Monday, February 22, 2010


read. the tattered citibank umbrella, sipsey street irregulars.

somebody screwed citigroup with a credit card and put my phone number on the account info. they've been robo-calling me three times a day -- even on sunday -- for two weeks. they're probably calling in debts. his name is ian.

this may not be curtains for citigroup, but if it is a serious threat to them, you'd better watch out. any big market activity that can hurt them can hurt every single bank in the country.

what is more likely is that they see the symptoms of the problem sneaking up on them (again): big sell-off in stocks, lots of money market accounts withdrawn. the way the mortgage debt market was structured overall, some aftershock is expected. you've probably seen the graphs with the two "waves."

another scare like this will trigger a second "rush to safety." actually, a rush to USD, which would be the opposite, but whatever. i call this the great dollar spike of 2010. the rising edge of it is only halfway built up right now, but you can see how the events of sep. - dec. 2008 can repeat themselves in the dollar index. remember that bernanke has promised "tons and tons of liquidity" while banks continue to call in loans and reassess where in the market the risk is and where the no-risk-thanks-for-GSEs-congress free lunches are.

they'll find them before bernanke returns the monetary base to what it was. he won't be able to pull that off. there will be a single mass inflationary event. it is unlikely to trigger hyperinflation, but that is how it usually starts. why do i say unlikely? people are instinctively paying down debt ahead of schedule when banks get scared like this, even though it "hurts" them to not have cash when times are tight.

likewise, people will instinctively yank money out of banks to hold cash when a mass inflationary event hits. in fact they'll do it even earlier if the big guys like citigroup are going to make them wait seven days for the cash. but the "force multiplier" in the FED system that causes inflation is electronic, fractional reserves. not paper cash. there is a tiny fraction of paper cash in circulation within the country, compared even to M1. when you withdraw $10, the bank writes off $100, and the whole system loses $1,000. this is why arianna huffington thinks you should withdraw your money from the big banks but then put into local banks: take their toys away, but then give it to local business! (read: democrat political machine fodder)

mass withdrawals, then, have an instantaneous effect on credit posing as money. it will "look like" deflation from the eye of political economy. the fed will then be "forced" to use its government powers to bail out its private member banks again, to stay one step ahead, and "save the economy." in reality, he's saving fascism. he's saving the machine that is crushing the free market.

afterwards, people calm down when their mattress dollars are still good at the gas station and the grocery store. but then the gas stations start depositing the cash in their bank account...

as japan has shown, we can play this game over and over and over again, with an ever-increasing money supply, and we won't get hyperinflation (at least not over 20 years). we do not have a currency that remains largely domestic, like zimbabwae. so, it takes more than domestic boom-bust credit cycles to pull it off. central banks of the world would have to cooperate far less, all at once, to really kick it off.

or, they'd have to all be united and using only the dollar, at which point the entire earth is "domestic" under an imperial USA/FED. then you'll get global hyperinflation, because there will be no "greater fool" countries left to hold the bag. everywhere is zimbabwae.

of course, at that point, i figure they'll simply blame the localities where the currency began to be repudiated for inducing monetary instability. they'll probably call it terrorism. they'll send planes and bombs to "deflate" the situation. that could go on for a while before a vast array of politically neutered and vehemently nationalist "states," that all hate each other even though they're the same, could ever coordinate to resist it. say, a thousand years.

now for example, you may have seen china buying up lots of assets with its cash, but i assure you this is a token gesture -- just like holding their own gold will be a token gesture -- of independence. when central banks don't coordinate, governments don't cooperate. you even get a world war with a ten year armistice out of the deal. we're currently in that gray area where they're not out-and-out competing but not yet fully coordinated -- where, no, you can't shoot the bastards yet.


  1. Nice blog. Found you through Sipsey Street. Keep up the good work.