The Day the Tulips Wilted

Tulips are beautiful.  So beautiful they became objects of greed and envy.  Nowhere moreso than in 17th century Holland.  Tulip bulbs became a frenzied market, and eventually the most expensive commodity in the world.  Until February 3, 1637.  


This little chart shows how the tulip market wilted, rather quickly.  Fortunes that had been made vanished.  Happy 375th anniversary of the end of Tulipomania.

A Tale of Quail and Cottontail

My family was blessed to lived in a veritable garden of Eden for twenty years.  When we first moved there, the three-acre lot was almost bare save three oak trees and some sagebrush.  My wife is a Green Thumb.  In a few short years we had hundreds of trees, many of them fruiting, exotic flowering plants and a vegetable garden that fed many more than us.

Our first cohabitants were ants and spiders - they were the tough survivors from a lengthy drought. Over time as the edible greenery flourished, new species on foot and wing appeared steadily.  

Quail were one of the first waves of immigrants to the new promised land.  Quail are diligent and smart.  They quickly identify and appropriate all their desired food sources, set up nests under lush shrubs, and make a lot of chicks.  The Quail were so successful that their broods came to number almost twenty.  Imagine yourself as a parent with twenty newborns!

The Quail's success was also their sadness.  You see, we had five cats patrolling the property when not lounging on a favorite couch.  Some of the cats were very hip to the increase in number of chicks per adult Quail.  They would patiently wait in a blind near a frequented Quail Trail and happily pick off a straggling chick every now and again, until the brood had been reduced to a number the parents could defend.  Why  recall this?  The European Union is the Quail Family!  Mama France and Daddy Deutschland simply have too many wandering chicks to guard.  The evil Bond Vigilante Cats will never stop stalking the weakest and pouncing; it's simply too rewarding.  The Book of Quail suggests that the European Union may survive, but as a much smaller family.

The B Side o Nature's Record "Will It Go Round in Cycles?" is a short story about Rabbits.  For the first ten or so years in the Garden, there were very pesty ground squirrels but no rabbits.  The ground squirrels were the mammalian equivalent of the ants and spiders - tough, resilient drought survivors.  After the Garden developed to a truly lush state, we spotted a Cottontail once in awhile.  Then a few more.  Then a LOT more.  They took to our welcoming environment with true gusto.  For years, their numbers increased and increased.  Bunnies everywhere!  Then, in just a couple short years, the population essentially vanished.

Exponential or parabolic growth in anything historically ends with a crash thud.  Tulips, Stocks, Real Estate and Cottontail populations.  Today, global debt appears to be a terminal stage of exponential increase. The Bank of International Settlements' most-recent report showed global debt rising from $600 Trillion to more than $700 Trillion - in just six months!  Our wealth of at least the last twenty, no, thirty years has been based on a growing global debt bubble.  Of course, this bubble won't end like the Cottontail population.  Our politicians, economists and bankers are way too smart for that.  Silly Wabbits.

Top of Your Reading List! Federal Reserve Bank of New York Website!

The Federal Reserve used to be a pretty quiet club for the most powerful.  The players are still the most powerful but it's not so quiet anymore.  OWS camped out in front of Fed Banks.  Ron Paul says, "End the Fed!"  Investigators like www.zerohedge.com follow and report on the Fed intensively.

The Fed is so much at the root of what's happening in the world economically it makes sense to follow what they're saying and doing.  The New York Fed, the central power station of the powerful institution, is a methodical publisher and chronicler.  Maybe not a late night action novel romp, but plenty to wonder at, be scared by and even laugh at here: http://www.newyorkfed.org/index.html.

Item 1 - History of the Primary Dealers

How about the history of the membership of the elite "Primary Dealers" group - the too-big-to-fail bank/investment bank/brokerage hydra, the Fed's financial tennis partners, who make a cut on every transaction (thanks taxpayers!).   You might expect that this group's roster would be pretty darn stable... but NO!  The Fed provides a blow-by-blow timeline of all the membership changes, here: 

http://www.newyorkfed.org/markets/pridealers_current.html  - click on the tab labeled ch-ch-ch-Chay-ayn-gezz and be amazed.  They come and go like cocktail party guests.

Item 2 - The Reverse Repo Posse

If you're looking for a really scary story, read up on how the New York Fed is assembling and testing a bigger financial firefighting posse because it doesn't think the vaunted Primary Dealers can handle a three-alarm debt-fueled blaze alone.  It's right here:  http://www.newyorkfed.org/markets/rrp_counterparties.html .  How many Americans know what Reverse Repos even are?  I didn't!  When you read through the material, it's clear that this is about strengthening the Fed's "wet work" crew - when the SHTF bigtime, the Fed will be working Reverse Repos overtime - essentially buying and moving toxic debt securities from and between bank counterparties, so that drowning banks can "rebalance" with fresh cash on their books, which will help them meet capital reserve ratios.  Reading about the Fed's Reverse Repo project is like watching a neighbor who works top-secret at DoD building a bunker in his back yard.  Shouldn't we be on alert?

Item 3- Bank Supervision

Yes, there is even comedy at the NY Fed site!  Just check out the knee-slapper on "a new era of bank supervision" -- http://www.newyorkfed.org/newsevents/speeches/2011/dahlgren111111.html.   Huh? What about the FDIC, the SEC...  ?   Before mirth and merriment overcome you, it might be well to consider that the Fed, central pillar of financial stability, now has a balance sheet of more than $1.5 Trillion, resting on capital reserves of $50 Billion... that's  50:1 leverage - a 2% loss on balance sheet assets would wipe out the reserve capital.  Is that the new math of the new era of bank supervision?  

Bureau of Public Debt - A Top Place to Work in the US Government

You just can't make this up.   Did you know...

The US Bureau of the Public Debt is rated the sixth best place to work from among 224 government agencies (aka Agency Subcomponents)?

Whoopee!  I would guess that job security probably gets pretty high marks.

If you visit their website http://www.publicdebt.treas.gov/  be sure to visit the up-to-the-minute US federal government public debt counter - http://www.treasurydirect.gov/NP/BPDLogin?application=np  that is now flashing a cool $15Trillion!

On the homepage, the BPD features an solemn quote attributed to Alexander Hamilton, "The United States debt, foreign and domestic, was the price of liberty."   Anyone besides me think that the debt today represents something altogether different?

City Bankruptcy Tsunami... as goes Rhode Island...?

Central Falls, Rhode Island.  The city's website proudly proclaims itself a "city with a bright future".

Maybe after they go thru bankruptcy (see WSJ  http://blogs.wsj.com/marketbeat/2011/08/01/central-falls-becomes-second-muni-casualty-of-2011/).  The city has entered receivership and "THE FAN" of SHTF fame will be working overtime.  This could be a blueprint for the inevitable wave of municipal bankruptcies being readied now.

Across the country, get ready for "realignment" and "restructuring" more corporate-style than what local governments feel they are permanently insulated from.  City by city, it will be reported that city budgets have been increasing (despite howls of budget cuts, etc.), year after year, while services have been decreasing, year after year, because... the workforce is retiring in increasing numbers into collectively-bargained, sweetheart pension plans that are.... uh oh, not funded.   I've witnessed this phenomenon up-close in California in sleepy li'l San Luis Obispo and now San Francisco.   When will these failing machines break down and get fixed?

Let's be real.  Cities have to do what they can to maintain as strong a credit rating as possible, because they WILL have to borrow more money even if their house is in order - receipts don't always match up in time with necessary expenditures.  So they will pay back interest and principal on their existing bonds and other debt come hell or high water.  What they will sacrifice are their biggest cost items - labor contracts and unsustainable pension provisions.  What mayors and councils haven't been able to do, court-appointed receivers will.

Look for some previously unthinkable solutions to surface... receivers are business accounting and legal folks who don't owe anything to government management traditions.  Could neighboring cities merge like corporations to reduce costs?  Hmmm.  More cities are outsourcing their services to their host counties... but that's just a partial step.  Surely there will be more outsourcing to hungry private-sector operators.  Services might even get a favorite private sector tactic - value pricing - good, better, best service standards with corresponding fees.

You may feel that you are not receiving much in the way of "city services" these days.  You need to get ready for less service and/or higher fees.   Not much can be taken for granted when your city bites the bullet and really tackles its fiscal problems.  That time is here...  so all the cities that say they have a bright future can at least have A future.

Slow Motion Replay - How China Won the Upper Hand in Global Economics

... and got American and Europe on the ropes of debt.

The couple-page analysis  HERE  is about as good a summary of China's successful economic strategy as I've ever seen.  Well worth your time to read and digest. The conclusions about what we must do to avoid the dustbin of history are right the to the point.

The Debt Ceiling is a total red herring.  So are the "plans" by the political parties to deal with our debt.  The story is the debt itself, how we got to where we are, and what we must do, if bitterly, to correct it.  Few will be spared - my parents grew up in the Depression and remembered it vividly.  Most sacrificed to one degree or another.

Oh, I and I wouldn't be looking for a replay of WWII to 'save' us.  The war is already well advanced, and it is  ECONOMIC, not military.   China used asymmetry to its great advantage in gaining the economic upper hand.  Time for us to wake up, generate a viable strategy and action plan, and work like hell to execute it.

 

Yep. It's all the Baby Boomers' Fault.

Eisenhower called out the biggest power & corruption game going when he left office.  FWIW, E's advisors strongly advised him to redact the "congressional" part of his cautionary parting speech about the military-industrial-congressional complex.  Make no mistake about the wacko, debt-debauched, over-militaried, over-entitled world we find ourselves in - it was already GAME ON in a big way, long before the boomers were created as post-war celebrations.  Could it be that even the Greatest Generation had a hand in it?  No, it was all the Boomers.  It was us dastardly 5 year-olds Ike was warning about in his parting address.  The same boomers who protested Vietnam and were called unpatriotic for it.  We dared flout the M-I-C complex because probably, we just didn't know what we were up against.

Yep, it's all the boomers' fault.   At the least, I hope that makes everyone else feel comfortable about their role in our current "interesting times".  Hah.  Does anyone really believe all the world's problems will be solved just because the Boomers pass away???   Dream on.  Better yet, start fighting for common cause with like-minded members of all generations.