Tuesday, October 25, 2011

Waiting for Lehman

This is an adapted version of a post which appeared in my Strategic Planning Group. Adapted how? Well, the full argument is reprinted below—but the ugly money-grubbing stuff about what to do and what investment opportunities are good have been cut. After all, readers of the free version of my blog aren’t interested in such base dealings, right? GL

In Samuel Beckett’s play Waiting for Godot, the four main characters wait in vain—Godot never arrives.

In the financial markets, the same thing is happening now—we are all waiting for Lehman: That sudden bankruptcy-crisis-calamity which sets off a whole series of credit events, which in turn causes massive sell-offs, plunging markets, collapsing confidence, and ultimately—just like the bankruptcy of Lehman Brothers did back in 2008—shoves the entire global financial edifice right up to the very edge of the cliff.

To the edge—and perhaps this time over it.

We have good reason to be waiting for Lehman—our current situation is simple and stark: Sovereign nations and individual citizens are over-indebted—to the point where they cannot pay back what they owe. We all know that this overindebtedness at the sovereign and individual level is going to end, and end badly: Worse than 2008.

So along with everyone else, I’ve been waiting for Lehman—and fruitlessly trying to guess which will be the Lehman-like event this time around. Will it be the bankruptcy of Dexia? BofA? UniCredit or SocGen or one of the Spanish banks? Will it be a war in the Middle East? Bad producer index numbers from China? A fart by a day-trader in Uzbekistan?

When will Lehman arrive!?!?

But lately, my thinking has changed: Like the characters in Godot, I think that we’re waiting in vain. The Lehman-like event will never arrive because it won’t be allowed to arrive. So this miserable slog we are going through will continue—indefinitely. (Yeah, I know: Sucks to be us.)

My thinking is based on two assumptions: One, that the central banks and government financial authorities and regulators around the globe are absolutely terrified of a repeat of a Lehman-type bankruptcy or trigger event. And two, that those self-same central banksters and government drones will do absolutely anything to prevent another Lehman-like credit event from setting off another cascade of consequences.

And when I say “absolutely anything”, I’m not using hyperbole: Fuck principles, fuck the law, fuck legal constraints, fuck even basic long-term economic and fiscal health—or sanity. The clowns running the circus were so freaked out by the effects of the 2008 Lehman bankruptcy and the domino-effect that it triggered, that they will not let it happen again—ever. Come what may.

Hence, this endless Waiting for Lehman: This endless slog of ad hoc solutions and fiscal half-measures that brings us only tension and misery—and erodes our economy even further.

But this certainty that the bureaucrats in Washington and the eurocrats in Brussels and Frankfurt will do absolutely anything to avoid a Lehman-like event adds something key to the equation:


Since we know how the central banks and economic leadership will react—that is, if we start from the assumption that the political/economic leadership will do absolutely anything to prevent a major credit event from taking place—then we can predict what they will do in the three main areas of weakness:
  • Sovereign debt and the possibility of default.
  • Financial sector weakness and the possibility of insolvency.
  • Geopolitical crisis and the possibility of another Oil Shock.
What follows is a discussion of those three areas of weakness—and what the central banks and economic leadership will do about each of them.

A Sovereign Debt Default

We all know the score, insofar as sovereign debt is concerned:

National governments—as well as local ones—went on a spending spree during the good times before 2008. They over-promised entitlements and services, while at the same time cutting taxes—thus placating the electorate with the promise of something for nothing. They financed the inevitable shortfall with cheap sovereign debt. Hence the massive fiscal deficits during boom years.

Now, of course, we’re dealing with the hangover.

Because of the recession and the concomitant high unemployment, tax receipts have dropped—drastically. Hence the hole of the governments’ balance sheets—which was big to begin with—becomes massive during these bad times, requiring even more money—

—thus pushing sovereign nations closer to default and bankruptcy.

The nations most in debt, and therefore most likely to default, are well-known—Greece, Portugal, Spain, Italy. But there is also the issue of local government over-indebtedness and default in the United States, China, the various “strong” European nations, etc. No nation is exempt from this problem—which will come due.

Or will it?

If we assume that the central banks and government regulators will do absolutely anything to prevent a Lehman-like event—in this case a sovereign debt default—then their course of action becomes abundantly clear: They will do for the big economies what the Europeans have been doing for Greece. They will hand out more loans, backed by assets that are less and less trustworthy, in exchange for more promises of austerity and fiscal responsibility that everyone knows will not be kept.

Greece is the poster-child for this pernicious approach: Ever since April of 2010, when the Greek issue first reared its anencephalic head, the European Commission, the IMF and the European Central Bank—the so-called “Troika”—have been struggling to “fix” the Greek situation by giving Greece more debt with which to tide the country over until their situation “turns around”.

But the problem, of course, is that the Greek economy is not getting any better.

And every fix has failed, because the Greeks fail to live up to their side of the bargain: They fail to implement the austerity measures they promise, they fail to raise the taxes that they say they will (tax avoidance in Greece is on a par with Argentina, or Delaware-based corporations)—

—yet the Troika still tries to fix Greece with more loans! Every time! Even now, this past week, Angela Merkel and Nicolas Sarkozy say they are close to “fixing” Greece. The very epitome of Einstein’s dictum that insanity is doing the same thing over and over, yet expecting a different result—the Troika’s living it in the flesh!

So: Is the Troika crazy, under Einstein’s definition?

No: Because the Troika’s aim is not to fix the Greek situation—the Troika’s aim is to prevent Greece from becoming the Lehman-like event.

This is exactly what the Federal Reserve, the European Central Bank, and the assorted financial bureaucrats will do with every other major sovereign debt that is out there: They will keep on lending it money, so long as it prevents a default.

So what’s the upshot for us small fry?

Here comes the boring money-grubbing stuff, where I discuss what the above policy approach will mean for small investors—which I have thoughtfully edited out for you Gentle Readers uninterested in such mundane affairs. For you Godless materialists, you can read the full version here.

A Major Bank Bankruptcy

The major European and American banks are all exposed to the bad European sovereign debts—the European banks directly by way of actually owning this crap, the American banks indirectly via their sale of credit default swaps on the bad European sovereign debts.

The weak banks seem to be Dexia, Bank of America, UniCredit, Société Générale, BNP Paribas—though nobody really knows.

Why doesn’t anybody know for certain how weak these guys actually are? Because following the 2008 Global Financial Crisis, the financial authorities made the banks’ balance sheets more opaque—that is, less transparent.

In the United States, the suspension of FASB 157—which essentially allowed American banks to mark to make-believe—was just one of the policies implemented to, quote, “shore up the financial sector”. A similar process took place in Europe.

The Orwellian/Absurdist rationale was, “If nobody can see how weak a big bank really is, then it is no longer weak—therefore, it is strong”. (Beckett would have been so proud.)

Hence Bank of America: It is impossible for anyone outside the bank to really say for sure how weak BofA really is—but there are some mighty powerful clues. In the last two months, Warren Buffett lent them $5 billion, at usurious terms—then BofA sold its very lucrative stake in China Construction Bank for $8.3 billion—then BofA announced the lay-off of 30,000 employees, representing a yearly savings of some $5 billion.

All told, Bank of America raised north of $18 billion. Does anybody ever raise that kind of cash just because they feel like it?

No they do not. Likely as not—though this I cannot prove—someone must have told BofA to raise that kind of capital. (Methinks it was Tiny Timmy Geithner, but again, I have no proof, merely a speculative mind.)

On the European front, the Belgians and the French have just finished nationalizing Dexia. They didn’t call it “nationalization”—I would characterize it as “cannibalism”: The French, Belgian and Luxembourger governments essentially bought the local (profitable) pieces of Dexia for a song, and left all the crap in “Dexia”, de facto creating a bad bank carrying all the euro-trash. The bullet-points of the deal are here.

Q.: Was there a Dexia credit event?

A.: No. There was no Dexia bankruptcy—hence no Dexia default—hence no Dexia credit event.

Hence no crisis. The Dexia nationalization/cannibalism wasn’t big on the radar of the American commentariat, but it was important: One of the biggest banks of Europe was broken up over a weekend, with nary a ripple in the global credit markets. Significant? Very. Now that the strong parts of Dexia have been stripped away, and the bad parts are locked into the much small “Bad Dexia”, the unwinding and ultime bankruptcy will not wreak havoc on the French, Belgian or Luxembourger economies. There will be no triggering of American-written credit default swaps.

In short, there will be a big yawn, when “Bad Dexia” finally goes under in a year or two—which is precisely what everyone wants.

Thus these are the twin models of how other teetering banks will be managed: In Europe, their profitable units will be stripped off the cancerous skeleton of the bank, and then grafted onto existing (and State-controlled) local banks, leaving behind the “bad bank” with the name of the failed institution—like Dexia.

In America, the bank will be recapitalised, even as it is shrunk. Insofar as Bank of America is concerned, apart from all the cash they’ve raised through these deals, there is a lot of talk that the Merrill Lynch investment banking unit—which BofA bought at the height of the 2008 crisis—will be spun off and/or sold. My bet is Merrill will indeed be spun off—and right soon.

So once again: What’s the upshot for us small fry?

Once again: Boring stuff about money and contrarian bets. For you rubberneckers, you can go here to read what I wrote about where the money’s at. For everyone else: Move along, nothing to see here folks.

A Geopolitical Crisis

At this time, the most obvious potential crisis is the Middle East—specifically, a possible war with Iran.

At SPG, we already discussed in detail the financial effects of such a war. So I won’t bother going over it again here.

Needless to say, the conclusions were not pretty.

Is there the real possibility of such a war? Well, considering all the noise and trial balloons coming out of Israel, war with Iran seemed at one point inevitable—

—but lately, the tide has most definitely turned. Any notion of “all options on the table” insofar as Iran is concerned is starting to go over like a lead zeppelin.

Take this latest “Iranian plot”—the supposed attempt to assassinate the Saudi ambassador to the U.S. (huh? I mean really, why bother): Some people behind the curve are still growling about attacking Iran, and using this “plot” as an excuse to beat the War-with-Iran drum.

But this latest “Iranian plot” has been met by the American government and Capitol Hill with calls for sanctions and more diplomatic isolation—but not with calls to bomb Tehran. The more plugged in of the American nomenklatura aren’t taking seriously any talk about war with Iran.

Why? Because an American (or Israeli) war with Iran would break Europe. The U.S. doesn’t import Iranian oil, much less depend on it—but Europe does, especially Italy. Recall the oil consumption figures of the SPG Scenario. And anyway, a cut in Iranian oil supply would hit global oil prices equally—disastrously.

An Oil Shock brought about by a war with Iran would hit Europe—which would hit American banks, due to their exposure to Europe. An Oil Shock—as the name implies—would drive up oil prices, further eroding the global economy. An Oil Shock that hits Europe would likely kill the euro, as inflation would skyrocket.

In fact, any hiccough in the Middle East which hits oil prices would be disastrous for the global financial sector, as well as the global economy.

And the Western central banksters and assorted bureaucrats and eurocrats know this.

Therefore (and of course, barring any unforeseen calamity), there will be no war with Iran any time soon. The financial leadership will make sure to quell any such notion of war with Iran.

In fact, now that Gaddafi is dead, not only will there be no war between the West and Iran—the United States and/or Europe will actively help wipe out any Middle Eastern protests that threaten oil production. In other words, the West will try its utmost to end the Arab Spring.

Increasingly—especially as the Libyan rebels show themselves to be less pro-Western than people have fooled themselves into believing—there will be the notion of “better the Devil you know than the Devil you don’t”. And if this approach means siding with bloody dictators and betraying quaint notions of democracy, human rights, etc., in order to shore up the availability of oil, well . . . too bad: The global economy and the banksters’ bonuses are more important than the lives of a few million ragheads.

So once again, and for the third and final time: What’s the upshot for us small fry?

Once again—and for the third and final time—I won’t bore you with the details. It’s just a tedious discussion of oil prices, and where they will likely go in the near-term future. But if you want to bore yourselves silly, read the full post here.


The situation we find ourselves in reminds me of the First World War: The European diplomatic situation back then was tied up among all the nations of the continent by way of a series of pacts, alliances and coalitions of mutual assistance. They were wrapped up so tightly that, when a relatively minor event happened—the assassination of Archduke Franz Ferdinand—it set off a chain reaction of obligations and consequences that eventually led to the whole continent going up in flames.

The same thing is going on today, with regards the global financial markets: Everyone is obligated to everyone else, by way of credit instruments. Therefore, if one of these obligations is broken—that is, a default by one of the European countries, or a cash hole in one of the banks, or a spike in oil prices that creates a hole in someone’s balance sheet—the entire rickety structure is going to go up in flames.

The central banks and the government authorities and regulators have made it clear that they will do absolutely anything to prevent this outcome: They will prevent a Lehman-like event from taking place, no matter what.

In other words, they have made things predictable for us all.

Insofar as these three areas I have outlined above—sovereign debt, weak banks, geopolitical crisis—there are tremendous opportunities, bought and paid for by way of this predictability.

The fact that the markets will be waiting for Lehman allows people like us—who realize that Lehman will in all likelihood never arrive—to make some bets which could pay off big. The investment strategies I outlined above for each of those cases make it clear how lucrative it could potentially be.

So long, of course, as Lehman never arrives. But caveat emptor: If Lehman does arrive, all bets are off.


  1. I believe you have a questionable assumption at the beginning of your argument. That assumption is that the powers to be actually have full control of the situation. I believe they don't; at least not full control.

    Economics is a lot like physics. There are certain simple rules that cannot be broken. We are on the verge of seeing the economic system correct itself due to the abandonment of respect for the rules of economics. Will sovereign nations do everything in their power to delay and obfuscate the situation....you bet. But in the end, the result will be a systemic crash of unprecedented proportion. Will we see a slow and torturous decent as you describe; yes, for a while. But then a trigger will happen that causes the nations that think they can control everything to lose control.

    That is when it will fall quickly. 600 to 900+ Trillion in derivatives is a difficult thing to control.

  2. Let's see here. Our financial system is in the crapper along with most other "advanced" countries and things are going to get real bad one of these days. That's a real news flash! Ah, but if we sign up for SPG and listen to another bunch of talking heads they will tell us how to avoid the tsunami of shit storms headed our way AND be able to prosper from it all. Nice try Gonzalo. I think I'll stick to making myself as self sufficient as possible to weather the storm.

  3. It doesn't take a genius to figure out what the end result of all this government action, or non-action if you prefer, in the EU is going to be. INFLATION. Those of us aware of how governments all throughout history have conducted themselves know that the only feasible policy for world governments to enact is that of creating more liquidity so that the nations and their banks can keep paying their bills and honoring their debts. Eventually, this will end up as hyperinflationary for all fiat currencies. Sit back and enjoy the show. Oh yeah, and uh, buy gold ;-)

  4. I have to agree with the first Anonymous regarding the assumption that TPTB have complete control. As much as I'd like to believe that, the truth is less comforting... ie no one's in control. The current crop of political and financial leaders are just scrambling to try to preserve their positions and power by any means necessary but they have the force of natural and economic laws against them. Not to mention they are quickly or have already run out of ammo.
    It's a strange sorta twist on reality when GL sounds despondently hopeful about the TPTB while Paul Krugman sounds as if the IMF, BIS, and ECB are incapable of anything useful. We may have just crossed into sanity backwardation...

  5. "That which cannot continue forever won't."

    That's the "physics" of everything. The economic path we're on will correct itself in two ways: massive deflation through defaults or massive inflation with the middle path being stagflation. Any way you look at it, the laws of economics absolutely prevent a painless solution. All true fixes/resolutions to this mess are massively painful no matter what games governments might play.

  6. The Author makes a credible argument. In fact, after the 'crash' that so many predicted in the summer of 2010 failed to materialize in the early Fall of 2010 - primarily by method of government intervention, the strongest clues yet to the argument made here today were already there for anyone to see.

    The reason that so many (blogger types) keep getting it wrong on the ability and determination of government to delay and distort the laws of market-physics, is that deep down they still 'believe' that somehow we will 'do the right thing' when pressed.

    Like Bob Hoye is wont to say in many of his writings regarding the $USD - 'There is going to be an outbreak of sound money'...

    Well, there hasn't been an outbreak of sound money as yet for many years. In fact, the reverse of that thought construct continues, unabated in earnest today, despite what old-timers cling to as evidence that we'll (collectively) 'get it right'.

    No, we won't.

    We're well past the point of no return and more importantly, we do not live in nor do we have the same type of society that existed in the 1930's - a predominantly Self-Reliant, Self-governing and Non-dependent (on government) society.

  7. I agree with the first Anonymous. Governments will TRY to prevent or cushion a "Lehman Event," but they are neither psychic nor omnipotent. The numbers we're talking about are unimaginably large.

    The trigger need not be a bank or country failure. A large insurance company goes bankrupt, a severe flu outbreak during Christmas Season slams all American retailers, delusional investors in the stock market come to their senses when they run out of Hopium, the MILLIONS of unemployed Americans who become 99-ers (having run out of unemployment benefits) drag the economy off the proverbial cliff.

    Leaders cannot predict all triggers. No one has a clue just how all companies, large and small, are connected. The blunt instrument of government action cannot possibly stop this.

    To use a trite term: it's the "Butterfly Effect."

    It's also like waiting until a tsunami is cresting over your coastal village, then deciding to build a sea wall. Too late.

  8. The point about Lehman is that it came soon after the bailouts of Bear Sterns / Fannie Mae / AIG; their sudden closure (not their funding problems) was the total surprise. The US government decided that the bailout route was just too easy, expensive or predictable.
    So the next problem will come not because of one event but a whole series of bailouts followed by a black (maybe grey) swan hard landing.

    That is the problem for Europe and Greece: the problem was "solved" in 2010, but then put back on the table in 2011 after Ireland and Portugal hit trouble; the suggestion that Greeks have not been austere enough is a mere fig leaf;
    the real reason is the fear: where will it end?

    Here's to hoping this fear morphs into a 'wall of worry'!

  9. I'm not so sure that they fear the crash. That would be like the farmer, who, after fattening his cow for months, is afraid of the butchering and slaughter. The entire point of fattening the cow is to slaughter it. It's a cycle, repeated over and over.

  10. There is unquestionably (through the use of endless supplies of digital "currency") an astoniching capability to manipulate and distort the markets throught the use of massive amounts of hidden derivitives. I believe there IS a plan, an agenda behind it all. It is said "nobody is bigger than the market". I am starting to wonder. "IF" we get another Lehman type event it will come out of nowhere at a time when it is least expected. And it may well be triggered by those hidden entities that will most benefit. 2008 was not an accident and there were ENORMOUS benefits to hidden entities. FOLLOW THE MONEY.

  11. Well i might like to read what you think i should invest in, but it is not worth $500 per year for me.

    As for where i think things are going, i leave two links to others who don't charge for their thoughts. The first is a rather current post.


    The second has been out for awhile, but under rated, i would say:


    I suspect economic problems are but one of the many challenges ahead. I'll be working on the bunker, the boat, bulletproofing the beater and improving my gardens amoung other things. Will not be back here.

    Good luck to all.

  12. To the suckers who subscribe to "money making", "how to benefit from", and similar newsletters: if the authors really new how to make money following their own advice, they would not need your $500, they'd make plenty investing on their own; they would not need to peddle newsletters on blogs like this and many other. Just a scam, like many others, for the many suckers out there.

  13. Unfortunately for GL, this is an environment where his smarts and ability to predict aren't needed. Any idiot who has ever picked up a history book knows what's coming. Governments will print because you can't get elected promising to cut bennies and increase taxes.

    If GL had come of age in 1988, I'd be interested in his investment advice. As it is, I know all I need to know when I figure out I need water, food, ammo, and PMs, in that order.

  14. Some valid points are made. However, I must counter with...so we should also not wait for a Greek debt default then, because they will NEVER let it happen...right...

  15. In addition to the powers not having absolute control, there are probably power struggles going on behind the scenes that we don't know about. Those struggles add unpredictability to the situation. Ultra rich people don't want their wealth diluted either. They will fight to have some other ultra rich person wealth diluted first.

    Also, Germans have their grandparent's stories about Weimar hyperinflation. They also have the highest gold reserves per capita. They might decide to not play the printing game and they have a better chance than most to not play and still come out on or near the top.

  16. It all comes down to the simple fact that the physics of financial gravity cannot be ignored forever. Eventually a correction will occur. The more TPTB try to avoid the inevitable, the worse the correction will be.

  17. Thank you Hawks5999 for the best chuckle of the day..."sanity backwardation" will become my new pat phrase!

  18. Dear GL

    I have long been a great fan of your writing and still have alot of respect but it is obvious that you changed your tune about a collapse coming because if their is a collapse coming you wouldnt be able to give us advice on certain investments and Im sure that the funds you advise on gives you a lovely kickback ,good writer but sorry it aint worth 500 to sell me a pump and dump nice try GL

  19. Oh, well. The usual bunch of economic nonsense from GL.

    "There are no means of preventing the final collapse of a boom brought about by a credit expansion." THERE. ARE. NO. MEANS. Got that, Gonzalo? Fuck "anything". Go learn some Austrian economics, so that your economics-related writings don't sound so incompetent and your predictions have a better chance of coming true.

    Greece will default in a matter of days. The (relatively small) loans that are being extended to it are just buying time to prepare the Western banks for the event.

    The handling of Dexia was right and proper. This is precisely how insolvent banks should be handled - nationalize them, tell their shareholders and bondholders to blow it, sell off the good assets and let the rest fail.

    Remember the fall of Washington Mutual? Probably not, because it was done RIGHT and was essentially a non-event. The FDIC used the existing framework for dealing with insolvent banks. The reason why Lehman caused so much trouble was because its collapse was not orderly. It was an INVESTMENT bank - and no framework existed for dealing with the collapse of those.

    I can't comment on the political stuff (war with Iran, etc.) because I am not competent in that area and I haven't seen Gonzalo's prediction track record there. But I do know by now that anything he says about economics is pure, incompetent nonsense. And that so far every single prediction of his in this area has had the opposite outcome of what he had predicted.

    That said, my (incompetent) opinion is that there will be a war with Iran, because the USA wants to take control of the major oil resources of the world. We'll see.

  20. The author seems to think there will only be a lehman here and there. Things are building up to where there will be many lehmans at once or one lehman right after the other, many of them. Even the central banks can't solve debt with more debt there are limits and signs show that the limits are not far off.

  21. There is not much time left for usa paper banking assets.At the end of 2012 they will have to be used for the toilet paper!any thing in paper iras, pension funds, and a like!wont be worth the paper!there printed on!all is lost! gold will rule.Today if the usa did not have 49 millon people on food stamps!There would riots! in the streets of america Today!!!GL this what you and the press really should be talking about!How much time do you think there really is left with this bomb already ticking! Jan 2013 when the new president of usa comes in all hell will brake lose wait an see...THE END

  22. Lehman will indeed arrive, and sooner than most anticipate.

    Conventional oil production is in terminal decline. Yes, I know, Peak Oil is a myth, else why would the oil gods pursue ever more expensive tarsand and arctic reserve projects, damn the consequences to Mother Earth?

    3 years from now: 10 mbpd shortfall.

    24 years from now: 60 mbpd shortfall.

    Fuck traders. Fuck governments. Fuck banksters. And, most important of all, fuck the masses.

    Carry on if you can. For those who can't, may I suggest a good, stiff drink and bullet to the head?

  23. Hi,

    I'm an Aussie living in Central Queensland and over 20 years ago I penned the following lyrics which [it appears] are beginning to become a possible future reality.

    Hang on for the ride of your life...

    © 1991 – 2011 Christopher D. Day

    Rap Verse 1 Intro

    Congratulations! Look what you’ve done,
    We live your corruption, are ya havin’ fun?
    Your puppets deceive on the flickering screens,
    We could not resist the “Master of Dreams.”

    Chorus 1

    Keep ‘em entertained, and keep ‘em poor… said,
    How do you plead? It’s been decreed!
    Justice? It’s called “The Rule of Law.”
    'In God’s Name,' we proclaim,
    When we ring the bell,
    You better sell… said,
    Created by the SUPER rich to keep us poor.

    Rap Verse 2

    Well it’s plain to me, where there’s more than three,
    We talkin’ ’bout a conspiracy.
    The boys up top have got it down,
    Their funny-money makes the world go round,
    Create the credit, get em’ hooked,
    Gangsters, Banksters, Corporate Crooks.
    Redraw the world with digital borders,
    Serfs unite… it’s a New World Order!

    Chorus 2

    Keep ‘em entertained, keep ‘em poor… said,
    You’re a number, not a name,
    In Big Brother’s Terror Game… said,
    Barcode the kids, put an eye in the sky,
    We’ve got your numbers so don’t even try… said,
    Created by the SUPER rich to keep us poor.

    Rap Verse 3

    Interest and inflation, the two sides of the one,
    Give us all your money and you might end up with some.
    They say it all began when interest was demanded,
    When banks create more money, very few can understand it.
    Seeds become more flowers, beasts create more beasts,
    Money grows on TV screens, miracles never cease… Hallelujah!

    Chorus 3.

    Keep ‘em entertained, and keep ‘em poor… said,
    How do you plead? It’s been decreed!
    (off-mic) Justice? Hah! We call it 'The Rule of Law.'
    'In God’s Name,' we proclaim,
    When we ring the bell, you better sell… said,
    Created by the SUPER rich to keep us poor.

    Rap Verse 4 Finale

    United in Global Division, the Dark Force appears supreme,
    The living dead celebrate its power,
    Until soul wakes from the dream.

  24. You can only paper over things so many times until whatever is papered over bursts through. The inevitable will happen, it's only a question of when.

  25. "..the full argument is reprinted below—but the ugly money-grubbing stuff about what to do and what investment opportunities are good have been cut"

    In other words, you're saying that you'll show us a raging, out-of-control fire burning thru everything in sight...but you'll only tell us where the FIRE EXTINGUISHERS are once we pony-up.

    And here I was thinking that SNAKE OIL salesmen had completely DISAPPEARED.

  26. In 2004 or so Stephen Roach wrote an article about how he briefed the Council on Foreign Relations [David Rockefleer-was a previous grand pooba-Chase -Manhatten/JPM keep this in mind--big time owner of FED and CFR controlled BENK] on the imbalances of the world marketplace--caused by Greenspan's [CFR] ZIRP. Mr. Roach commented on his tour of the CFR HQ and how he was shown a Cray super computer that the CFR technowizards were conducting "financial war games"--Mr Roach's exact words--I ask to what end?

    Come to 2008, JPM/Chase demanded collateral from Bear Stearns and Lehman that they knew they did not have and knew they could not obtain--the derivative portfolio was worthless--then other moves and shenanigans ---thus assassinating those 2 firms---coincidence? War Games, Mr. Roach? methinks it smells highly at CFRHQ.
    That Lehman Bros. bankruptcy on September 15, was the 'shock heard round the world,' which precipitated a global crisis in banking confidence resulting in the present situation. Whether Paulson and friends calculated the collapse would provide the basis to demand a US-crafted solution to the crisis remains unclear. What is clear, one of the chosen 'winners' in the present US banking reorganization, JP Morgan Chase, played a nasty role in the final push of Lehman Bros. into insolvency the Friday prior to Lehman's Monday declaration of insolvency. JP Morgan Chase had 'mysteriously' withheld a $19 billion transfer that Friday which would have averted the collapse of Lehman Bros. It was an eerie echo of the nasty role played in 1931 by the House of Morgan in relation, then, to the German and European banking crisis.
    By Linda Sandler and Jeff St.Onge
    Oct. 4 (Bloomberg) -- Lehman Brothers Holdings Inc.'s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman's collapse, creditors said.
    JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ``froze'' Lehman's account, the creditors claimed.
    JPMorgan, the biggest U.S. bank by deposits, financed Lehman's brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman ``suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'' according to the filing.
    The creditors asked the judge in charge of the case to let them interview a witness and request relevant documents from JPMorgan and to pursue possible legal claims. U.S. Bankruptcy Judge James M. Peck is scheduled to hold a hearing Oct. 16 on that request, the creditors said. Harold Novikoff, a lawyer for JPMorgan at Wachtell Lipton Rosen & Katz, declined to comment, saying he didn't see the filing until midnight. He previously said in court hearings that the bank continued to finance Lehman's brokerage after its parent went into Chapter 11 bankruptcy proceedings.
    $23 Billion Claim
    Brian Marchiony, a spokesman for New York-based JPMorgan, declined to comment. Creditors' lawyers at Quinn Emanuel Urquhart Oliver & Hedges didn't return calls seeking comment.
    Once the biggest U.S. underwriter of mortgage-backed securities, Lehman was stuck with the assets as their values fell and it searched unsuccessfully for a merger partner.
    Lehman had surplus cash of $15 billion when it announced preliminary third-quarter results on Sept. 10, even after taking an estimated net loss of $3.9 billion and marking down assets by $7.8 billion, the creditors said in the filing.

  27. Smoking Gun--Last piece--
    A full forensic reconstruction of the events surrounding the collapse / bail-out of Bear Stearns has not been possible until recently, with the passage of time and the recent release of Q2/08 derivatives report from the Office of the Comptroller of the Currency of the U.S. Here is the progression of J.P. Morgan's gold derivatives position from Q4/07 [baseline] through to Q2/08:
    The 12 billion drop in J.P.Morgan's 1 – 5 yr. maturity is representative of the “netting effect” from co-mingling Bear Stearns derivatives book.
    What folks need to realize is that a 12 billion injection [long or short] into the ‘relatively illiquid' medium-term gold futures complex [1 – 5 yrs.] – has much more market influence than 9 billion notional [or a like amount] in < than 1 yr. - as occurred in March 08. Cumulatively, the shorts added by J.P. Morgan over a very short period of time, like days or a couple of weeks, is utterly mind numbing – akin to having an elephant jumping through a key-hole. That the gold market was able to absorb this almost unthinkable, intentional, premeditated “criminal shellacking” at the hands of J.P. Morgan Chase is a testament to how enormous global investment demand really is for GOLD .
    That J.P. Morgan Chase – an institution with historic and deep links to the Federal Reserve – acted in a criminal fashion is beyond-a-shadow-of-a-doubt. They are and have unquestionably engaged in “ INSIDER TRADING ” and completely desecrated the COMMODITIES TRADING LAW BOOK.
    Not surprisingly, the financial world is now waking-up to the fact that high-stakes games are being played in the “paper” [futures] gold arena. This is why the fraudulent futures prices of gold and silver have become bifurcated from the physical markets.
    Sadly, when this criminal experiment fails completely – which it will - the perpetrators are going to “wrap themselves in the flag” and claim that they were conducting these operations in the name of NATIONAL SECURITY – but in reality to save the bankers and “un-savable” U.S. Dollar. Bear Stearns and its employees got in the way of this criminal enterprise – largely because they were long gold. Absolutely pitiful.
    Just remember, you heard it here first.
    The J.P. Morgan Chase / Federal Reserve edifice is being run like a CRACK-HOUSE . For the sake of humanity, it needs to be shut down - NOW .
    By Rob Kirbyhttp://www.kirbyanalytics.com/

  28. The financial crisis has morphed into full-blown political crises. But breakdowns of soverign nations take longer to happen ... vs. bankruptcies of individual companies or banks. So this explains the "waiting for Godot" phenomenon.

    Greece is failing. Isn't this clear to everyone?

    Italian politics are falling apart. Clear?

    How long before Spain, Portugal and Ireland also see real upheavals?

    And Europe is pretending that a major bailout can be structured using financial leverage. Unbelievable - that people would even try to bankroll debt based on leveraged financial instruments. Leverage has become "the big lie" - an excuse to paper over a fundamental lack of MONEY. The real income stream cannot possibly justify the debts that exist in the system.

    Do you doubt that this is going lead to widespread collapse?


  29. GL, Good article. I agree that the TPTB will do everything within their means to prevent the Dow going to 6,000 where it belongs.

    At the end of the day, it will come down to the Germans. Without the Germans sticking by us, the West is toast. 500 years of Western Christian global guidance is coming to a close unless the Germans are pursuaded to sacrifice even more.

  30. I think the relatively quick and cheap conquest of Libya will embolden the US to attack more countries. Syria and Iran seem like the likely targets. With Russia and China unwilling or unable to stop the juggernaut, there is little to restrain the US. Eventually, the rest of the world will probably unite and blow us up when we have pushed to far. Germany was able to take over much of the world before alliances were created that stopped it.

  31. Hello,

    Very good post,GL. But it's contradictory - as this subject should be, which is why the post is thought provoking.

    I believe that sometimes powerful interests and forces make critical choices at historical moments for reasons outside the perameters of the game that had been played up to that point, and history changes.

    Take the outbreak of WW1. Nobody forced Germany to push-threaten Austria to make unacceptable demands on Serbia, which Serbia could never accept, and which were precisely calculated to bring Russia into war against Austria - requiring under the military doctrine of the time a Russian mobilization against both Germany and Austria, which allowed Germany a pretext to go to war against Russia and to attack France, Russia's ally.

    Great Powers don't normally stumble into war. The pre WW1 era was characterized by great Statecraft. No "piece of paper", ie treaty, was ever honored other than for a country's own national interest at that moment. No Great Power ever goes to war against its own preceived self interest. The outbreak if WW1 was not mechanistically determined.

    Russia wanted protection against Germany, France wanted war with Germany as soon as she had gathered enough allies. Russia understood that. Germany wanted war in 1914 because it didn't want to risk war ten years later, when it calculated it would be weaker, at least in relative terms.

    So by the beginning of August 1914, everyone was happy, at least for awhile, because everyone had gotten the war they wanted. No one was sucked in against their will. The proof of this was Italy which had a treaty with Germany and Austria. Since France and Britian were now involved in a war with Germany, Italy no longer had need to fear these two countries in the Mediterranean, so Italy stayed out of the war at that time. It was the correct decision. All treaties are "a scrap of paper", so said the German Chancellor at the time.

    TPTB are making us all wait for Godot because it's in the best interest of all of them to do so, at least for now. They bail out and kick the can down the road, seemingly for ever. But comes the moment somebody sees his own best interest otherwise, Godot will come before us transfigured in all his glory like the christian savior of the gospels.

    Something happens - somebody gets shot, a government falls, Frau Merkel has a breakdown after spending too much time with the President of France. A pretext presents itself, there were many in the past, and predicably many to come in the future, just like in WW1, but somebody seizes the moment because they've wanted to for awhile, and the game changes.

    Remember that the Bank Creditanstalt fell in 1931 not so much because it couldn't get a bailout, but because the French wanted to stop long term economic cooperation between Germany and Austria and were willing to risk economic collapse to do so. The TPTB in 1931 were playing banker bailout, kick the can of the war debt problem down the road just like today. But France decided to step outside the game and play geopolitics. In 1914, Germany decided to step outside the beautifully intricate game of European diplomacy, and grasp for European hegemony.

    Rather than enjoying the more simple pleasures of mechanistic history, try to identify players, be they Great Powers, national governments, mobs in the street, opposition politicans, who have come to the point that they welcome chaos, or simply don't care about it.

    Who might be those persons, institutions, groups, or countries be, who don't want to wait for Godot, but up till now had to because there was no other option? Who might be the first ones, who up till now had actually wanted to wait, but have since come to calculate that they no longer want to wait for whatever reason. Then you'll be closer to the answer you are looking for: Will Godot come and by what means.



  32. Thought provoking Monsieur GL.
    Waiting for attendant Lehman...is akin to waiting for good service at a Strip Joint in down town Las Vegas. Perhaps fee/interest free loans from a bankster would be more appropriate. Even having a drink with Santa on Christmas Eve would be more likely and even a little more acceptable.
    But to discuss the probabilities of likely scenarios to bring forward Lehman and lay him bare at the feet of the populace ....then to outline the slapdown in each case is sort of self defeating. Besides....
    It would have been easier saying "there is not going to be another LEHMAN event". DONE..move on !!!

    What I put forward is that Lehman (as some comments have alluded to) was a "contrived" event....with unintented consequences.
    I therefore propose as that being the case, then any future financial catastrophes may take on a different birth, for how can anyone suggest that future implosions are necessarily conceived of malice in the fashion of our dearly beloved.

    No my dear friend.
    Lehman was a one off. Wont happen again.

    What then are we discussing/contemplating as a FFU. (future f^8k up)?
    To me...its not whether Greece needs to be taken down....hmmmm...(second thoughts on that..they got some mighty fine islands that could be useful for some holiday retreats of the R&I). Nor that Portugal Italy or Spain need a swift reminder about taking on too much and spending recklessly.
    Nope...I will need to reluctantly paraphrase Mr Rumsfeld for this.....
    "We know the knowns"
    "We need to know the unknowns"
    That is what the markets.. et all, will not be expecting and in all likelihood the probable coup de grace.
    A new world order by stealth perhaps.
    After all if we experience a decade or two of on-again off-again inflation ...deflation...who's going to notice !!!! Prices go up....debts get destroyed...money gets printed ....money gets burned. Ever ridden on a teeter board/ seesaw.Its gonna feel like that for the better part of this decade and perhaps the next or until the "unknown" rears its fugly face.

    First Anon comment was poignant. Control is indeed relevant. TPTB created the financial mess (international monetary system)we all face today. In fact one can seriously trace the events of our current financial quagmire all the way back to Bretton Woods. 70 years ( 7 long decades) = end of the cycle is only 3 years hence. Worth waiting for .........????
    One can only hypothesize...those educated fools who think they can plan for what eventuates are wasting their time , moreover their lives.

    Liquid Motion

  33. Can you save a drowning man with more water? can you save a burning house by pouring in more kerosene? Can you save a serial debtor by piling more debts on him.

    If you answer 'No' for all three questions you will get an 'A'.

  34. I think you've got it. Not only are the powers that be on the lookout for trouble, everybody is on the lookout for trouble. I imagine that every fund out there has studied what they are holding, and have been working to bring their risk into line.
    Bull markets start when least expected. Governments have been "priming the pumps" for several years now. I think of money as beng held up behind a dam. When confidence is restored the dam will break and a flood of money will flow into the economy. The longer a slowdown goes on, the more people there are looking for the bottom. If banks start to feel like the way is clear, and the public starts to see things picking up I see some risk taking entering the picture again. With the usual rise in energy costs, etc....

  35. Mr. Lira,

    The ELite will never allow another Lehman to happens is not only wrong but a dangerous thought. Read the link below. They are creating a new world order based on a cashless society and when they are done putting all the finishing touches they will create multiple lehmans at once! You can stretch a rubberband so much before it break and there are economic laws that may be postponed, but not deferred. Sooner or later, the mighty crash is going to ahppen. Fiat money machine has ran its course. I suspect we have no longer than 2015, fi we are lucky. Too many countries like USA and Germany have elections next year. They are keep the musical charis going on the Titanic until then. They do not want a crash and a Ron Paul to come to power.



  36. Mr. Lira,

    i am wondering that you support the Occupy movement; it's only an representative of the ultra leftists which in the 70's in Chile made an giant economic mess and exact the same doctrine that Argentina ruins for years.
    You should have know better!

    Only the word "Occupy"...this points in the direction of unwilling overpower anothers place, property or belongings. You can't get justice by injustice!! Never! The occupy movement is a devil in disquise.

    This is a desperate call to you to break your connections to this movement; here in Europe these people are more to the left than on Wall Street and we fear and abominate their slogans. It looks like communists.

    Greetings from Holland and we wish you much succes and fortitude to your priniples of free economy


  37. Kansas here:
    "Like Bob Hoye is wont to say in many of his writings regarding the $USD - 'There is going to be an outbreak of sound money'..." from an Anonymous on Oct 25.

    This attempt #2 to comment. First one long and wild. The gobblins did not approve.

    Anyways, The orchrastra has began. The prelude happened. We are back in our seats (after the intermission). There may be more intermissions. Feels like a long show. Hope it does not last till 2015.

    Bank of America is still trying to give me more credit, and I already owe them a ton of debt. Smells fishy!

    GL, you sure have a talent of taking complex subjects and organizing them well. The talking bits that you covered in some detail are like you suggested - a lot of talk/smoke.

    The currency is screwed. Like many of the other posters in the comments; doing the things that sane people should have been doing all along, prepping/protective measures/food are what I have been doing with attention the past 3 years.

  38. Kansas is back.
    Had one more thought. The brown recluse spider bite I sought treatment for just hours after the bite is doing well (5 days ago).

    The currency situation makes me think of the brown recluse set loose in Europe and everywhere else. Except, no one is receiving adequate treatment.

  39. Very informative post. Thanks for taking the time to share your view with us. utah jewelry

  40. Hello Gonzalo. I'd like to see an update to your hyperinflation forecast. By your prediction we should by now witness CPI growing at an annualized rate of around 10%. However CPI is closer to 3% as commodities have been poleaxed.

    Any update to your prediction?

  41. Of course, this presumes that the conspirators both:

    1. see EVERY risk to their PLAN
    2. be capable of handling EVERY risk

    Wild cards will occur (a surprise referendum in Italy comes to mind). But defections from THE PLAN will happen and the anticipated Lehman event will eventually occur nonetheless.

  42. Hello,

    Surprise this morning, with markets down all over the world. Perhaps Mr. Papandreou has stepped outside of the box, for whatever reason, and has begun playing a different game? We'll see.

    Who would have predicted even just a few days ago that any world leader of our pro forma democracies would dare let "the people" decide anything having to do with bank bailouts which, by necessity, require severe austerity for the many? The "spectre" of democracy? Truly a terrifying prospect if you are a supporter of the banking-political status quo.

    Where's Augusto Pinochet when you need him?

    Also, anyone who thinks that OWS is a far leftist movement may be very unpleasently surprised if the real thing ever shows up on his door step. I'm actually expecting the exact opposite, but we'll see.

    By the way, I imagine my description of the outbreak of WW1 was a bit much for most, but it merely tracks the current thinking in German historiography concerning that event. See F. Fischer and the post WW2 generation of German historians who pretty much debunked the mechanistic theory of the outbreak of WW1 after they had gotten a good look at the diplomatic documents in the German Foreign Ministry.

    Meanwhile, Godot is peeking out of the closet. Let's see if TPTB can shut the door on him before the end of the day.



  43. The recession and the accessory top unemployment, tax receipts accept live up drastically. Hence the aperture of the government's antithesis sheets.which was big to activate with—becomes massive during these bad times, acute even added money.

    Debt Advice

  44. @Unna, there are indeed world leaders who would dare let the people decide anything having to do with bank bailouts which, by necessity, require severe austerity for the many. Iceland did this 2 years ago. They put bank bailouts to a popular vote.

    The people of Iceland voted, "Hell, no!" Funny how this was not reported anywhere in the Lamestream media.

    Perhaps Mr Papandreau is taking a lesson from the leaders of Iceland.

    Or perhaps not. Yesterday in an unrepresented move he replaced the leaders of every branch of the Greek military. Leaders of the Greek ruling party are calling for his resignation. He is meeting today with Larry, Moe and Curly - er, Sarkozy, Merkel and Draghi.

    I like this solution to the European debt crisis.

    European Bailout Explained

  45. @ K Smith,

    Yes. The Icelanders managed it, and as I remember, it was against many of their own politicians and even that newly elected prime minister, what's her name somebody or other's daughter. The Icelandic president forced it to a referendum twice before the politicians in parliament gave up trying to throw their own people under the bus. And after a rough time, their economy is growing. Apparantly personal dignity and justice are still important to the Icelanders. And yes, for the MSM, it's still as if it all never happened. Kinda like Ron Paul's candidacy, but I digress.

    I also noticed the story about the Greek military. Wonder if the Greek referendum was to preempt a coup by making it psychologically more difficult for the military to move because if it did, the military would not be taking authority away from failed politicians but away from the Greek people themselves who were about to exercise some direct democracy. But of course, I'm just speculating. Wondering whose side they'd be on.



  46. Apparently in Greece it is unlawful to take a referendum on matters of financial concern.
    G-Pip is pushing the envelope IMHO. All and sundry are now seeing him as a madman...but in reality he's forcing the hand of the Club who in turn are tightening the screws on the greek austerity.
    George...Do as the Icelanders did...I say.
    Tell them all to go screw themselves.
    Let the idiotic banks take the hit where it hurts most. Lets get this over and done with. Maybe it could start a new trend.

    Just default.....and let the real games begin.

    Liquid Motion

  47. BTW....
    What's going to be interesting in the days..weeks...months ahead is how many hedge funds and others have taken out CDS on Greece defaulting.....AND....how much this is actually going to cost the big US banks ( 5 of them instantly come to mind).

    Wonder what Ol Ben is doing right now..........

    Me thinks Big Benny is heating up the printing press in readiness for an all out assault in saving the same banks from the second round of this diabolical financial mess. Here we go again with moral hazard...only this time the magnitude of the problem is going to be tenfold. Every man and his dog is going to come out and say...why didnt we see this coming.....!!! This is not a Lehman event btw.....we all know that sovereign default was on the cards....what we didnt expect was that nations dont play to the elitist tune. Some very shrewd people thought/think otherwise.

    Liquid Motion

  48. GL,
    Any chance MF global is the Lehman event? Or the 'failure' to restore looted customer accounts? Or the liquidity event in the futures markets as confidence in all of the non TBTF institutions in that market fades?

  49. First ... Papandreou decides to hold a national referendum on the bailout. Then he decides to cancel it. I tell you - the country of Greece is like a dead leaf hanging from the branch of a tree. Twisting in the breeze.
    Waiting to fall.

    Meanwhile, yields on Italian debt have climbed over the break-even point. Italy has NO real growth. Does anyone think that suddenly this country will morph into a powerhouse and begin a dynamic recovery? That economy is also spiraling down the sinkhole.


  50. Waiting for Gonzalo to post more regularly :P
    Good work though, your articles are always a good read.

  51. So what happened to hyperinflation? Didn't Gonzalo predict high inflation by the end of 2011? Where is it?

    He's been dead wrong and now he doesn't man up. Kinda lame.

  52. Why would I pay a loser $500 to give me financial advice? Gonzalo, you are a wet behind the ears little piss arse. Anybody taking your advice is a fool and anyone paying for it is an idiot.

  53. I was sitting on my toilet a few days ago, after getting some food poisoning, trying to do everything I could not to throw up. You know what happened; I eventually threw up BIG TIME. If this isn't an analogy for the current state of the economy, I don't know what is.

  54. So it looks like the major powes in the "western economies" will fall in this order ...

    1. Europe
    2. Japan
    3. USA-China

    I'm lumping Japan in this group because of its powerful cooperation - and dependency - with the USA and Europe.

    I listed the USA and China together because the currency lock between the two countries (due to China's yen-dollar policy), plus a host of parasitic economic policies on both sides, has made this a symbiotic relationship. Eventually financial stress will tear apart China and the USA - and at that time US bonds will reach the danger of collapse.


  55. All the comments thus far are PURE GARBAGE!!!


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