8/3/2019 Volume 1, Issue 17

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grandcountyuncensored.com November 4, 2011 || Volume 1, Number 17 || FreePulling us out of the mainstream

GO BACK TO SLEEP

Opinion and commentary by Reggie Paulk

The Grand County Uncensored logo and grandcountyuncensored.com are trademarks of Uncensored Media, LLC. All content copyright ©2011, Uncensored Media, LLC.

GRAND COUNTYUNCENSORED

PROUDLY SUPPORTED BY

GRUMPY'S SALOONGRAND LAKE, CO

grumpyssaloon.com

The elections are over.Leadership is in place.

Proposition 103 failed,so your state taxes are

safe for now.

Everything's handled

and you're now free topursue your life's

ambition.

Go back to sleep.Pl ease.

Signed: Your Representatives

TYING IT ALLTOGETHER

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8/3/2019 Volume 1, Issue 17

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Contact the editor: reggie.paulk@gmail.com(303)552 7963

The taxpayer was just plain robbed by the government and banks

acting together. If you think that $750 billion was a ridiculous subsidy to the

TBTFs, or they really didn't join with the government to steal from the public

during 2008, the epilogue over the next three years went from ridiculous to

stupefying. From 2008 2010, we ran about $1. 1 trillion per year in additional

deficits over the Bush years, for a total of $3.3 trillion. This too was sold as "for

the people," but that was a lie. Financial product credit (Z1 line

Z1/Z1/LA794104005.Q) contracted from $17.1 trillion to $13.8 trillion today, or

almost exactly the same $3.3 trillion. Mortgages, during the same period, would

contract by about $600 billion while non financial business credit remained

essentially flat. And state and local borrowing expanded. Put another way, the

entire deficit addition over the previous multi year baseline was literally given to

the financial firms; the total amount of the taxpayer heist is over $3 trillion from

2008 2010, and as of the second quarter of 2011, we're still literally stealing

from the taxpayer and handing it to the TBTF institutions via government deficit

spending.

To understand this you need to noodle for a few minutes. Put yourself

in noodle mode and grab a coffee. You'll have to roll this around in your head

before it gels, but it will.

Let's start with a couple of fundamental facts:

We have a "fiat" currency—the dollar. All "dollars" are in fact debt

instruments. Pull one out from your wallet (pick a denomination, so long as it'snot an old silver certificate!) and you will see, "This note is legal tender for all

debts, public and private," printed on the face. The language is precise and

important: I may demand payment for my gasoline in oranges and you must

pay in oranges; provided I never allow you to go into debt to me for the

gasoline. As soon as I do (e.g. by letting you pump it before you pay me), I

must accept dollars.

All dollars are debt backed. Specifically, they're issued against an

obligation, typically against Treasury debt. When the Federal Reserve wishes

to emit more "dollars" (whether electronically or otherwise) they buy Treasuries

and pay for them by either printing dollars or pushing a button and creating

digital facsimiles of paper notes. This, incidentally, is why when you read

Leverage (and you should) you'll understand how and why the "money men" at

the banks robbed everyone through what is effectively a naked short on thecurrency. But that's not the point of this piece. Rather, the fact that there's a

liability associated to the asset in the form of dollars means that the entire

economic system is a gigantic balance sheet. And the fundamental truth about

balance sheets is that they balance.

If you want to get rid of excessive debt, you must also write off assets.

The asset side of the balance sheet has to contract at the same time the

liability side does. There's no escaping this fact. It simply is not possible to

contract one side without the other, because by definition a balance sheet must

balance and when you "blew up" one side you also "blew up" the other.

This fact, however, means that if someone is over valuing assets then

someone is also claiming a liability they cannot pay. Again, the two are exactly

in balance—always. So when the bank is holding home equity lines at 100

cents on the dollar ("par") when in fact the loan is a second lien behind anunderwater first mortgage that is delinquent, not only is the bank lying but the

homeowner is lying too—he has possession of something he can't pay for.

What happens when the bank is forced to recognize this bad debt? It

has to write it down; the asset disappears at the same time the liability does.

But if the lending institution can't cover the write down because it has

insufficient capital to do so, it blows up.

Now you should understand why delinquent homeowners are, in many

cases, living in houses without making a payment for two years. The banks

aren't "overwhelmed", they're bankrupt. They're not kicking people out because

if they do, under the accounting rules, they have to recognize the loss and

doing so causes their demise! They're not doing the delinquent homeowner a

favor, they're doing themselves a favor while committing (legal) balance sheet

fraud.

The fact that balance sheets must balance becomes extremely useful

when looking at the macro economic picture. If the government is deficit

spending, the additional debt goes on their balance sheet. The question is

where deos the flow go on the other side? If the entire credit picture is

expanding across the economy compared to output (GDP), then the answer is

that we're simply blowing bubbles. That's what's happened in aggregate over

the last 30 years. But right now the credit picture isn't expanding much.

Government borrowing, however, is!

Someone is contracting credit at the same time the government is

expanding it. That is, while the total system liability is not changing much

liability is shifting from a private party to the taxpayer. Let's figure out who's

getting the benefit.

TYING IT ALL TOGETHERBy Karl Denninger, Market ticker.org

Remember, the narrative run by the media and the government is that

they're "helping the people." If that was true then we would see that $3.3

trillion show up in the form of decreased debt held by people. But that hasn't

happened—the aggregate "all instrument" Household and Non profit credit

peaked at $13.9 trillion and today is just $600 billion smaller, nearly all in

mortgages.

The Fed Z1 tells us how the composition of liabilities is shifting over

time and what the general picture of those liabilities "in aggregate" are. It is

one of the most useful tools for this sort of macro level analysis, because it is

basically impossible to successfully corrupt. It's also one that most people

don't look at; it's not "in your face" and announced in the mainstream medialike GDP or employment data is, and there's no "headline" number to focus on.

Instead it's just a jumble of figures. Fortunately, Excel is really good at taking

columns of numbers and turning them into pretty pictures, like this:

And what that Z1 is telling us, today, is that from 2008 to now about $3.3 trillion

in credit was removed from the Z1 line called "Financial Products." When we look at the

household sector we find that it's not mortgages where that help went (those are

separately accounted for); in point of fact that number has only gone down by about

$600 billion. Here's the rub: Home values, according to Zillow and Case Schiller, have

contracted by something between $6 10 trillion. How is it that only 10% of that value

change has shown up in the outstanding debt when just 30% of homes are owned free

and clear and a quarter of all homes are underwater on their mortgage? Remember, all

second lines behind an underwater first are worth zero if the first goes 60+ daysdelinquent, as the odds of cure on a 60+ mortgage are statistically indistinguishable

from zero and a second only recovers on a foreclosure after the first is paid in full.

The answer to that is simple: Institutions are pretending that some debt

instruments have value when they really do not. That's the only possible explanation

since again, balance sheets must balance. But in the case of financial credit it really has

been contracting on a recognized basis. This would normally be enough to blow all of

these institutions to beyond the orbit of Mars; note that the common "TBTF" banks are

somewhere around $500 billion to ~$1 trillion in size. The contraction of $3.3 trillion in

financial products credit, given their leverage, would be enough to bury them all. That

hasn't happened.

The reason it hasn't happened is that in effect the credit they were

carrying—remember that "liabilities" on one side are "assets" on the other—was

effectively transferred to the Federal Government via additional deficit spending. The

amount of "back door" bailing out through transference of the banks' (bad) "assets" to

the federal government, relieving them of what would otherwise have blown them to

bits, amounts to approximately $10,000 for every man, woman and child, all taken on

over the last three years. And this not total deficit spending; it's only additional deficit

spending over what Bush was running before (if you look at the total it's even worse—in

excess of $4.5 trillion). This is what the media means when they say "the private

economy is de leveraging" they're only really speaking about the 'one percent,' in this

case the TBTF institutions.

The statement on balance is false when applied to the entire economy. You

may think you're de leveraging but the economy as a whole is not; instead you're

having the private obligations of a small number of people, in this case the TBTF banks,

forced upon you as taxpayers as the government levers up to counteract private credit

contraction among the big multi national and national banks!

In short every citizen of this nation—man, woman and child—has been robbed

of $10,000 which was taken from you and given to the TBTF banks to prevent them

from blowing up, with the obligation to pay in the future shoved in your face at literal

gunpoint by the government. So much for "de leveraging" of the private economy, at

least as it applies to 99 percent of the nation!

The government didn't "expropriate" or "extort" anything from the TBTF banks

as is commonly said by the right wing side of the aisle—in fact government actively

conspired with the TBTF to steal your money and give it to those very institutions while

it was lying about helping you. The Fed Z1 a simple compendium of mathematical

facts—does not lie.