29 Sept 2012
UNSURVIVABLE
JPMorgan Loss Could Be Next 'Shock' Event
The JP Morgan Shock
The entire world has forgotten about or ignored what could be the upcoming "shock" that puts the global financial system in severe jeopardy. To make matters much, much worse - I don't think anyone even has a clue as to what is really happening. Investors, economists, financial powerhouses, top business executives, politicians, lawmakers, consumers, students, governments, and even central banks are completely confused. None of them are expecting what I will describe below.
There
is one event that may ultimately solve the mystery of the global
economy. This event would not only plunge the economy back into a deep
recession and lose investors hundreds of billions of dollars, but it
could bring about the collapse of some of the world's largest financial
institutions and even render central bank stimulus and QE completely
ineffective and futile. This event is by no means a guarantee; its
probability is even likely under 5 percent. But this event has all the
necessary ingredients to culminate into a major panic. Together with
slowing global economies and an extremely unstable financial system,
this could be the next Lehman Brothers.Robert Mundell, evil genius of the euro - For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan
Greg Palast: The idea that the euro
has "failed" is dangerously naive. The euro is doing exactly what its
progenitor – and the wealthy 1%-ers who adopted it – predicted and
planned for it to do.That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.
Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:
"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.
But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)
"It's very hard to fire workers in Europe," he complained. His answer: the euro.
Nothing to do, nowhere to go: 1 in 4 UK youths jobless
Related: NEW ONS SHOCKER: Just 1 in 4 UK adults aged 16-74 has a full-time job
Welcome to the Era of 'Ugly' Inflation - Charles Hugh Smith
The Siren Song of 'Beautiful Deleveraging'
In a world of rising sovereign debts and an overleveraged,
over-indebted private sector, history suggests there are only three
possible ways out: gradual deleveraging, defaulting on the debt, or
printing enough money to inflate away the debt.Ray Dalio recently described the characteristics of a “beautiful deleveraging” in which equal doses of austerity, write-downs, and inflation gradually lighten the load of impaired debt. This might be called the Goldilocks Deleveraging, as the key feature of this “beautiful” solution is that each component is “not too hot, not too cold” – inflation is modest, write-downs of bad debt are gradual, and austerity is not too severe. Given enough time, the leverage and debt are worked off without requiring any structural change to the Status Quo.
Understandably, the Status Quo has embraced this solution for the appealing reason it doesn’t change the power structure at all. Everyone currently in charge remains in charge, and everyone who owns outsized wealth continues owning outsized wealth. Rather than falling onto the politically powerful “too big to fail” banking sector, the pain of deleveraging is spread over the entire economy. There is no such thing as painless deleveraging, so the “solution” is to distribute the pain over hundreds of millions of people. That’s what makes it “beautiful” to the Status Quo: It doesn’t cost them either their power or their wealth.
The Status Quo in Japan has pursued this strategy for 20 years, and the Status Quo in Europe and the U.S. have pursued it for the past four years, ever since the global financial system imploded in 2008.