Thursday, 18 September 2008

Denninger warns of US political failure

Every now and then I have enjoyed reading Karl Denninger's Market Ticker on current events. His most recent video, which he warns may be his last, warns that the line crossed by the Treasury and Federal Reserve in creating new money to bail out Wall Street will - if unchallenged - lead to the political failure of the United States and its constitutional government as a representative democracy. He makes some very good points.

Unlike most people, I knew in 2002 and early 2003 that the United States was determined to attack and occupy Iraq because I have a long memory for bank failures. I knew that Ahmad Chalabi was the same forger, embezzler and fraudster who had looted Bank Petra of $300 million before fleeing Jordan, almost causing the collapse of the Jordanian economy. Since all the intelligence fabricated for the war emanated from Chalabi's Iraqi National Congress, I knew the whole thing was being orchestrated by authorities.

I get the same queasy feeling today about events on Wall Street, and like Denninger, I wonder what the plan really is for the nation as more and more lines are crossed with extra-legal executive authority. I did not expect in 2002 and 2003 that war for oil in Iraq would lead to black sites, renditions, torture, Blackwater deployed in New Orleans, and other proximate results of a lawlessness and unaccountability that remained unchallenged and unchecked. I do not know what to expect of the USA in the years to come. That worries me deeply.


Sabretache said...

"I do not know what to expect of the USA in the years to come. That worries me deeply."

With The UK and US joined at the hip in the globalised Anglo-American imperial project, I'd say similar worries apply right here too. Entrenched Power Elites effectively straddle both countries. The burgeoning surveillance/security state and its promotion of the phony 'war on terror' are, in the view of those Elites, necessary preparation for what they see coming down the pipe.

Fred said...

I watched the video and saw a man off the deep end. That kind of stuff is contagious. Maybe you want to go have a cup of tea and pull yourself together?

London Banker said...

@ sabretache
I agree that the UK has followed the US agenda too closely for comfort, and clearly Tony Blair was aligned with the phoney war on terror as a route to police state powers, but I am more optimistic about the UK resisting.

British people are instinctively suspicious of their governments, capable of both noisy and quiet anarchism, and difficult to frighten or incite to hatred.

After the 7/7/05 bombings on the London Underground most of the people interviewed wanted to understand why the bombers felt they had to act as they did. Their instinct was to try to understand so that problems could be addressed. Despite the best efforts of even US media like Fox and CNN, the British public could not be made to express hatred - and very few expressed fear. Most said they were determined to get on with their lives as normal. That reaction of inquiry, tolerance and determination to resist fear made me hugely proud to be British.

Muslims, Christians and Jews joined together in the aftermath of the bombings to condemn and to cooperate. Even though Blair tried to use 7/7 to promote the Bush agenda of extra-legal police state, he largely failed.

Perhaps 30 years of real terrorism during the Irish troubles - with massive bombs decimating whole areas of cities and even killing sitting cabinet ministers - made us more immune to the phoney war tactics of the fear-mongers and hate-mongers in power lately.

@ fred
I have seen Denninger as reasonable for several years, so seeing him so troubled has me troubled too. You are right that such fear can be contagious. When the government begins to act in secret and extra-legally after years of a pattern of abuse of authority for the benefit of a handful of insiders, I consider that contagion a good thing.

D said...

"It is what it is."

Thomas said...

Denninger is clueless if he thinks the fact that the Federal Reserve and Treasury have been financing the liquidation sale of financial, and now insurance assets, to Paulson's banker buddies is somehow hyperinflationary.

Maybe he needs to wake up to the reality that the Fed and the Treasury are financing these takedowns by selling Treasuries, thereby, draining even more cash out of the financial system.

Denninger is a deluded nutcase if he believes we are headed toward hyperinflation.

Like a pee wee football team he has been totally suckered by the old Statute of Liberty play.

The Grammar Ashkenazi said...
This comment has been removed by a blog administrator.
Anonymous said...

Denninger is not clueless. He knows the US sells debt to raise money. It assumes someone is going to buy this debt.

The problem is the fed only has long term debt and has sold nearly all its short term treasuries for the litany of bailouts.

They're out of money. Either sell long term treasuries with skyrocketing yields or print. They chose to print -- gold up.

They'll follow Volker with the RTC idea. But this time they'll have to print to implement it.

Of course, the real solution is to let it fail. Maybe, they really are bailing out the essential buisinesses. But at some point the lessers are going to have to fail.

London Banker said...

I deleted my first inappropriate comment today. I will not tolerate racist or religionist abuse in the comments here.

There is one race - the human race. There is one God (if any) and all he asks - under almost the same formulation in almost all major religions - is that we love each other as we love him. And since even athiests/agnostics/humanists can generally buy into respecting each other, it is the spirit I would like observed in the comments here.

A lot of people are losing money and jobs and futures this week. I appreciate fully what is at stake. But that should drive us to cooperate and collaborate, not blame and divide.

Thomas said...

"Denninger is not clueless. He knows the US sells debt to raise money. It assumes someone is going to buy this debt."

So that must explain why 13 week Treasuries have a negative rate of return because everybody is boycotting them. And that must also explain why 30 year Ts are at their lowest yield levels since 1954.

What else are people going to buy in a massive debt deflation environment except Treasuries especially when money market funds are breaking the buck?

Denninger refuses to face the reality that we are in the process of a deflationary spiral that is the inevitable endpoint of a fractional reserve banking system. There is nothing the Fed or the Treasury can do about it except ring fence some core members of the banking cartel. Anyone who believes the Fed or Treasury has the power to do anything else is a total sucker.

Denninger simply has an agenda to whip up his little band of foul mouthed cult members to protest in order to inflate his ego.

He should simply be ignored.

Anonymous said...

Denninger has been on the deflationary spiral 'bandwagon' for quite some time. Read some of his articles on his blog. He didn't think the Fed/Treas would try to print their way out of the problem which it seems they did last night.

Thomas said...

"He didn't think the Fed/Treas would try to print their way out of the problem which it seems they did last night."

So the Treasury prints money by pulling dollars out of the money markets by selling Treasuries and then puts them on the Fed's balance sheet. And that is going to result in hyperinflation. Give me a break. What do you think is getting sold off to buy those Treasuries? Maybe equities or Agency bonds.

Denninger parades around as some sort of uber patriot when he is nothing more than an opportunist. He and his cadre cheer as massive numbers of people get laid off and lose their life savings.

Nothing wrong with being an opportunist but his self-righteous whining is utterly nauseating.

Colin said...

This is one of the most thought provoking, yet at the same time scary posts I've seen from you thus far.

In addition, it's rather surprising that you read/watch Denninger. I would have thought he was too far off the beaten track for you to take serious note of.

Why not expand on this?'ve started a train of thought, and this commenter - for one - would like to see where your thinking goes.

comment deleted said...

LondonBanker, the self-proclaimed central banker by trade, lecturing people on morality..... looks like my assumed intelligence quotient just got a raise. Your problem is not with racism, but the truth. Say, wasn't the American revolution caused by the non-english (and non-european) bank of england? I wonder who owned it then and now? Hint, they're not European or English (or White).

Leila said...

I'm an American. What is to be done? I contribute to the ACLU, I'm voting Democratic in November. I pay attention to what's happening and kick and scream with all my friends about these extra-legal actions you describe.

Are we simply helpless even though we know what's happening and we call our legislators and complain? We took to the streets to protest the invasion of Iraq - for months before it happened.

We're watching our country go over a cliff. What is to be done?

armchair said...

Some Kremlinology here.

Recall there was a big push to privatize social security, in the U.S. Bush had some 'political capital' after the `04 election, and he was going to spend it by pushing Social Security into 'privatization'. At that time (2005), we were in the midst of the mortgage mania. The Kremlinology is that we are experiencing the financial crisis that was intended to destroy Social Security.

Didn't watch the video, so sorry if this is already covered or too milquetoast. Just guessing away.

shtove said...

I've followed Denninger since March O7, and he's been calling it correctly every step of the way.

But he does have an inconsistency in his overall view. Up until the credit crunch he was quite firmly warning against inflation. Then there was a very entertaining debate in his forum, and he emerged with his torch to warn against deflation. Now he's back to inflation, and I reckon his warning this time is so dire because he couldn't see how deflation was to be avoided without destroying the credit worthiness of the US.

His analysis is excellent. But his real strength is that he's a democrat.

Anonymous said...

Here's the way it will play out. FASB 157 will be redacted or changed. It won't happen until all of the froth and excess is taken out of the financial system. Won't need such a large financial sector in the future.

The goldfinger boyz will be the last or one of the last standing. The rules will change right before the chosen are picked over, thus saving the survivors.

Rules will be changed concerning retirement funds (IRA's 401K etc.) Probably require that 10% of each account be placed in some kind of Government debt structure. Taxes will be raised at every level. All kinds of rule changes coming. That's what the bullies in the schoolyard do when the ballgame does not go their way.

It will be tough but the USA will survive. We may need to add prozac to the water supply though.



@thomas 08:58

Doessn't a negative (or zero) rate of return on 13 week Treasury debt indicate the very OPPOSITE of a boycott - that people are piling in regardless of any expectation of interest, because they are much more concerned to be confident that their capital will be returned?

Leila said...

Let me suggest that a course of Transcendental or Mindfulness meditation would be in the long run cheaper and less toxic than Prozac. Those of you without the funds to pay for such a course (many hospitals are offering mindfulness classes at subsidized rates, as research shows it helps with all manner of ills) may want to look up books by Jon Kabat-Zinn and other such meditation teachers.

Lawrence LeShan's little tome is a very secular, if old-fashioned instruction manual on meditation.

Research shows that a regular course of meditation not only calms the mind but prepares one to deal with catastrophes and such. If you can't be bothered, then at least duck into your nearest chapel at lunch time and practice breathing quietly amongst the flickering candles.

Prozac may not be all that easy to get if you're jobless, broke, and without health insurance. Just sayin'...

I'm Not POTUS said...

I have followed Karl Denninger, a lot of the time he makes great arguments but it doesn't help me at all because Karl suffers the foolish human trait to assign his moral compass to his expectations of what the powers that be will limit themselves from doing.

I tried to point this out to him in the forums and he bit my head off for not getting it. I kinda' feel pity.

Power corrupts and absolute power corrupts absolutely.
(14.5% alcohol by volume, drink responsibly)
With no rules anything is possible and usually not for the better.

You can hope all you want, but what it comes down to is that the human condition is nothing more than Greek Tragedy. Medical doctors "discover" new diseases all the time. When was the last time a "Head Shrink" discovered a new "emotion"?

Thomas said...


That's exactly right.

I was being sarcastic in order to illustrate that Denninger's argument that there will soon be a buyers strike against Treasuries is specious.

Anonymous said...

The Washinton-London-Tel Aviv Axis is the cause of the current financial crisis, and as American goes so will the UK and Israel.

Anonymous said...

LB, since you apparently have the authoritative opinion on Chalabi, please "correct" his Wikipedia biography:

""Curveball" – the brother of one of Chalabi's top lieutenants – fed hundreds of pages of bogus "firsthand" descriptions of mobile biological weapons factories on wheels and rails. However, this assertion made by reporters from Newsweek (Michael Isikoff), Knight-Ridder (Jonathan Landay), and the Los Angeles Times (Bob Drogin) has been proven completely false....A later congressionally appointed investigation (Robb-Silberman) concluded that Curveball had no relation whatsoever to the INC, and that press reports linking Curveball to the INC were erroneous."

As far as looting Bank Petra, I know nothing about it, but, again, Wikipedia says

"According to one report, Chalabi proposed a $32 million compensation fund for depositers affected by Petra Bank's failure."

Why would a looter want to set up a compensation fund? Is it just to hide his looting? To return the money after he made a mint on the carry for 20 years?

OkieLawyer said...

For the longest time, we have been conditioned to fear a "redistribution of wealth." But what we have now is not a redistribution of wealth, but a redistribution of debt. The debt that is being redistributed is the debt of the wealthy and it is being heaped onto the backs of the middle and lower classes.

The late breaking news tonight is that short selling will not be allowed for the next 60 days in the U.S. and Britain.

I guess markets are only supposed to go up.

Sion said...


I like your comment apt.

I also follow KD intermittantly. He is, I think, incredibly bright and energetic, a potent mix. Unfortunately he has somewhat of a personality disorder which makes him an unappealing person. You need to look past that to see his intelligence. I am amazed an d pleased that LB likes KD.

I visited his site again only recently, his vitriol is off putting but he seems so on the mark to me.

I am also only a newbie to this whole economic debate but I am putting in some effort to understand and I feel like I'm making progress.

I think that LB's comment about being proud to be British is also apt. What is needed is courage and the effort to understand whats happening and the willingness to be outspoken.

I have to admit for myself that it is easy to be outspoken on the net not so easy on the street.

It is especially not easy to be outspoken about things that are complicated and have not yet occurred....mores the pity

yoyomo said...

The problem of anti-semitism is a serious one but it also is a two-way street. People who are disturbed by it, instead of trying to shut down debate and sweeping unpleasant realities under the rug, would do well to read the book by Israel Shahak [Jewish History, Jewish Religion: The Weight of Three Thousand Years] to understand where some of the resentment comes from.

Both sides are going to have to modify their objectionable behavior if they want to maintain the peace. Simply pointing to the other side's warts while sanctimoniously trying to hide your own only escalates the grievance level.

Anonymous said...

"The problem of anti-semitism is a serious one but it also is a two-way street."

It is not a two-way street at all. Anti-Semitism is in all its aspects a problem not of Jews but of Jew-haters.

"People who are disturbed by it, instead of trying to shut down debate and sweeping unpleasant realities under the rug, would do well to read the book by Israel Shahak [Jewish History, Jewish Religion: The Weight of Three Thousand Years] to understand where some of the resentment comes from."

It is of little sutprise that you would recommend a book by a notorious anti-Semite in order to promote your own utterly odious views.

Anonymous said...


yoyomo said...


With all 'DUE' respect you're full of it. Anyone who won't kiss Likud's butt is somehow a "notorious anti-semite".

Point 1) Israel Shahak spent WW2 in a concentration camp and lost both his parents there.

Point 2) Israel Shahak spent the rest of his life after WW2 living in Israel. If he hated Jews so much, why didn't he move to Iceland?

Point 3) Whether Shahak is an anti-semite or not is not relevant to the book he wrote because it consists of quotes from the Talmud, Mishneh Torah, and Kabbalah. He does not burden the reader with his own views but presents information and allows the reader to form his own views which is what terrifies zio-cons like yourself and causes you to screech hysterically lest anyone come across any less-than-flattering information about Jewish teachings.

Point 4) "It is not a two-way street at all. Anti-Semitism is in all its aspects a problem not of Jews but of Jew-haters."

That has to be one of the most ridiculous, not to mention racist, comments. Any problems between the two groups is 100% the fault of one side while the other consists of utterly innocent angels. As Bill Clinton said recently, give me a break.

For anyone interested the book is:

Jewish History, Jewish Religion: The Weight of Three Thousand Years

by: Prof. Israel Shahak

and if not available on Amazon can be obtained at:

People can listen to anonymous screamers or you can read this compilation from the Talmud (what the rabbis teach their yeshiva students in Yiddish when no non-jews are there to overhear) and make up your own mind if Jews are totally blameless or if both sides need to treat each other more fairly.

acrumb said...

I have just discovered this blog via another one I visit The Automatic Earth. I have been recommending to my friends that they visit this blog as well.

I also visit Mike Morgan's blog which covers what's happening in real estate. Mike recommended a 1998 documentary, which in pertinent part discusses the fact that some time in the future US interest costs will subsume all other costs. I expect the time frame has been fast forwarded.

Now something else to keep in mind by 2040 US majority will be ill educated minorities, just as the former majority retires and expects hand outs from social security and medicare. Obviously they will be disappointed ;but, with this demographic challenge US is bound to default on its debt.