Monday, March 12, 2012

375 Basel III: Tightening the Noose on Credit - Ellen Brown

Basel III: Tightening the Noose on Credit - Ellen Brown

(1) Australia is now a NET IMPORTER of food. Free Traders might lose their heads
(2) Third World America: Reagan Revolution Drags Us Down
(3) - (4) US households more vulnerable than Japan's after its banking crash
(5) Robert Reich: no more Tax Cuts for the Rich
(6) Basel III: Tightening the Noose on Credit - Ellen Brown

(1) Australia is now a NET IMPORTER of food. Free Traders might lose their heads

From: Howard Miller <> Date: 11.09.2010 08:31 AM

In our recent sham otherwise known as a Democratic Election a number of serious issues that have plagued me and many other thinking Australian came to light.

1) Australia is now a NET IMPORTER of food.

2) The Australian consumer has a fixation on CHEAP FOOD and a serious health issue of OBESITY and cannot see the two are connected.

3) Because of this obsession with cheap food, Australian Farmers are now in the majority attempting to function in the "Wealthiest Country in the World" per head of population, with annual incomes that place them in the category of being below the POVERTY LINE.

4) The Manufacturing sector of the Australian economy is almost non existent and by the statistics produced by studying Grays Online Auctions, the sector will cease to exist within the next two years unless some government intervention is forthcoming.

5) Automotive manufacture has fallen in Australia from 83% in the 1970's to 23% and continues to fall.

The point of closure of all car plants is imminent. The notion of "Free Trade" is a Liberal Party" dream and is not supported in any other developed nation. The Ministers in the current Labour Party government were to weak or afraid to disturb the interests of the wealthy "Big End of Town" who are rabidly opposed to the interests of working men and women in Australia. Like the French Aristocracy, "When they run out bread, feed them cake"?? is the stupidity of their ideologically based" Free Trade Agreements" that only benefit the lazy rich who can only see the future of the world in terms of their own personal wealth.

Be warned? The French Poor eventually took off a few heads and evened the financial distribution???

(2) Third World America: Reagan Revolution Drags Us Down

By Dave Johnson

September 20, 2010 - 11:51am ET

The recession ended in June, 2009? What? Seriously? No one told the millions of unemployed. And last week we got more bad news: 44 million of us living in poverty, and that was last year, before unemployment and COBRA subsidies started running out for the unemployed,

... four million additional Americans found themselves in poverty in 2009, with the total reaching 44 million, or one in seven residents. Millions more were surviving only because of expanded unemployment insurance and other assistance.

We are living in the Reagan Revolution every day. Conservative policies are making us poor and poorer,

Who counts and who doesn't count? We hear so much about the "middle class" but rarely about the plight of the poor. And of course we hear again and again that the wealthy are "successful" and the "job-creators" who shouldn't be "punished" by being asked to give something back to the country that enabled their wealth. Conservative "market" thinking and Ayn Randian "the poor are losers" dehumanizing ideology has become pervasive and dominant as we transition from one-person-one-vote democracy to one-dollar-one-vote plutocracy. In this plutocratic environment the national discussion of tax cuts for the wealthy saturates the corporate media, while the 44 million of us in poverty now are barely mentioned and count for little.

Arianna Huffington's new book, Third World America, documents what is happening to us. RJ Eskow explains,

Third World America is direct and clear in its message: Decades of aggressive corporate lobbying, driven by bankers and other large corporations, have led to a series of policy decisions that are eroding the American standard of living. The details are all there: The financial industry's gone from 2.5% of our GDP in 1947 to 8.3% right before the meltdown. Financial profits went from a maximum of 16% between 1973 and 1985 to 41% right before the crisis hit. And rather than being chastened by their failure, or disciplined by taxpayers in return for being bailed out, bankers have embraced their old ways with enthusiasm. Meanwhile the American households that rescued them lost $13 trillion in wealth between mid-2007 and March 2009.

Last week more than 300 economists issued a dire warning that the current conservative "austerity" approach to the economy is dangerous. Focus on jobs now they say,

More than 300 economists, policy experts and civic leaders have signed a statement warning political leaders of “a grave danger” that the still-fragile economic recovery will be undercut by austerity economics of the kind being pushed by conservative politicians and by the White House deficit commission. Read the statement and more at

Meanwhile, all over the blogs this weekend was the story of the whiny rich, complaining that they "only" make a few hundred thousand a year. Why are they whining?

The reason is that the income inequality has become so extreme that even the really rich see people above them who make VASTLY more than they do, so they feel like they aren't making hardly anything at all. They don't look down, they look up, and they see people making millions, hundreds of millions, even billions in a single year.

One more nasty outcome of the Reagan Revolution: even the really rich feel poor compared to the really, really rich who are the primary beneficiaries from conservative policies.

What can you do? There is a One Nation Working Together rally in DC on October 2. PLEASE click this link and find out what you can do to help, even if yo can't make it to DC. There are local events across the country.

And remember, the election is coming up. We need to remind people that it was conservative policies that got us into this mess. It was conservatives who bailed out the banks. It was conservatives who ran up the massive debt. It was conservatives who killed the jobs.

(3) US households more vulnerable than Japan's after its banking crash

From: chris lenczner <> Date: 21.09.2010 11:41 AM
Subject: BIS' Report On The Irreconcilable Differences Between The US And Japanese Household

The compare and contrast between Japan and the rest of the developed world is a topic that will only get more and more attention as increasingly more pundits debate America's plunge into a deflationary spiral (sorry, with $2.1 trillion in shadow debt evaporating YTD, it is inevitable. It is the economy's reaction to the Fed's response, i.e., the nuclear option, at that point that is the topic of most contention - whether it will rekindle hyperinflation or have no impact on the deflationary collapse into a Keynesian black hole). The latest to chime in, interestingly, is the all important Bank of International Settlements, recently best known for promoting the regulatory farce that is Basel III. A just released paper by Shinobu Nakagawa and Yosuke Yasui looks at the nuances of Japanese household debt, and how its build up, concentration and composition is uniquely Japanese, and why Japan, unlike the US, has traditionally had the capacity of falling back on its domestic population to bid up its sovereign bonds (which is all in flux currently, as the Japanese savings rate is plunging, as the demographic shift so well covered in the past by Dylan Grice is currently taking place). Here are the findings of the BIS economists, which may provide some insight on how America's upcoming fight with deflation could proceed. Of particular note is just how skewed US society (based on GINI scores and the distribution of net worth) is compared to Japan. It also explains why America is now a democracy only on paper, while in fact it merely caters to the interests of the top 1% of the population.

Going straight to the paper's conclusions:

(1) Household leverage, relative to both safe and liquid assets and to GDP, is smaller in Japan than in other industrialised countries, and was so even during Japan’s bubble period.

(2) The finances of Japanese households were not severely damaged by the mid-1990s bursting of the bubble. Banks, however, with their large accumulation of household deposits on the liability side of their balance sheets, were a victim of their large holdings of defaulted corporate loans and the resulting capital deterioration during the bust; in response, banks tightened credit significantly during this period.

(3) Household net worth in Japan is not highly concentrated. Thus, regardless of income level, Japanese households are in general resilient to shocks thanks to a sizeable buffer of assets and moderate leverage. The situation is quite different in the United States, where the distribution of net worth among households is highly skewed in favour of the highest-income cohorts. With only a thin buffer of assets, low-income families in the United States – the subprime cohorts – could be vulnerable to market shocks.

Seeing a theme here? For all intents and purposes, Japan, even during its two-decade long deflationary process is far better equipped to handle the economic collapse that is unravelling for an entire generation of Japanese consumers. Which is why the Fed is now actively pumping $5 billion in the market every other day to stimulate inflation, and the stock market, as this is now the Keynesian system's Maginot line. The Fed can not allow mass perception of the the double dip to become entrneched as that would be the proverbial game over. What has worked in Japan for 20 years will fail miserably when applied in the US, simply because US consumers are in a far, far worse shape than their Japanese counterparts. This is further exacerbated by the massive difference in net worth distribution: Japanese society is far more homogeneous, and thus far better represented, than the US, which is extremely skewed toward high wage earners, and their specific interests (think Wall Street). If that means a POMO every day, every hour, every minute, so it shall be done. This is Bernanke's last attempt to reflate the economy by traditional means before he uses the nuclear option. Which he will have to do shortly anyway.

(4) US households more vulnerable than Japan's after its banking crash

From: chris lenczner <> Date: 22.09.2010 03:21 PM
Subject: Is America Today In Worse Shape Than Japan During Its Lost Decade?

As I noted last year:

Our savings is ... dramatically lower than Japan's when that country entered into its Lost Decade. So the Japanese were much better prepared than we are.

(I also noted that we're in worse shape than America was going into the Great Depression ... but that's another story).

Now, BIS - the central banks' central bank - agrees that Americans are in worse shape than the Japanese.

Specifically, a new BIS paper written by Shinobu Nakagawa (Director, Head of Investment and Market Research, International Department, Bank of Japan) and Yosuke Yasui (International Department, Bank of Japan) concludes that Japan was better able to weather the Lost Decade than the U.S. is able to weather our current economic woes, given three differences between the two cultures:

This paper aims to show the difference in vulnerability to financial shocks between Japan’s household sector and its banking sector and between the Japanese and US household sectors.  ***

The average Japanese household has a financial balance sheet that is far more conservative than that of the representative household in other industrialised countries: in the case of Japan, cash and deposits represent half of total financial assets.... In contrast, the ratio for US households is only 16%, while Europeans hold about one fourth to one third of financial assets in these safe and liquid products.  ***

Japanese households did not rely much on mortgage funding in the bubble period around 1990 .... The representative Japanese household accumulated the large down payment required for purchasing a home on credit and, unlike many homeowners in the United States, did not subsequently extract equity from the house through additional bank loans.  ***

The conservative approach to debt taken by Japanese households mitigated the effects of the decade-long economic slump. Indeed, household bankruptcies were not widely recorded in that period because the quantity of safe and liquid buffer assets, such as bank deposits and postal savings, was always greater than debt on the average household balance sheet.  ***

Credit risks are eventually concentrated in the Japanese banking system, which has
not changed fundamentally in decades.

Securitisation markets are, in contrast, well developed in the United Kingdom and the United States. UK and US banks are eager to transfer credit risks to a variety of investors in the financial system, including life insurers, pension funds and hedge funds.... Particularly for the markets in which off-balance sheet securitisation has deeply penetrated the credit markets – once credit, liquidity or other shocks occur, they could trigger the onset of risk contagion across a wide range of economic agents, including households.  ***

The difference between the highest and lowest income groups [in the U.S.] is far greater than in Japan.... Net worth is much more evenly distributed in Japan [than in the U.S.]  ***

The differences we found can be summarised as follows:

(1) Household leverage, relative to both safe and liquid assets and to GDP, is smaller in Japan than in other industrialised countries, and was so even during Japan’s bubble period.

(2) The finances of Japanese households were not severely damaged by the mid-1990s
bursting of the bubble. Banks, however, with their large accumulation of household
deposits on the liability side of their balance sheets, were a victim of their large
holdings of defaulted corporate loans and the resulting capital deterioration during
the bust; in response, banks tightened credit significantly during this period.

(3) Household net worth in Japan is not highly concentrated. Thus, regardless of income level, Japanese households are in general resilient to shocks thanks to a sizeable buffer of assets and moderate leverage. The situation is quite different in the United States, where the distribution of net worth among households is highly skewed in favour of the highest-income cohorts. With only a thin buffer of assets, low-income families in the United States – the subprime cohorts – could be vulnerable to market shocks.

On the other hand, U.S. age demographics aren't quite as horrible as Japan's.

As I noted last year:

The following chart shows that Japan has the worst demographics of all, with a staggering percentage of elderly who need to be taken care of by the young:

Chart 2: Old Age Dependency Ratios for Selected Countries

Source: chief economist for Standard and Poor's is now confirming the importance of national demographics:

But I don't think [a lost decade in the U.S. is] as likely over here. For one thing, one of the problems in Japan was the demographics. And we don't have the problem of a declining population to deal with, although the labor force is going to slow down considerably as soon as the baby boomers retire.
Similarly, CNN Money reported last month:

Some economists think there is a very important difference between Japan and the United States that can't be overlooked. And it could keep the U.S. from plunging into a long-term deflationary spiral. Demographics.

Simply put, the United States is not faced with as big of a percentage of people getting older and retiring as was the case in Japan during its Lost Decade.

According to research from Brockhouse Cooper, a brokerage firm based in Montreal, the percentage of people aged 65 or older nearly doubled in Japan between 1990 and 2008. Meanwhile, that percentage has stayed roughly the same in the U.S.

So even though there are a lot more people in the U.S. that are retiring as the Baby Boomer generation gets older, total population growth is rising due to high fertility rates and increased immigration. That's key since younger consumers tend to spend more.

"Demographics are the main difference between Japan and the United States. Aging in Japan was a huge issue that led to stagnation," said Alex Bellefleur, a financial economist with Brockhouse Cooper. "Senior citizens tend to have consumption patterns that are a lot different than their younger counterparts. They're not buying as many homes, cars and other durable goods."

There's also the issue of what governments have to do in order to support their aging populations. With a greater percentage of older retirees, that puts a bigger strain on fiscal budgets, which could contribute to deflationary pressure and economic sluggishness.

Along those lines, Japan currently has only 2.9 workers supporting retirees, said Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm. By way of comparison, there are 5 workers for each retired person in the United States.

For that reason, Higgins said it is an "overly simplistic generalization" to suggest that the United States is destined for its own Lost Decade just because the U.S. and Japan both experienced a nasty downturn following an asset bubble.

Simply put, the strain on the U.S. government by an aging population shouldn't be as severe as it was in Japan.

Indeed, as the following chart from Japan's Ministry of Internal Affairs clearly shows, the aging of Japan's population from 1990 onward has far outstripped the projected aging of the American population (trace Japan from 1990 onward with your finger; then do the same for the U.S. starting in 2010):

(America's demographics are still horrible compared to those of countries like India, but still better than Japan's).

Moreover, as I've previously pointed out, the peak spending years are younger in Japan than in the U.S.:

The peak Japanese spending range has been estimated to be comprised of 39-43 year olds. The more 39-43 year olds Japan has at any given time, the more consumer spending there will be, as these are the folks who are the big spenders in Japan. Dent argues that the Japanese economy will tend to grow when the number of 39-43 year olds grows, and to shrink when it shrinks.  ***
In the U.S., Dent says, 46-50 year olds are the biggest spenders, because that is when - on average - they are paying for their kids' college, paying mortgage on the biggest house they will own during their life, and making other big-ticket purchases.
In other words, aging hurts Japan more than it hurts the U.S., because the peak earning years are 7 years younger in Japan than in the U.S.

Of course, if unemployment doesn't decline, this point may be moot ... unemployed 46-50 year olds are not going to be peak earners.

Hat tip Tyler Durden.

(5) Robert Reich: no more Tax Cuts for the Rich


The Defining Issue: Who Should Get the Tax Cut — The Rich or Everyone Else?

Who deserves a tax cut more: the top 2 percent — whose wages and benefits are higher than ever, and among whose ranks are the CEOs and Wall Street mavens whose antics have sliced jobs and wages and nearly destroyed the American economy — or the rest of us?

Not a bad issue for Democrats to run on this fall, or in 2012.

Republicans are hell bent on demanding an extension of the Bush tax cut for their patrons at the top, or else they’ll pull the plug on tax cuts for the middle class. This is a gift for the Democrats.

But before this can be a defining election issue in the midterms, Democrats have to bring it to a vote. And they’ve got to do it in the next few weeks, not wait until a lame-duck session after Election Day.

Plus, they have to stick together (Ben Nelson, are you hearing me? House blue-dogs, do you read me? Peter Orszag, will you get some sense?)

Not only is this smart politics. It’s smart economics.

The rich spend a far smaller portion of their money than anyone else because, hey, they’re rich. That means continuing the Bush tax cut for them wouldn’t stimulate much demand or create many jobs.

But it would blow a giant hole in the budget — $36 billion next year, $700 billion over ten years. Millionaire households would get a windfall of $31 billion next year alone.

And the Republican charge that restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the “incentives” of the rich (including the richest small business owners) to create jobs — is ludicrous.

Under Bill Clinton and his tax rates, the economy roared. It created 22 million jobs.

By contrast, during George Bush’s 8 years, commencing with his big 2001 tax cut, the economy created only 8 million jobs. And as the new Census data show, nothing trickled down. In fact, the middle class families did far worse after the Bush tax cut. Between 2001 and 2007 — even before we were plunged into the Great Recession — the median wage dropped.

It’s an issue that could also be used to expose the giant chasm that’s opened between the rich and everyone else — aided and abetted by Republican policies. As I’ve noted before, in the late 1970s, the top 1 percent got 9 percent of total national income. By 2007, the top 1 percent got almost a quarter of total national income.

These figures don’t even count in taxes. The $1.3 trillion Bush tax cut of 2001 was a huge windfall for people earning over $500,000 a year. They got about 40 percent of its benefits. The Bush tax cut of 2003 was even better for high rollers. Those with net incomes of about $1 million got an average tax cut of $90,000 a year. Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all.

And, again, nothing trickled down.

As I’ve emphasized, the U.S. economy has suffered mightily from the middle class’s lack of purchasing power, while most of the economic gains have gone to the top. (The crisis was masked for years by women moving into paid work, everyone working longer hours, and, more recently, the middle class going into deep debt — but all those coping mechanisms are now exhausted.) The great challenge ahead is to widen the circle of prosperity so the middle class once again has the capacity to keep the economy going.

In other words, this is the right issue. It’s the right time. It allows Democrats to explain what the Bush tax cuts really did, why supply-side economics is bogus, and the economic challenge ahead.

Even if Democrats feel they have to respond to the Republican charge that taxes shouldn’t be raised on anyone when the employment rate is 9.6 percent, they have a powerful fallback: Extend the Bush tax cuts for everyone through 2011, then end them for the rich while making them permanent for the middle class.

Get it, Democrats? Please don’t blow it this time.

(6) Basel III: Tightening the Noose on Credit - Ellen Brown

From: Ellen Brown <> Date: 18.09.2010 03:44 PM

Basel III: Tightening the Noose on Credit

Ellen Brown

September 17, 2010

The stock market shot up on September 13, after new banking regulations were announced called Basel III. Wall Street breathed a sigh of relief. The megabanks, propped up by generous taxpayer bailouts, would have no trouble meeting the new capital requirements, which were lower than expected and would not be fully implemented until 2019.

Only the local commercial banks, the ones already struggling to meet capital requirements, would be seriously challenged by the new rules. Unfortunately, these are the banks that make most of the loans to local businesses, which do most of the hiring and producing in the real economy. The Basel III capital requirements were ostensibly designed to prevent a repeat of the 2008 banking collapse, but the new rules fail to address its real cause.

Why Basel III Misses the Mark

Two years after the 2008 bailout, the economy continues to struggle with a lack of credit, the hallmark of recessions and depressions. Credit (or debt) is issued by banks and is the source of virtually all money today. When credit is not available, there is insufficient money to buy goods or pay salaries, so workers get laid off and businesses shut down, in a vicious spiral of debt and depression.

We are still trapped in that spiral today, despite massive "quantitative easing" (essentially money-printing) by the Federal Reserve. The money supply has continued to shrink in 2010 at an alarming rate. In an article in The Financial Times titled "US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus," Ambrose Evans-Pritchard quoted Professor Tim Congdon from International Monetary Research, who warned:

    The plunge in M3 [the largest measure of the money supply] has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly.

In a working paper called "Unconventional Monetary Policies: An Appraisal," the Bank for International Settlements concurred with Professor Congdon. The authors said:

    The main exogenous [external] constraint on the expansion of credit is minimum capital requirements.

("Capital" means a bank´s own assets minus its liabilities, as distinguished from its "reserves," which apply to deposits and can be borrowed from the Federal Reserve or from other banks.)

The Bank for International Settlements (BIS) is "the central bankers´ central bank" in Basel, Switzerland; and its Basel Committee on Banking Supervision (BCBS) is responsible for setting capital standards globally. The BIS acknowledges that pressure on banks to meet heightened capital requirements is stagnating economic activity by stagnating credit.

Yet in its new banking regulations called Basel III, the BCBS is raising capital requirements. Under the new rules, the mandatory reserve known as Tier 1 capital will be raised from 4 percent to 4.5 percent by 2013 and will reach 6 percent in 2019. Banks will also be required to keep an emergency reserve of 2.5 percent.

Why Is the BCBS Raising Capital Requirements When Existing Requirements Are Already Squeezing Credit?

Concerns about the credit-tightening effects of Basel III were reported in a September 13 Huffington Post article by Greg Keller and Frank Jordans, who wrote:

    Bankers and analysts said new global rules could mean less money available to lend to businesses and consumers. . . .

    European savings banks warned that the new capital requirements could affect their lending by unfairly penalizing small, part-publicly owned institutions.

    `We see the danger that German banks´ ability to give credit could be significantly curtailed,´ said Karl-Heinz Boos, head of the Association of German Public Sector Banks.

    Insisting that French banks were `among those with the greatest capacity to adapt to the new rules,´ the country's banking federation nevertheless said they were `a strong  constraint that will inevitably weigh on the financing of the economy, especially the volume and cost of credit.´

    Juan Jose Toribio, former executive director at the IMF and now dean of IESE Business School in Madrid, said the rules could hamper the fragile recovery.

    `These are regulations and burdens on bank results that only make sense in times of monetary and credit expansion,´ he said.

For smaller commercial banks and public sector banks (government-owned banks popular in Europe), the credit-constraining effects of Basel III are a serious problem. But larger banks, said Keller and Jordans, "were quick to praise the agreement and insisted they would meet the required reserves in time."

The larger banks were not worried, because "the largest US banks are already in compliance with the higher capital standards demanded by Basel III, meaning their customers won't be directly affected." Their customers, of course, are mainly large corporations. "Small businesses that rely on borrowing from community banks," on the other hand, "may be more affected . . . . They will try to make up for the higher capital requirements by lending at higher rates and stiffer terms."

If the big banks that brought you the current credit crisis can already meet the new requirements, what exactly does Basel III achieve, beyond shaking down their smaller competitors? As David Daven remarked in a September 13 article called "Biggest Banks Already Qualify Under Basel III Reforms":

    Indeed, on the day Lehman Brothers collapsed, THEY would have been in compliance with the Basel III standards.

Punishing Your Local Bank for Wall Street´s Misdeeds

What precipitated the credit crisis and bank bailout of 2008 was not that the existing Basel II capital requirements were too low. It was that banks found a way around the rules by purchasing unregulated "insurance contracts" known as credit default swaps (CDS). The Basel II rules based capital requirements on how risky a bank´s loan book was, and banks could make their books look less risky by buying CDS. This "insurance," however, proved to be a fraud when AIG (AIG), the major seller of CDS, went bankrupt on September 15, 2008. The bailout of the Wall Street banks caught in this derivative scheme followed.

The smaller local banks neither triggered the crisis nor got the bailout money. Yet it is they that will be affected by the new rules, and that effect could cripple local lending. Raising the capital requirements on the smaller banks seems so counterproductive that suspicious observers might wonder if something else is going on. Professor Carroll Quigley, an insider groomed by the international bankers, wrote in Tragedy and Hope in 1966 of the pivotal role played by the BIS in the grand scheme of his mentors:

    [T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a
private bank owned and controlled by the world´s central banks which were themselves private corporations.

The BIS has now become the apex of the system as Dr. Quigley foresaw, dictating rules that strengthen an international banking empire at the expense of smaller rivals and of economies generally. The big global bankers are one step closer to global dominance, steered by the invisible hand of their captains at the BIS. In a game that has been played by bankers for centuries, tightening credit in the ebbs of the "business cycle" creates waves of bankruptcies and foreclosures, allowing property to be snatched up at fire sale prices by financiers who not only saw the wave coming but actually precipitated it.####

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