuously poised is today's resolution authority established by Dodd-Frank came by way of New York Federal Reserve President and CEO William C. Dudley speaking on Title II Resolution. Dudley identified "significant issues about how the resolution of a large systemically complex firm would work in practice," admitting that, "even assuming ... efforts to overcome these challenges are ultimately fully successful, resolution is still likely to represent a 'second best' outcome compared to preventing a systemically important financial institution from failing in the first place." Of course this is stating the obvious, and is presented as cover masking the New York Fed's demands. The crux of the matter affecting resolution of global, systemically important financial institutions revolves around derivatives, the likes of whose usefulness is never questioned, nor whose becoming "highly correlated" is never raised, nor whose inadequate capital backstop directly confronted. Rather Dudley takes an indirect route to raising demand for "adequate liquidity in the early days of the process," saying:
"One of the key pillars of Title II is that, unlike a bankruptcy proceeding, the FDIC will have access to liquidity from the U.S. Treasury to help ensure an effective resolution. While this access provides significant support for an effective resolution, it will still be important for the resolution authorities to provide clarity about the timing and the amount of liquidity resources that will be made available after a firm enters into resolution. This clarity will likely be necessary in order to calm creditors and markets at the time of resolution." (emphasis added)
In other words, stick 'em up! So much for Dodd-Frank preventing government bailout of hopelessly insolvent albatrosses. The likes of Dudley knows this will not be the way of it, and so comes demand for formal commitment measuring how big will be the U.S. Treasury's backstop made available to prevent the Ponzi scheme the Fed is lording over from chaotically imploding. The international dimension of risks burdening today's banking system, the likes of which Dudley details, make the New York Fed's demand all the more forceful. As such, we might imagine how today's global banking dictatorship has been erected to isolate any sovereign who might otherwise find it prudent to defy it and move to end the madness of a Ponzi scheme founded on the sands of zero due diligence animating the present day's judicially untouched financial industry, even in the aftermath of the "most sweeping financial reform since the Great Depression." Those necessary managerial reforms Dudley highlights are little more than a cruel joke, as these considerations long ago should have been no brainers to a "self regulating industry." The trouble is banking no longer is the boring business it once was. The operational transparency promoted by Dudley in reforms he advocates simply do not fit the profile of ├╝ber levered gamblers. What good the imposition of managerial reforms would bring to a hopelessly insolvent industry sustained through a Ponzi dynamic perpetuated by the Fed itself clearly is beyond Dudley's pay grade. His job is to play make believe, not warn of increasing risk the U.S. Treasury will one day in the not-too-distant future find itself as hopelessly insolvent as the Fed is right now.

Keynoting the Fed's "2013 Resolution Conference" was Fed Governor Daniel K. Tarullo, who gave special attention to the international dynamic affecting prospective resolution of systemically important financial institutions. No thought whatsoever was given to sovereign vulnerability being increased on account of a set of wild assumptions built into the present Dodd-Frank authority. Here the game of make believe seems to suggest this new resolution architecture somehow contains contagion and prevents the banking system's chain reaction collapse. However, the Fed's $85 billion per month subsidy rather pointedly shows nothing could be further from the truth! If one systemically important financial institution goes down, they're all in big trouble. Thus, given unresolved issues on the international front affecting resolution, we might imagine the present authority largely is for domestic consumption. Consumption, that is, of smaller banks needed to feed hopelessly insolvent money center albatrosses.

One might imagine here how an economic system geared toward shedding "excess capacity" is in fact aiming to satisfying this objective. On this note, too, we might wonder who has been gorging on corporate debt. Was the banking system propped up following its near death experience in 2008 for the sake of facilitating a Great Consolidation yet to come? Does a resolution authority devoid of regulators with any sense of connection to physical economy solely exist to serve a criminal, supranational banking dictatorship? How is it no one at the Fed frets over the banking system's international exposure as a potentially grave threat to the United States itself? Like I said, we really need come to our senses, seize the Fed, and task it to finance the build out of a physical economy worthy the 21st century—one entirely capable of generating such new wealth as will provide today's woefully incompetent monetarists a face saving way out.

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