| | | Page 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 | Watch, Its happening ,the global economic change.
| sack the crazies
User ID: 62398
1/22/2006 6:57 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
all this talk of gold and the fall of empires how do we work out the price of gold of a nation if we went back to a gold standard so as to make sure we dont pay too much for it at the end  |
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User ID: 65070
1/22/2006 9:49 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Link: [link to www.prudentbear.com]
America's days as a superpower are over
PAUL CRAIG ROBERTS
Creators Syndicate
Jan 12, 2006
President George W. Bush has destroyed America's economy, along with America's reputation as a truthful, compassionate, peace-loving nation that values civil liberties and human rights.
Nobel Prize-winning economist Joseph Stiglitz and Harvard University budget expert Linda Bilmes have calculated the cost to Americans of Bush's Iraq war to be between $1 trillion and $2 trillion. This figure is five to 10 times higher than the $200 billion Bush's economic adviser Larry Lindsey estimated.
Lindsey was fired by Bush because his estimate was three times higher than the $70 billion figure that the Bush administration used to mislead Congress and the American voters about the burden of the war. You can't work in the Bush administration unless you are willing to lie for Dub-ya.
Americans need to ask themselves if the White House is in competent hands when a $70 billion war becomes a $2 trillion war. Bush sold his war by understating its cost by a factor of 28.57. Any financial officer anywhere in the world whose project was 2,857 percent over budget would instantly be fired for utter incompetence.
Bush's war cost almost 30 times more than he said it would because the moronic neoconservatives that he stupidly appointed to policy positions told him the invasion would be a cakewalk. Neocons promised minimal U.S. casualties. Iraq already has cost 2,200 dead Americans and 16,000 seriously wounded - and Bush's war is not over yet. The cost of lifetime care and disability payments for the thousands of U.S. troops who have suffered brain and spinal damage was not part of the unrealistic rosy picture that Bush painted.
Stiglitz's $2 trillion estimate is OK as far as it goes. But it doesn't go far enough. My own estimate is a multiple of Stiglitz's.
Stiglitz correctly includes the cost of lifetime care of the wounded, the economic value of destroyed and lost lives, and the opportunity cost of the resources diverted to war destruction. What he leaves out is the war's diversion of the nation's attention away from the ongoing erosion of the U.S. economy. War and the accompanying domestic police state have filled the attention span of Americans and their government. Meanwhile, the U.S. economy has been rapidly deteriorating.
In 2005, for the first time on record, consumer, business and government spending exceeded the total income of the country.
America can consume more than it produces only if foreigners supply the difference. China recently announced that it intends to diversify its foreign exchange holdings away from the U.S. dollar. If this is not merely a threat in order to extort even more concessions from Bush, Americans' ability to consume will be brought up short by a fall in the dollar's value, as China ceases to be a sponge that is absorbing an excessive outpouring of dollars. Oil-producing countries might follow China's lead.
Now that Americans are dependent on imports for their clothing, manufactured goods, and even high technology products, a decline in the dollar's value will make all these products much more expensive. American living standards, which have been treading water, will sink.
A decline in living standards is an enormous cost and will make existing debt burdens unbearable. Stiglitz did not include this cost in his estimate.
Even more serious is the war's diversion of attention from the disappearance of middle-class jobs for university graduates. The ladders of upward mobility are being rapidly dismantled by offshore production for U.S. markets, job outsourcing and importation of foreign professionals on work visas. In almost every U.S. corporation, U.S. employees are being dismissed and replaced by foreigners who work for lower pay. Even American public school teachers and hospital nurses are being replaced by foreigners imported on work visas.
The American Dream has become a nightmare for college graduates who cannot find meaningful work.
This fact is made abundantly clear from the payroll jobs data over the past five years. December's numbers, released on Jan. 6, show the same pattern that I have reported each month for years. Under pressure from offshore outsourcing, the U.S. economy only creates low-productivity jobs in low-pay domestic services.
Only a paltry number of private sector jobs were created - 94,000. Of these 94,000 jobs, 35,800 - or 38 percent - are for waitresses and bartenders. Health care and social assistance account for 28 percent of the new jobs, and temporary workers account for 10 percent. These three categories of low-tech, nontradable domestic services account for 76 percent of the new jobs. This is the jobs pattern of a poor Third World economy that consumes more than it produces.
America's so-called First World superpower economy was only able to create in December a measly 12,000 jobs in goods-producing industries, of which 77 percent are accounted for by wood products and fabricated metal products - the furniture and roofing metal of the housing boom that has now come to an end. U.S. employment declined in machinery, electronic instruments, and motor vehicles and parts.
Two thousand six hundred jobs were created in computer systems design and related services, depressing news for the several hundred thousand unemployed American computer and software engineers.
When manufacturing leaves a country, engineering, R&D and innovation rapidly follow. Now that outsourcing has killed employment opportunities for U.S. citizens and even General Motors and Ford are failing, U.S. economic growth depends on how much longer the rest of the world will absorb our debt and finance our consumption.
How much longer will it be before "the world's only remaining superpower" is universally acknowledged as a debt-ridden, hollowed-out economy desperately in need of IMF bailout?
Paul Craig Roberts, senior research fellow at the Hoover Institution at Stanford University, writes for Creators Syndicate.
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User ID: 65070
1/22/2006 9:51 AM | | .
User ID: 66128
1/24/2006 7:31 AM | | .
User ID: 67079
1/27/2006 6:48 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Breaking from NewsMax & MoneyNews.com
Economist Magazine Warns 'Danger Time' for U.S.
This week's edition of The Economist magazine offers an ominous warning for the U.S economy.
"Danger Time for America" - the respected global weekly magazine states, depicting a cover drawing of Federal Reserve Chairman Alan Greenspan passing a stick of dynamite labeled the "The Economy."
The Economist is not given to alarmist warnings.
But the magazine believes the U.S. economy is in for a rocky road beginning this year, and challenges economic optimists' recent sunny predictions regarding the U.S. financial picture. The Economist report mirrors the analysis that has been offered by the Financial Intelligence Report, a publication of NewsMax and MoneyNews. The FIR has been warning investors for some time of the potential economic chaos that Federal Reserve Chairman Greenspan is about to drop on the American economy. For more info Go Here Now.
The magazine targets Greenspan, who will soon retire from the Federal Reserve with most people bombarding him with glowing praise and congratulations for a job well done.
Not so fast, says The Economist.
The publication says: "The economy that Alan Greenspan is about to hand over is in a much less healthy state than is popularly assumed."
While respectfully bowing to the retiring Fed chairman, with a sly wink to "Greenspan's 'exuberant' send-off," The Economist's outlook soon turns dour, both on Greenspan and on the U.S. economy.
"During much of his 181/2 years in office America enjoyed rapid growth with low inflation, and he successfully steered the economy around a series of financial hazards," says the article.
"In his final days of glory, it may therefore seem churlish to question his record. However, Mr. Greenspan's departure could well mark a high point for America's economy, with a period of sluggish growth ahead. This is not so much because he is leaving, but because of what he is leaving behind: the biggest economic imbalances in American history."
While the magazine acknowledges that Greenspan "can't control huge economic uncertainties" and "is constrained by limits of what monetary policy can do," it points out that one cannot exaggerate Greenspan's influence over the economy and financial markets.
It is in the setting of monetary policy that Greenspan falls particularly short, The Economist concludes.
"The main reason why America's growth has remained strong in recent years has been a massive monetary stimulus," it says. "The Fed held real interest rates negative for several years, and even today real rates remain low."
The magazine notes that Greenspan triggered two of the greatest bubbles in history, the dotcom bubble of the 1990s and the real estate one the magazine warns is about to pop.
Greenspan's actions have created a domino effect through which American consumers could borrow against the rising, potentially artificial value of their homes to buy plush hot tubs and $5,000 barbecue pits. In this way, Americans have been able to literally consume more than they earn.
And that is leading to a consumer financial environment in which Americans have negative savings rates, a growing burden of household debt and a sizable current-account deficit. [See: Sir John Templeton warns of housing bust - Go Here Now.]
Says The Economist: "Part of America's current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future."
For the present, that means slower growth, weaker job creation and low wage growth.
Citing Morgan Stanley, The Economist points out that over the past four years total private-sector labor compensation has risen by only 12 percent in real terms, compared with an average gain of 20 percent over the previous five expansions.
The U.S. economy during the past several years has been fueled by real estate and related spending - not from an increase in labor compensation which has fueled previous economic recoveries.
"When house-price rises flatten off, and therefore the room for further equity withdrawal dries up, consumer spending will stumble," says The Economist.
"Given that consumer spending and residential construction have accounted for 90 percent of GDP growth in recent years, it is hard to see how this can occur without a sharp slowdown in the economy."
Investors who agree that the United States may be facing economic trouble ahead can prepare by reading the following reports:
* Prepare for the coming Greenspan recession: Discover the 7 steps to take now to protect your wealth and survive this coming storm. Go Here Now.
* Sir John Templeton first warned housing prices could crash 50%. Find out what he said and learn how to protect yourself and even profit from the coming storm - Go Here Now.
* With a net worth of $43 billion, Warren Buffett is America's greatest stock investor. He is also warning of a possible economic crisis. Find out Buffett's 8 Great Investment Plays. Just Go Here Now.
* Find out why gold will soar in the year ahead Go Here Now.
* 10 Dividend Stocks will weather a bear market -- See Them Here. |
| Small_Brother
User ID: 66219
1/27/2006 7:17 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Thanx FHL(C), awesome reading.
Searching on this same matter I found this article:
***COLLAPSE OF US ECONOMY IMMINENT***
..."Point #1 The U.S., Great Britain and Israel are preparing to attack Iran. As it appears the main reason for invading Iraq was to stop it from selling oil in Euros, likewise Iran has plans to dump the dollar come March 2006.
Point #2 U.S. Treasury Secretary John Snow issued a warning recently that the U.S. Government is on the verge of collapse - as the statutory debt limit imposed by Congress of $8.184 trillion dollars would be reached in mid-February - the government would then be unable to continue its normal operations. Considering the current total U.S. debt stands at $8.162 trillion dollars, once the official debt ceiling ($8.184 trillion) is reached, the U.S. government’s credit abroad (its borrowing power) is gone. Those countries (mainly China) who presently keep America afloat by holding U.S. Treasury Notes, will most likely no longer continue doing so.
Point #3 Bank Of America and Compass Bank managers (probably all other U.S. banks too) have been instructing their employees in the last few weeks on how to respond to customer demands in the event of a collapse of the U.S. economy - specifically telling the employees that only agents from the Department Of Homeland Security will have authority to decide what belongings customers may have from their safe deposit boxes - and that precious metals and other valuables will not be released to U.S. citizens. The bank employees have been strictly prohibited from revealing the banks’ new "guidelines" to anyone. (however, employees have been talking to friends and family)The next time you visit your bank, ask them about it - then ask yourself, why is this information being kept secret from customers and the public - what’s really going on?"...
[link to www.geocities.com]
(I'm not sure if this article is terribly relevant, but like someone else posted, this type of info is all over the net) |
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User ID: 67079
1/27/2006 10:45 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Thanks small-brother.
The "Flim-Flam" Act
Richard Russell snippet
Dow Theory Letters
Jan 26, 2006
Extracted from the January 25, 2006 edition of Richard's Remarks
...And all the while gold and silver are giving prospective buyers one of the sneakiest bull market demonstrations that I've ever witnessed in this business. It runs like this --
"Wait, don't buy gold yet, the gold stocks are not confirming the metal."
"Hold it, don't buy gold yet, silver isn't confirming."
"Stand back, gold is overbought. You'll buy it below 500 in a few months."
"No hurry, the gold-silver ratio is telling us that the whole precious metal situation is on dangerous grounds."
"Not yet, Newmont, the leading gold stock, is failing to go to new highs."
"Sell your gold, the metal is up on a stilt formation -- this is dangerous."
"Stand back, gold and silver haven't corrected for weeks, and the angle of ascent is too steep."
"No, no, the Commercials have increased their short positions. There's a big downer coming in gold and silver."
You see, this mighty bull market in the precious metals has been giving prospective buyers the old "flim-flam" act all along. The bull market has used every device known to man and the markets to keep the public and the funds and the pros out of gold and silver.
The central banks selling gold was an early scare-device. "Golly, how can we buy gold when those smart central banks are selling their own nation's gold by the carload?" Then came the know-nothing analysts who continued to tell us that gold was an "ancient relic," and that the new accepted money is paper. Next came the know-just-a-little technicians who warned us that gold was overbought and dangerous to fool with. And most recently came the brokerage houses who had forgotten about gold, and were answering with a "duh, what?" when their customers called to ask about the metal.
As a result, we have a bull market that is climbing in the face of a world that is swimming in newly created oceans of fiat paper. And ironically, it seems that only those so-called "gold-bugs" have loaded up with gold and silver and gold shares and gold funds and GLDs and CEFs.
Poor ignorant devils, don't they know how dangerous it is to hold these overbought relics of the past? What's this? You say that silver has just advanced to new highs, thereby confirming gold? Damn.
...Feb. gold was up 4.40 to a new high of 562.50. Mar. silver gapped up to a new high of 9.51, thereby confirming the new high in gold.
HUI was up 8.48 to 314.32.
...Precious metals continue to look good. Now everybody's waiting for the "ideal chance" to get in.
...The Dow/gold ratio hit a new low today of 19.07, one share of the Dow now buys 19.07 ounces of gold. At the high of the ratio in 1999 one share of the Dow bought a fat 43.85 ounces of gold. The times are a-changin'.
...The Fed obviously sees the deterioration in the real estate picture which may be why they are in an all-out money-printing mode.
In turn, gold and silver see what the Fed is doing. And the precious metals are "adjusting" accordingly. Of course, that isn't the only reason gold is rising. Gold is under accumulation around the world. It's now the fourth major currency, and even the central banks know it.
lots more follows for subscribers...
January 25, 2006
Richard Russell
Dow Theory Letters
Russell Archives
© Copyright 1958-2006 Dow Theory Letters, Inc.
Richard Russell began publishing Dow Theory Letters in 1958, and he has been writing the Letters ever since (never once having skipped a Letter). Dow Theory Letters is the oldest service continuously written by one person in the business. |
| .
User ID: 67673
1/29/2006 5:37 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Anonymous Coward
User ID: 625
1/28/2006 1:05 AM
Report abusive post U.S. IN TECHNICAL DEFAULT
[link]
U.S. IN TECHNICAL DEFAULT
by Dr. M (AKA Dr. Chris Martenson)
January 27, 2006
In a shocking development, the Treasury Department website is openly stating that as of January 24, 2006 our national debt stood at $8,185.3 billion and on January 26th at $8,190.5 billion.
[link]
Yet the US national debt ‘ceiling’, the maximum amount of debt the US government may hold at any one time, stands at $8,184 billion – a full $5.5 billion less. Although called upon by John Snow, Congress has not yet passed an expansion of the debt ceiling and so the US government is now operating in technical default.
You may recall that when last the debt ceiling was approached in the months surrounding the 2004 elections, the Treasury department furiously employed every accounting trick in the book (and then some) to avoid breaching the limit. They even went so far as to take the unprecedented step of borrowing $14 billion from the Federal Financing Bank to cover up the shortfall.
But they never breached the ceiling.
On January 24th they breached it brazenly and openly and with nary an accompanying explanation. Neither have any lawmakers have broached this indelicate subject.
I suppose we could write this off as merely an unsurprising development from a government that no longer bothers to even appear to be adhering to rules, laws and procedures, let alone actually doing so.
But the silence is all the more troubling because there is an unprecedented level of government borrowing on the books for 1Q06 with next 2 weeks (Feb 1st to Feb 9th) an especially busy period of time. An ambitious ~$70-$80b in Treasury paper will hit the market.
The federal government does not have the legal authority to borrow above the statutory debt limit, which raises the prospect of emergency congressional action to avoid a full-fledged default.
Congress will probably attach a rider to a “must-pass” defense appropriation bill and ironically title it “The Fiscal Responsibility Amendment of 2006”. And if they do, $50 says they do it very late on Friday night.
Since the debt ceiling has been raised 50 times over the past 40 years, hoping for some rational debate on the matter would be an extravagant indulgence. Time spent wishing pigs could fly would offer a far better potential return.
Another odd facet of this story is the deafening silence from the financial press (and I use that term loosely) regarding this matter. Leaving aside the issue of a technical default, one wonders why questions aren’t being asked about the rate of debt accumulation and whether it’s sustainable.
The last debt-ceiling adjustment was $800 billion and was passed in November 2004. Now, on January 24th 2006, it is entirely gone. $800 billion in only 16 months for an average of $50B a month.
Factoring out the plundering of excess social security contributions, the US government borrowed $52B in 3Q05, $96B in 4Q05 and expects to borrow $171B in 1Q06. A trend nearly as mind-boggling as the soon to be discontinued M3 series.
Why do I even bother to pen such distressing factoids?
Because in all my time studying economics I have determined only one thing; there’s no free lunch. Pay now or pay later but pay we will.
Or, more accurately, we hope that our kids will, and not stiff us for the bill. But if they did, who could blame them?
I, for one, would not be shocked. |
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User ID: 68005
1/30/2006 10:03 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
The US has broken its own mandated borrowing ceiling, and not a whisper in the the majority of financial rags. IMO the US is on the brink of a financial blackhole, wether that happens sooner rather than later is not the question , how severeit will be, and wether other standards will fill the gap is, or is itthe lead up to the financial solution to presented by the 2 beasts(ie themarkof the beast) |
| Anonymous Coward
User ID: 62661
1/30/2006 3:16 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Longevity  |
| .
User ID: 68259
1/30/2006 10:19 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
[link to www.usagold.com]
The Nightmare German Inflation
from a NEWS & VIEWS SPECIAL REPORT
(This Special Report was published in October 1994, and seems more pertinent today than then.)
"We are about to enter an era of $400 billion to $500 billion annual deficits, and reach the Point where it is almost impossible to borrow the money we need. The money we have worked so hard to save all our lives will be worthless." ---Former U.S. Senator, Warren B. Rudman, Foreword to "Bankruptcy, 1995"
"Highly placed sources in banking and business circles in Europe and South America warn that unless the U.S. government moves quickly to control the spending which is ballooning its deficit, America is in imminent danger of South American Banana Republic style hyperinflation." ---Jack Anderson
Foreword: The many parallels between 1924 Germany and present-day United States are cause for concern. We have not yet reached the depths to which Germany descended in that era, but few can look at the constant depreciation of the dollar since the early 1970's and fail to be alarmed. It seems we differ from 1924 Germany only in the duration between cause and effect. While the German experience was compressed over a few short years, ours has been more protracted. I think this has occurred for two good reasons: First, American central bankers have learned enough from the German experience to delay and extend the consequences of printing too much fiat money. Second, Germany was a small state isolated from the rest of the world --- a pariah nation of sorts --- and, as a result, it had a difficult time finding a market for its government bonds. German deficits had to be financed internally --- an impossibility which greatly accelerated the printing of fiat currency.
Up until recently, the United States enjoyed a strong world-wide demand for its government bonds, so the negative affects of government deficits were subdued. But now low interest rates, and a growing fear among G-7 nations that U.S. deficits are out of control, has greatly curtailed foreign bond purchases. The Fed has been forced to monetize an ever larger portion of the debt as a result. This is the modern equivalent of "printing money". Whether or not we are out of control seems to be a matter for debate. The trend, however, is alarming. The largest deficit during the Nixon years was $ 23.4 billion; Ford --- $ 73.7 billion; Reagan --- $221.2 billion; Bush --- $290 billion; Clinton --- $350 billion. This, to say the least, is a frightening progression.
As this report points out, the correlation between deficits and inflation is sacrosanct ---deficits lead to inflation and uncontrolled deficits lead to uncontrolled inflation. Whether or not there will be a Nightmare American Inflation remains to be seen. Let it be said though that the trend is not favorable. The survivors of the German debacle did so by purchasing gold and rare coins early in the process. As a citizen and an investor, the best you can do is prepare, and then hope against hope that it doesn't happen here. This report of Germany's hyperinflation, originally published in 1970 by Scientific Market Analysis, could play an important part in that preparation process. There is little doubt it will affect your thinking. ---MK
Introduction
If history teaches anything, it is that government cannot be trusted to manage money. When currency is not redeemable in gold, its value depends entirely on the judgment and the conscience of the politicians. (That is the situation in this country today.)
Especially in an economic crisis or a war, the pressure to inflate becomes overwhelming. Any alternative may seem politically disastrous. Whether it be the Roman emperors repeatedly debasing their coinage, the French revolutionary government printing a flood of assignats, John Law flooding France with debased money, or the Continental Congress issuing money until it was literally "not worth a Continental," the story is similar. A government in financial straits finds its easiest recourse is to issue more and more money until the money loses its value. The entire process is accompanied by a barrage of explanations, propaganda and new regulations which hide the true situation from the eyes of most people until they have lost all their savings. In World War I, Germany--like other governments--borrowed heavily to pay its war costs. This led to inflation, but not much more than in the U.S. during the same period. After the war there was a period of stability, but then the inflation resumed. By 1923, the wildest inflation in history was raging. Often prices doubled in a few hours. A wild stampede developed to buy goods and get rid of money. By late 1923 it took 200 billion marks to buy a loaf of bread.
Millions of the hard-working, thrifty German people found that their life's savings would not buy a postage stamp. They were penniless. How could this happen in a highly civilized nation run at the time by intelligent, democratically chosen leaders? What happened to business, to wages and employment? How did some people manage to save their capital while a few speculators made fortunes?
The Years 1914-1921
When the war broke out on July 31, 1914, the Reichsbank (German Central Bank) suspended redeemability of its notes in gold. After that there was no legal limit as to how many notes it could print. The government did not want to upset people with heavy taxes. Instead it borrowed huge amounts of money which were to be paid by the enemy after Germany had won the war, Much of the borrowing was discounted and monetized by the Reichsbank. As explained later, this amounted to issuing straight printing press money.
By the end of the war, the amount of money in circulation had increased four-fold. In view of this, the extent of inflation was less than one might have expected. The consumer price index had risen 140% by December 1918. This was equal to the inflation during the same time in England, a little more than in the United States, but less than in France. Yet the floating debt of the Reichsbank had increased from 3 billion to 55 billion marks!
Why was inflation kept within bounds? For the same reason that it got off to a slow start in the Unites States during World War II. Necessities were rationed and luxury goods were not easily available. Millions of men were at the front and not in the market for goods. Civilians worked hard and had little leisure for spending. People saved money against peace time, and in some cases to evade taxes. But the fuel for inflation was accumulating in the form of vast hoards of money.
The harsh reparation payments imposed on Germany led the mark to depreciate against foreign currencies. Also, the new democratic socialist leaders had promised the people all types of bounties--increased wages, reduced hours, an expanded educational system, and new social benefits. But all this meant a vastly increased demand on a limited production capacity.
For these reasons inflation resumed after the peace until by February 1920 the price level was five times as high as it had been at the armistice. Yet during this same time the amount of currency in circulation had only doubled. Prices were in fact rising much faster than the rate at which money was being printed. Therefore, reasoned the officials, the price inflation could hardly be blamed on the government. Actually, as we shall see, the ebb and flow of confidence can play a big role in the short-term trend of prices. Confidence in the mark had weakened. At the same time, and as a consequence, billions of hoarded marks came out of hiding and entered the marketplace. The accumulated fuel was burning.
By February 1920 this inflationary episode had run its course. For the next fifteen months the price index held stable. The mark actually gained in value against foreign currencies, so that prices of imported goods fell by some 50%. Here was a golden opportunity to establish a stable currency. However, during these fifteen months the government kept issuing new money. The currency in circulation increased by 50% and the floating debt of the Reichsbank by 100%, providing fuel for a new outbreak.
In May 1921, price inflation started again and by July 1922 prices had risen 700%. The Reichsbank continued printing new currency, although more slowly than the rate at which prices were rising. In fact, all through this period the issue of currency proceeded at a fairly smooth steady rate, while the price index moved up in great surges, interspersed by periods of stability.
After July 1922 the phase of hyperinflation began. All confidence in money vanished and the price index rose faster and faster for fifteen months, outpacing the printing presses which could not run out money as fast as it was depreciating.
Wholesale Price Index
July 1914 1.0
Jan 1919 2.6
July 1919 3.4
Jan 1920 12.6
Jan 1921 14.4
July 1921 14.3
Jan 1922 36.7
July 1922 100.6
Jan 1923 2,785.0
July 1923 194,000.0
Nov 1923 726,000,000,000.0
The Years 1922-1923 -- Hyperinflation!
From Mid-1922 to November 1923 hyperinflation raged. The table above tells the story. Seemingly Reichsbank officials believed that the basic trouble was the depreciation of the mark in terms of foreign currencies. In late 1922 they tried to support the mark by purchasing it in the foreign exchange markets. However, since they continued printing new currency at a feverish rate, the attempt failed. They merely succeeded in buying worthless marks in return for valuable gold and foreign exchange.
All hope of checking the collapse of the mark vanished in January 1923 when the French--alleging treaty violations--occupied Germany's key industrial district, the Ruhr. Germany subsidized the occupied companies and financed an expensive program of "passive resistance." New billions of marks were printing to finance these heavy new costs. By late 1923, 300 paper mills were working top speed and 150 printing companies had 2000 presses going day and night turning out currency.
Under the forced draft of inflation, business was now operating at feverish speed and unemployment had disappeared. However, the real wages of workers dropped badly. Unions obtained frequent increases, but these could not keep pace. Workers --domestics, farm workers and various white collar groups-- fared especially badly. They had no unions to fight for pay boosts for them, and often they were reduced to hunger. Many people showed visible signs of malnutrition. Skilled workers, writers, artisans and professionals found their wages lagging until they reached the unskilled worker level, which often meant the bare minimum needed to support life.
Businessmen began to abandon their legitimate occupations to speculate in stocks and in goods. Thousands of small businessmen tried to eke out a living by speculating in fabrics, shoes, meat, soap, clothing--in any produce they could obtain. Each fall in the mark brought a rush to the shops. People bought dozens of hats or sweaters.
By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. Food riots broke out. Parties of workers marched into the countryside to dig up vegetables and to loot the farms. Businesses started to close down and unemployment suddenly soared. The economy was collapsing.
Meanwhile, middle-class people who depended on any sort of fixed income found themselves destitute. They sold furniture, clothing, jewelry and works of art to buy food. Little shops became crowded with such merchandise. Hospitals, literary and art societies, charitable and religious institutions closed down as their funds disappeared.
Then by a mere effort of will, the government stepped in and stabilized the currency overnight.
Throughout the "miracle of the Rentenmark" the depreciation halted in its tracks, business revived, the inflationary spree was ended although, as we shall see, there was a nasty hangover yet to come.
Millions of middle-class Germans--normally the mainstay of a republic--were ruined by the inflation. They became receptive to rabid right wing propaganda and formed a fertile soil for Hitler. Workers who had suffered through the inflation turned, in many cases, to the Communists. The biggest beneficiaries of this enormous redistribution of wealth were feudalistic industrial leaders who distrusted the democracy and who proved willing to deal with Hitler, thinking that they could control him. The democratic parties and the labor unions lost their capital and were weakened. The liberal democratic regime was discredited.
What caused the inflation?
Our thesis is simple: The inflation was caused by the government issuing a flood of new money, causing prices to rise. Then, as the inflation gained momentum, events seemed to demand the printing of larger and larger issues of currency. To half the process would have taken political courage, and this was lacking. As usual, the true facts were hidden behind a barrage of excuses, explanations and propaganda laying blame on everyone except the true culprit.
First, it would be wrong to think that everyone was opposed to inflation. Many big business leaders accepted it cheerfully. It wiped out their debts. They knew how to protect themselves and even profit--by speculating in foreign exchange, by converting money into goods and fixed plant, by borrowing money from the bank and using it to buy up cheap stocks and competing companies. Their wage costs, in true value, decreased, swelling their profits. Yet many workers also thought that they were benefiting, at least in the earlier stages of the inflation. Their wages were increased, and it took time before they recognized that, with prices soaring even faster, they were actually suffering a cut in true income.
A crew of speculators arose who traded in goods and foreign exchange, they had a vested interest in continued inflations. And the government could not help realizing that the inflation was wiping out its burden of debt and would ease its financial problems.
Above all, it became an article of faith among the political leaders and most ordinary citizens that the inflation was really due to the burden of reparation payments imposed by the peace treaty. This meant, so the argument ran, that Germany would be stripped of its gold, foreign exchange and wealth; it would be bankrupt. Hence, the mark fell in value in terms of gold or dollars. This drop in the foreign exchange value of the mark was said to be the true reason for the inflation.
The German leaders felt that the collapse of the mark was proving how impossible it was for Germany to pay the reparations which were demanded. Stabilization of the mark would have spoiled this "proof." Especially after France occupied the Ruhr in January 1923, it was felt that the destruction of the mark was somehow a blow against the hated occupier--the only patriotic response available to disarmed Germany.
Finally, inflation seemed to bring prosperity. In 1921, when the rest of the world was in a severe post-war recession, production indices in Germany rose sharply. Late in 1921 the mark stabilized temporarily, and business promptly weakened. By early 1922 the mark was sliding again, and business immediately revived. People were buying goods as fast as they obtained money; companies rushed to expand plants and turn money into fixed investment. Germany was actually envied for its "prosperity" by many foreigners. [Does this sound like modern-day America, albeit with people spending on stocks in addition to goods?]
The mechanism of inflation was simple. The government issued paper promises to pay, and the Reichsbank issued money on the security of these promises. When a government spends more than its income, it must borrow. If it merely borrows money from its citizens by selling them bonds, there need be no inflation. Instead of that money being spent or invested by the citizen, it is borrowed and spent by the government, but the total amount of money is not increased.
When the government needs more money than its people are able or willing to lend it, it monetizes the debt. That is what happens in this country when the government runs a big deficit. The Federal Reserve (our central bank) "buys" as many bonds as necessary to stabilize the market. It prints money on the security of these bonds. Despite the facade of the government supposedly "borrowing," the net result is the creation of printing press money. (Actually these days the money is created in the form of new bank deposits--checkbook money--but the net result is exactly the same as if bills were printed.)
This is what happened in Germany. The government issued notes which were promptly discounted by the Reichsbank, i.e., the bank issued money on the "security" of these worthless notes. To compound the evil, the bank failed to raise its interest rate sufficiently. Businessmen found it very profitable to borrow money from the bank and buy up goods, shares and companies. Their debt was wiped out within weeks by the rapid inflation, and the businessman remained holding the valuable assets he had bought. The net result was a huge "private inflation" caused by the rapid expansion of credit. Even foreign exchange was bought with borrowed money, so that the Reichsbank actually financed speculation against its own currency. Yet the bank refused to raise interest rates, arguing that this would only add to the cost of business and thus would increase inflation!
The tax system virtually broke down. Businessmen found that by merely delaying tax payments, the depreciation in the mark would virtually eliminate their true value. But the government, lacking adequate income, felt forced to resort more and more to creating money. By October 1923, 1% of government income came from taxes and 99% from the creation of new money.
But the main force which gave inflation its momentum was the steady decrease in the true value of money in circulation. This has been observed in all past rapid inflations and it is vital to understand it if inflation is to be coped with. During the war, as we saw, the price inflation lagged behind the rate at which money was issued. But now, as people lost confidence, prices began jumping much faster than the government could generate new money. Thus the total circulating currency fell drastically when measured in terms of its true value. One economist stated that, "In proportion to the need, less money circulates in Germany now than before the war. This statement may cause surprise but it is correct. The circulation is now 15-20 times that of pre-war days, whilst prices have risen 40-50 times." In fact, the total currency when calculated in gold value fell from 7428 million marks in January 1920 to a mere 168 million by July 1923.
Despite the proliferating billions of trillions of marks, the average citizen found it harder and harder to get enough money for necessities. Banks, short of money, could not honor checks. Businessmen were strapped for money to buy materials and meet payrolls. The government faced the same problem. It appeared that there was not too much money around, but rather much too little. The clamor for more money grew on all sides. It seemed that any halt to the printing presses would bring business to a standstill and throw millions of workers out on the street. The government itself would be unable to carry on. Riding a tiger, it dared not dismount. On October 25, 1923, the Reichsbank noted that it had that day printed 120,000 trillion marks. Unfortunately, the day's demand had been for one million trillion. However, it announced that it was expanding production and the daily issue would soon be 500,000 trillion!
Once people lose confidence in a currency, they try to get rid of it. As Lord Keynes pointed out, this makes circulation speed up enormously, and hence prices rise faster than the government can print new money. Marshall, studying this process, concluded that, "The total value of an ' inconvertible paper currency cannot be increased by increasing its quantity; any increase in quantity which seems likely to be repeated will lower the value of each unit more than in proportion to the increase."
Customarily, however, governments blame everyone and everything except themselves for inflation. When inflation lags behind issue of money, as it did in the war, they say that this shows that the issue of money is not dangerously high. Later, when confidence vanishes, and prices soar ahead of currency issues, that again is taken to prove that the government is not to blame--it is only reluctantly issuing money that is desperately needed in view of rising prices.
We will conclude this discussion with a quotation from Dr. Milton Friedman's book, Dollars and Deficits. Friedman notes that after the Russian revolution, the Bolsheviks introduced a new currency. They printed huge amounts of it and soon it became almost worthless. At the same time some of the older Czarist currency still circulated and maintained its value in terms of goods. It appreciated enormously in terms of the new money. Why? This money was not redeemable. Nobody expected the Czarist government to return. Why did this currency hold up? "Because," says Friedman, "there was nobody to print any more of it."
Effects of Inflation on Business
As inflation proceeded, people rushed to buy goods and get rid of their depreciated money. For similar reasons, businessmen hastened to buy machinery, to build new factories, to buy huge stocks of coal, steel and other raw materials. Those who had access to credit borrowed heavily for these purposes, and inflation wiped out their debt. There was a tremendous conversion of working capital into fixed investments. Business was booming and unemployment virtually vanished until the last stages of the inflation.
Farmers got rid of currency by heavy purchases of equipment, and later many were left holding large supplies of useless machinery. Shipbuilding was expanded beyond all market needs. Marginal mines were opened leading to serious overproduction later on. But while basic industries prospered, there was a severe depression in consumer goods industries such as textiles, meat, beer, sugar and tobacco. Too many workers and persons on fixed incomes had lost their purchasing power.
There was a tremendous move toward concentration of industry. Large firms or combinations found it much easier to raise prices, to obtain raw materials and above all to obtain bank credit. Also, they could issue "notegold" or emergency money which more and more came to replace the paper mark as a medium of exchange. Some of these new industrial combinations were rational and efficient, but many were purely speculative operations. A new breed of financier arose.
Earlier the great German industrial leaders--men like Krupp, Thyssen and Siemens--had developed basic new ideas in technology or in organization. But now the rising stars were those of shrewd speculators and manipulators geared to quick trading and to jumping from deal to deal and from company to company. The most successful were those who saw the trend of events early, who borrowed to the hilt and bought up goods, shares and companies at bargain prices. Conglomerates sprung up forty years before the heyday of the conglomerate movement in the U.S. Perhaps the biggest operator of the day, Hugo Stinnes, formed a giant conglomerate including companies in oil, coal, steel, shipyards, electrical works, insurance, newspapers and hotels. He died in 1924, just before his empire fell apart in the cold winds of the stabilization period. Most of these new mushroom combinations and conglomerates were speculative bubbles which were only able to survive as long as they benefited from ongoing inflation.
Beneath the surface of prosperity there was enormous waste and inefficiency. Much of the new capital plant proved inefficient or unneeded. Middlemen multiplied like locusts, and more and more time and energy went to speculation and to endless paperwork generated by currency fluctuations, new tax law regulations and labor disputes. Speculation caused banks to multiply; there were 100,000 bank workers in 1913 and 375,000 in 1923. Labor became much less productive. Workmen were pre-occupied with their own problems of trading, getting wage boosts, and staying ahead of inflation. With paper wages rising rapidly and full employment, they were less inclined to work hard. Despite the surface boom, net production was really much less than before the war.
Bewildering fluctuations in costs prices and wages made it impossible to allocate resources and production rationally. More and more, the businessman became a speculator in goods and currencies. However, very few businesses failed, since their debts were constantly wiped out by inflation. Bankruptcies had run to 815 per month in 1913; by late 1923 they were 10 per month.
Finally, however, in the last stages of the inflation, the economy began to collapse. Retailers could not get goods or else could not sell at a profit. The money they received was depreciating too fast. Farmers stopped selling their produce. More and more stores became empty. Now unemployment began to soar.
Some economists argued that inflation may have helped Germany by stimulating the building of capital plant and the rationalization of industry. But much of this investment proved to have no value except in the dream world of inflation. Most of the inflation combinations fell apart after stabilization. On the whole, much energy and wealth was wasted in unproductive channels--speculation, paperwork and unprofitable equipment. The working capital of industry was largely dissipated, making that much harder the eventual process of economic rebuilding and rationalization.
Stabilization--The Rentenmark Miracle
In November 1923, a currency reform was undertaken. A new bank, the Rentenbank, was created to issue a new currency--the Rentenmark. This money was exchangeable for bonds supposedly backed up by land and industrial plant A total of 2.4 billion Rentenmarks was created, and each Rentenmark was valued at one trillion old paper marks. From that moment on the depreciation stopped--the Rentenmarks held their value; even the old paper marks held stable. Inflation ceased.
What was the secret of the "miracle of the Rentenmark"? After all, the new currency was not redeemable in anything. Its backing by real property was a fiction, since there was no way by which property could be foreclosed or distributed. Further, there we have the government distributing a vast new supply of money--2.4 billion trillion in terms of the old mark. Ought that not have led to a new wild inflation?
To understand this, we must recall that the real value of the money circulating in late 1923 was small--equal to a mere 168 million pre-war gold marks. The continued depreciation at this point was due to utter lack of confidence--to the belief that the printing presses would run indefinitely. But actually there was a great shortage of and need for money. New money could be introduced without price inflation if only people had confidence in it. How was confidence developed?
First, the government announced that the new currency would be "Werthbestandig"--stable in value. In their hunger for usable money people accepted this, at least until it should be proven false. Then the property backing seemed to give the currency value. True, the Assignats of the French Revolution, backed by fixed property, had depreciated, but still the backing helped.
Second, and certainly most important, the government limited strictly the amount of Rentenmarks which could be issued and it halted the issue and discounting of notes and the creation of paper marks. Finally, after April 1924, the Reichsbank stopped the expansion of credit to businesses which had been stimulating inflation. Businessmen were required to repay loans in gold marks, equal to the original value of the loan. Thereafter, incentive was gone to borrow except for legitimate needs.
In August 1924 the reform was completed by introduction of a new Reichsmark, equal in value to the Rentenmark. The Reichsmark has a 30% gold backing. It was not redeemable in gold, but the government undertook to support it by buying in the foreign exchange markets as necessary. Drastic new taxes were imposed, and with the inflation ended, tax receipts increased impressively. In 1924-1925 the government had a surplus.
After the stabilization, most companies found that they were critically short of working capital. Their funds had been dissipated or converted into goods and plant, and cash was very short. They could no longer rely on a stream of incoming capital at the cost of bond holders and workers. Taxes were again a serious burden, as were wage agreements that had been made under the inflation.
In other ways the business climate changed. Now there was a huge demand for consumer goods, but the capital goods industries which had so overexpanded in the inflation were depressed. Huge stocks of coal, steel and other materials which had been accumulated were a drug on the market. Agriculture and building, however, flourished.
Many of the speculative and conglomerate companies which had been formed in the inflation were unable to survive. They failed, or split up into their original components. In 1923 there had been only 263 bankruptcies; in 1924 there were 6,033. Most of the great inflation speculators were ruined or faded from the business scene. However, strong, well-organized companies like Krupp and Thyssen which had resisted overexpansion and speculation were able to weather the stabilization period and to thrive.
How Investments Fared
At the start it is important to understand how hard it was to obtain real income during the inflation. Professionals, skilled workers and others used to enjoying good income found their real salaries disastrously cut. Those who depended on savings, pensions or investment income for a living faced a terrible situation.
Interest from bonds or savings deposits soon depreciated to where they had no real value. Stocks paid meager dividends or none at all; corporate managements needed the money for working capital, or used it for capital building and speculation. Owners of rental property fared no better; the government froze rents, which soon meant that tenants were occupying premises virtually rent-free. Dipping into capital led to big losses, since cash, bonds and even stocks quickly shrunk drastically in value. The urgent need for income had important effects on the true prices of various types of property and investments.
Cash: Money held in cash lost value rapidly and soon became completely worthless. Of all investment forms, this was the most disastrous.
Bank Deposits: In theory, bank deposits became as worthless as cash. However, after the stabilization the government decreed partial reimbursement, and sums in the range of 15-30% of the original deposit value were repaid. Naturally, however, the great majority of depositors withdrew their funds at some time during the inflation, after much of the value had been lost, and exchanged them for goods. Few Germans held money in deposits through the entire period.
Bonds, Mortgages: As usual in an inflation, bonds and mortgages fell in value even faster than cash. After the stabilization, some restitution was provided by law. Holders of government bonds were reimbursed to the extent of 2.5% of the original bond values. Mortgage holders also received some repayment, while a 1925 law provided for 15-25% reimbursement of corporate bondholders, though the payment was delayed for some years. Here again, few investors held bonds or mortgages throughout the entire period; most holders got rid of them for whatever pittance they would bring during the inflation.
Real Estate: Farmers and holders of urban property seemed to benefit if their property was mortgaged; the inflation soon wiped out the mortgage debt. However, they received no income, as noted above, since rents were frozen. After the stabilization, heavy new taxes and the urgent need for cash forced most holders to remortgage their property, often more heavily than originally, so that their gains were illusory. Still, those who held real estate throughout managed to save the capital thus invested. However, those who sold during the inflation (often through desperate need for cash) fared poorly. Because it brought no income, real estate sold at extremely low real price levels during inflation.
Foreign Exchange: Those who held funds in dollars, pounds or other stable currencies, or in gold, saved their capital. The government set up rigid exchange controls as the inflation proceeded. As usual under such conditions, a black market flourished. The ones who fared best were the small minority who had the foresight to exchange marks into foreign money or gold very early, before new laws made this difficult and before the mark lost too much value.
Personal Property: Capital was preserved by those who early changed it into objects of lasting value--rare coins, stamps, jewelry, works of art, antiques--or into merchandise such as clothing, fabrics, etc. Of course, most people did not understand the advantage of accumulating such property until the inflation was well along. By that time the prices of all goods had risen so much that they seemed outrageously bad bargains. In the event, however, cash proved an even worse bargain.
Common Stocks: In an inflation, common stocks are generally considered a desirable hedge to protect against or even to profit from the rise in prices. In practice, it is not so simple. In this country stock prices have been known to fall violently just when inflation was most evident (1946, 1957, 1966, 1969). Market fluctuations--the rise of exciting new speculative stocks, waves of fear or greed--all make it much too easy to buy or to sell at the wrong time or to go into the wrong stocks.
Getting down to specifics, we can say that those who bought a well-diversified list of stocks in solid, well-established companies quite early in the inflation and who held on throughout the period and also through the stabilization crisis saved much or all of their capital. However, there were many pitfalls along the wayside for the greedy, the fearful and the over-clever. Those who did best were investors with a certain unemotional, stolid character, a basic confidence that strong, well-managed companies would come through, and an immunity to excitement, anxiety and speculative temptations.
Many very sharp but brief advances and declines in the market led to widespread speculation, and well-intentioned investors often wound up as traders. Naturally most of them did as badly as amateur speculators generally do. Many decided that speculation was the only sensible approach; when the entire economy and financial structure was visibly crumbling, who could wait patiently with confidence in the long-range value of anything?
Could it Happen Here?
Since 1939 the general price levels have gone up some 200% in this country. Much of this inflation was due to the government generating large amounts of money to pay for three wars. You can be absolutely certain that if we are involved in any further wars for big increases in military spending, there will be new inflationary surges. Modem governments do not dare to impose the taxes needed to pay for war. They find it much easier politically to inflate instead.
The most recent wave of inflation, which got underway in 1965, was triggered by enormous expansion in spending for the Vietnam war. The government ran deficits as big as $25 billion, and much of this debt was monetized by a process similar to that by which the Reichsbank monetized the German government's debt. The main difference is that the newly generated money shows up mainly as bank deposits instead of printed currency. Since bank demand deposits are in fact money, convertible into currency and usable for any type of purchase, the net result is the same.
At the same time that Vietnam war spending mushroomed, our government undertook a vast program of expensive social welfare spending. It was argued that this country could afford guns and butter. The result was an inflation which already has imposed a 20% capital tax on all savings held as cash, bonds, insurance and on pension payments and other fixed income.
Now, in March 1970, the government and the Federal Reserve have been fighting for a year to check the inflation. Thus far, they have succeeded in slowing down the economy, but prices have continued rising as fast as ever. The reason is simple. Inflation has developed momentum. Many people, especially businessmen, have no faith that the government will stick to its policy. They look for more boom and inflation ahead. Hence, they have continued to get rid of money as fast as possible and convert it into goods, machinery and factory buildings. Even though our manufacturing plant is already in excess in needs and is being utilized at only 82% of capacity, the building boom continues. The reasons are precisely those which led to this behavior in the German inflation.
The late 1960s also saw the rise of a new breed of financial speculator. Huge conglomerates were organized, often with heavy borrowing, taking advantage of inflationary trends. Although their stocks soared in 1967-1968, even a hint of possible deflation and a cooler economy led to drastic declines of 60-80% in 1969. Many reported serious losses or sharply lower earnings. We believe that many of these companies could not survive a period of recession and deflation. Further, some bankruptcies in a few huge, prominent speculative companies could set off a chain reaction and a financial crash. And that is where the great danger of a wild inflation lies.
Today the public expects and demands that the government must maintain prosperity and full employment. If a very severe business slump developed, Washington would have no choice at all--it would have to spend huge sums for relief, public works, to pay off mortgages, etc. Yet at the same time tax payments would drop sharply as business profits disappeared. Taxes could hardly be raised under such circumstances. What would the President do? Turn on the printing presses? What else could he do? [Editor's note: As a reminder, after this report was written, the redeemability of the dollar for gold was terminated in 1971, two Oil Crises struck in 1973 and 1979, and massive Cold War expenditures characterized the 1980's.]
Ironically enough, we think that all this could be triggered by the anti-inflation campaign. It may prove all too successful. The money managers in Washington are aiming at a mild cooling down in business. This would reduce spending and investment, and hopefully would slow down the rate of price escalation. We think that it may work for a while and to a degree. Unhappily it poses tremendous danger.
During the last several years of inflationary boom, debt has gone far too high. Government, individuals and especially businesses have borrowed and spent without limit. In an inflationary period, this makes sense. At the same time liquidity is at an all-time low. Cash and government bills are less than 20% of the current liabilities of business against a normal 40-50% (and 90% right after the war).
The danger is that some of the especially vulnerable businesses will get into deep trouble and that the trouble will spread. In 1954, 1958 and 1960 the economy could stand a moderate recession without its escalating into something worse. In 1970 this may no longer be the case. The trend toward illiquidity and dangerously high debt has proceeded for twenty years, and other figures indicate that the breaking point is near. It might come very soon, or not for many months or even a year or two. Who can tell just when some stray breeze will cause a rickety house of cards to collapse?
Once a snowballing financial and economic deflation gets underway, it could develop with breathtaking speed. Soon the government, instead of worrying about inflation, would be using desperation measures to halt the collapse, even if it had to run budgetary deficits of 100 billion or more. In the short run, in a pragmatic sense, Washington would simply feel that it was tackling an overriding emergency, relieving hardship, etc. In the long term, what it would be doing was to inflate up to the point where most of the huge debt burden was wiped out, and a fresh start could be made. Of course, this would be at the expense of millions of savers who would lose most of their capital. Hopefully the expropriation would be less drastic than it was in Germany.
Reprinted from The Nightmare German Inflation by Scientific Market Analysis, 1970.
(Editor's note: By the end of the 1970's, double digit inflation had ravaged the American financial landscape. This forecast by Scientific Market Analysis was not only accurate, it was prescient, and the conclusions drawn enduring. Only the very strict monetary policies of the Federal Reserve Bank during the 1980's kept the nation from sliding into the hyperinflationary abyss, and those years became a period of relative calm. The profligate fiscal policies of the United States government, however, continue unabated. The overall national debt has grown to enormous proportions. The defense build-ups of the Reagan and Bush administrations, coupled with the unbridled growth of entitlements --- financed to a large degree with government debt---have set the stage for a new round of inflation. Few believe that the Congress or the President possesses the political will to stop the spending. As argued by Scientific Market Analysis in this report, sooner or later, the deficits will translate to inflation, and sooner or later, the Federal Reserve Bank will find it nigh impossible to continue pulling rabbits out of the hat. Whether or not the inflationary tendency of the American economy will cross the line to hyperinflation is primarily a matter of politics---a reality few of us welcome. For the United States to escape the fate of 1924 Germany, we must alter our ways and soon. MK)
Copyright 1999 USAGOLD / Centennial Precious Metals, Inc. All Rights Reserved. No further reproduction without permission.
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User ID: 68981
2/1/2006 10:33 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
- For those of you who like your market indicators moving in a more glacial vein, Richard Russell of the Dow Theory Letters writes "From a Dow Theory standpoint, the markets continue to face a major non-confirmation in the Averages. The Transports have risen to new record highs while the Dow has failed month after month to confirm. Thus, from a Dow Theory standpoint, this is a dangerous market. It's particularly dangerous because of this truly spectacular divergence and non-confirmation in the Averages."
Now, as today's obligatory lesson containing real "educational content", let's analyze this linguistically. First off, we note that he uses the adjectives "major", "record" and then "dangerous" TWICE, and ending up with the word "spectacular." What was the author saying?
Well, I could call him up on the phone and ask him, but I am far too lazy and far too cheap to do that, for one thing, and for another thing I can just read his mind with my amazing Mogambo paranormal abilities (AMPA). I close my eyes. I concentrate. I send out waves of mental energy, locking onto his mind, sort of like a Vulcan mind-meld. I probe his mind. Probe. Probe Finally, I see he means "Get up off your stupid fat butt and buy gold and silver and platinum and oil, because these are the kind of tremors that happen at the Big Freaking Moment When The Tides Turn (BFMWTTT), and it is not just The Mogambo that is so scared that he poops in his pants, but lots and lots and lots of other people, too, measured in the teeming hundreds of millions all around the world, are pooping in THEIR pants, too, in fear of losing their money, and now there is a big stink everywhere as a result." So, I am happy to report, it's NOT just me that stinks in raw fear around here.
- Eric Sprott and Sasha Solunak of Sprott Asset Management write (to paraphrase) that I am not the only one that thinks that we Americans are acting like scary, stupid buttheads. They write "This environment of egregious excesses and unprecedented financial recklessness has only gotten worse in the past twelve months, even surpassing what macroeconomic logic can reasonably describe as the breaking point." If you are like me, then you are wondering what in the hell they are talking about. Sensing this, they continue "US consumers were able to amass $1.3 trillion of new debt in 2005. Outlays in fiscal 2005 increased by 8% over the previous year. The national debt now stands at $8.2 trillion, already hitting the debt limit that was raised by $800 billion at the end of 2004. The federal government's net liability, as reported in the '2005 Financial Report of the United States Government', now stands at a mind-boggling $49.4 trillion. That's almost $200,000 per American! It sounds too ludicrous to be true, but this is the government's own number."
- A reader wrote to the Urbansurvival.com site to report that "certain ammo is impossible to obtain now. The Russian manufactured Wolf & Bear ammo in 7.62x39 (for use in AK's, SKS's, & Ruger Mini-30's), which was dirt cheap for American shooters, is now dried up. More then likely all this ammo is being shipped to Iran, Syria, and other Arab states as the AK's in 7.62x39 are what their military and other forces use there. Just another little indicator that things with Iran are heating up big time." |
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User ID: 68981
2/1/2006 11:36 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Standard & Poor's Specialists Predict Global Economic Armageddon
Specialists believe that the US will lose almost 45% of its euro in the near future
January 31, 2006
Pravda
Experts of Standard & Poor's forecast a global economic collapse. The collapse will be caused with the demise of the US dollar rate against the European currency by more than 30 percent. The dollar, specialists say, may lose almost 45 percent of its current value against the euro. However, it is obvious that even a 30 percent reduction will affect the international economy greatly. US dollars and euros
Standard & Poor's (SP) ties the possible decline of the American currency with the imminent rise of the European economy and the payment shortage of the USA, which made up 6.4 percent of the nation's GDP last year ($790 billion).
SP analysts emphasize the restricted growth of the USA's GDP, which has been behind the level of ten percent for quite a while. US assets - securities and real estate - successfully compensate the 6.5 percent payment shortage of the GDP at present. The assets enjoy very good demands on the market: the growth of their cost outstrips the growing volume of the payment deficit. SP specialists believe, however, that the cost of the above-mentioned assets has been increasing for a very long time. This process is expected to stop sooner or later, SP analysts say. If it happens, the issue of the US dollar stability will surface immediately. The global economic collapse will follow shortly after that.
The European Central Bank has expressed its concerns with the forecast from Standard & Poor's. European financial specialists say that the demise of the American currency will endanger the global economy on the whole. Alex Weber, a member of the ECB council, stated during the recent Economic Forum in Davos that international investors do not pay enough attention to the risks which the global economy has to face at the moment. The President of the European Central Bank Jean-Claude Trichet agreed with his colleague. According to Trichet, the world will have to pay a huge price for the ongoing increase of the payment deficit in the USA.
The forecast from Standard & Poor's contains several contradictions as well. The US dollar has very strong defenders outside the USA - China and Japan. The two countries acquire the stocks of the US Treasury to support the dollar. The dollar share makes up 70 percent (almost one trillion US dollars) of the Chinese currency reserves despite the continuing process to reduce the dollar constituent in China's reserves. Therefore, China is highly interested in the preservation of the dollar value.
While Standard & Poor's specialists talk about the looming collapse of the American currency, Citigroup analysts predicted the end of the dollar reign in the world economy back in 2005. Nowadays, Citigroup forecasts the fall of the European currency and recommend investors to sell euros.
If the pessimistic forecast from Standard & Poor's is destined to come true, the declining dollar will affect the world economy entirely and lead to unpredictable consequences. The crisis will obviously strike a serious blow on the Russian economy too. The decline of the dollar rate and the growth of the euro may become a positive factor for many Russian producers, though. If the euro grows, the Russian goods exported to Europe will become more competitive.
[link to english.pravda.ru] |
| Anonymous Coward
User ID: 2267
2/1/2006 11:44 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
I have to admit, I laugh out loud everytime this thread is bumped. The title and original date are just too funny. |
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User ID: 76220
3/31/2006 8:47 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
CENTRAL BANKS, WEIMAR GERMANY, AND GOLD
by Richard J. Greene
Thunder Capital Management
March 30, 2006
The man on the street is increasingly beginning to figure it out that the Government has been lying to him and, in effect, stealing from him. The retired person is finding out because after his cost of living adjustments he is just not making ends meet. The purchaser of inflation-adjusted securities is noticing that after his return of capital the capital does not purchase what it once did. The sender of a Federal Express letter can find a fuel adjustment charge of $4.13 now for just a single letter! Even producers of gold and silver, the ultimate defense against inflation, notice the price of steel and fuel are rising even faster than their end products. These are all dead giveaways that inflation is higher than reported and the masses are waking up in larger and larger numbers that it is a matter of survival to keep pace with inflation.
All of the government manipulations have largely worsened the situation by not only deceiving the masses, but also the allocators of capital which has resulted in serious misallocations of capital. Do we really need more retail stores or housing? Would we even come close to needing what we already have if it weren’t for free and easy money? (In real terms money has in actuality been less than free unless you believe the ridiculous measures of low inflation that have been bandied about over the past few years.) The credit-based emphasis on consumption and asset bubbles to drive economic growth has gutted the longstanding, self-sustaining infrastructure of the US economy that had been its greatest strength.
The differences between our economy today with the centrally-planned economies of Russia in the past are less decipherable every year. The neglect of savings and investment that is crucial to a solid foundation for economic growth has been replaced by central planning of the economy by economic illiterates. While paying lip service to free markets and free trade, markets are manipulated and consumption is now entirely dependant on foreign capital. On top of all of this the foreign capital is precluded from investing in assets of its own choice but rather are directed toward more US debt; debt that is unlikely to be repaid in real terms. It is becoming obvious that the free money phase has played out, and as foreigners refuse to provide more capital except with higher compensation for the increasingly necessary monetization, more and more monetization will become necessary. The seeds of hyperinflation have been sown.
The US economy is heavily dependent on keeping asset bubbles from deflating. Just think how many people are employed as real estate agents, mortgage brokers, stock brokers, and other paper shuffling activities, not to mention the huge employment in the retailing industry that is totally dependent on the US continuing to consume more than it produces. Unemployment probably already exceeds 10%, yet, again government statistics assure us everything is sound. With such a heavy dependence on stocks and real estate never going down again, it makes sense to look at the Weimar experience and the great inflation in Germany in the early 1920’s. Wall Street and the Government have the masses fooled that everything is just fine since the market never goes down. Yet if we look at the German experience the stock market went from under 100 to over 26 Billion in five years’ time. A lifetime of savings and retirement funds were wiped out in a matter of months and people were forced to live from hand to mouth. With $50 trillion in present value of future benefits promised to workersm do Americans really believe they will get anything close to that in real terms? They may get it in nominal terms but it will probably not buy a bologna sandwich.
So, what to do to protect yourself from this cataclysmic possibility? Our recent administrators of the financial system are incredibly similar to John Law, a notorious financial alchemist that resurrected the economy of France before bringing it to its knees in the 1800’s. The difference is that today’s charlatans are equipped with much more powerful weapons through computerization and financial derivatives which in the end merely allow for vastly higher degrees of leverage and obfuscation. This has prolonged the day of reckoning to an incredible extent yet also guarantees the unwinding will be ever more painful. The typical financial planner today should be completely ashamed of his lack of knowledge and ability. While it is not surprising that bus drivers, plumbers, and the bulk of society are not conversant in the dangers prevalent today, it is totally unacceptable and disgraceful that financial people whose business it is to know are so completely in the dark. For example, it is common to hear advisors recommending municipal bonds as completely safe to investors while the municipality has huge deficits, debts, with a need to raise taxes that will kill the local economy. The land mines out there are clear to see with stocks like; FRE, FNM, GM, GE, F, JPM and a host of others. Don’t be surprised if one of these firms is used as a toxic dumping ground to bury as much of the defaults as possible. All of these problems lead back to the same thing; the replacement of real money, gold and silver, with fiat money that is in the early stages of failure. “The Rude Awakening”, an in-the-know free daily economic commentary, posted the following chart showing how in real terms gold has barely taken off.
Comparing yesterday's gold price to today's is apples and armadillos.
Don’t be impressed that the Dow is closing in on all-time highs. The charts above from Robert Prechter’s “The Elliott Wave Theorist” show a much truer picture. If measured in a stable measure of value such as gold, the Dow hit a new six-year low early this year. Do the recent multi-year highs in some of the major indices mean everything is strong and running smoothly as the talking heads on Bubblevision proclaim? We should soon see. The wisest defense in this environment is to have the bulk of your assets in gold and silver yet the vast majority as yet have none. What are YOU waiting for? |
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4/8/2006 10:41 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
America's Total Debt Report - Update 2006
$44 Trillion - and Soaring
~ household, business, financial and government sectors ~
by Michael W. Hodges, Author
Grandfather Economic Report
April 6, 2006
America has become more a debt 'junkie' - - than ever before
with total debt of $44 trillion - - with the highest debt ratio in history.
That's $147,312 per man, woman and child - - or $589,248 per family of 4,
$44,312 more debt per family than last year.
Last year debt increased $3.5 Trillion, 5 times more than GDP.
Household debt soared 12%.
68% ($30 trillion) of this debt was created since 1990,
a period primarily driven by debt instead of by productive activity.
And, the above does not include unfunded pensions and medical promises.
2 GREAT QUESTIONS:
Can the production of debt forever replace the production of goods and savings?
Can Americans forever borrow their way to prosperity?
Easy Answer > NO WAY !!
I am concerned about the debt being passed to our younger generation. Who isn't?
Trend national debt vs national incomeBIG PICTURE - $44 TRILLION of DEBT in America and rising rapidly
The economy is 2-3 times more debt-dependent with $25 Trillion DEBT EXCESS compared to prior debt ratios:
This is A SCARY CHART - showing 4 decade trends of total debt in America (the red line, reaching $44 trillion in 2005 vs. growth of the economy as measured by national income (blue line). (adjusted for inflation). That debt increased $3.5 Trillion (8.8% more) in the past year.
Which line goes up faster, the red debt line or the blue net national income line?
Answer: the debt line.
And, that debt line is going up faster and faster than national income! Right? (maybe. Like this chart, your own personal or business debt is also going up faster than your own income - - possible?)
As mentioned, debt is here defined as all U.S. debt (sum debt of federal and state & local governments, international, and private debt, incl. households, business and financial sector debts, and federal debt to trust funds).
This chart shows, for the period 1957 to mid 1970s, total debt (red line on chart) was increasing close to the growth rate of national income (blue line on chart), despite paying war debt for WW II, Korea and Vietnam.
But, in the last several decades total debt has zoomed up, up and away - - growing much faster than national income. It has now reached $43.7 Trillion ($33.7 trillion private household/business/financial sector debt PLUS $10 trillion federal, state and local government debt). Here are some highlights:
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Last year's total debt of $43.7 Trillion was 9.5 times higher than the $4.6 Trillion debt in 1957 (both measured in inflation-adjusted 2005 dollars).
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Last year's total debt increased $3.5 trillion (up 8.8%). Federal government debt (incl. added debt owed trust funds) increased $574 billion (7.6%), household debt increased $1.2 Trillion (up 11.7%), business debt increased $606 billion (7.8%), state & local government debt increased $177 billion (up 10.6%), domestic financial sector debt increased $877 billion (7.5%), and other foreign debt was up 8%.
*
Last year's total debt per person was $147,312 (up $10,833 over last year's $136,479); this compares to $28,001 in 1957 (both measured in inflation-adjusted 2005 dollars). That's a debt excess of $119,310 per man, woman and child.
trend of debt ratioWhile the above chart shows debt growth in inflation-adjusted dollars, here's another chart from the main report of this chapter - - showing debt as a percentage of net national income - - which I term the 'debt ratio'.
This chart shows < 2005 debt of $44 trillion was 442% of national income; the debt ratio in 1957 was 186%. If 2005 debt had been at the 1957 debt ratio, then 2005's debt would have been $19 trillion, not $44 trillion - - indicating excess debt in America today of $25 trillion. (note - if this chart were plotted as debt % GDP, instead of debt % national income, the curve would look near identical to this chart)
In this graphic note how the debt ratio data plots are nearly flat during the first half of the years shown, indicating debt was growing at approximately the same rate as the economy - - not faster than the economy. This proves America's economy can grow without increasing debt at a faster pace (because it has in the past). But look what happened to that trend in the middle of this chart - - debt ratio zooming upward, faster and faster, indicating debt growth way beyond general economic growth - with a new, record high debt ratio each year.
The excess debt is even higher than the $25 trillion excess shown on this chart, if a nation's economy were structured to become more productive such that it could grow without increased debt. Why can America not grow by normal population growth and labor and equipment productivity - - without growing debt ratios higher and higher?
By the way > a chapter of this series called the 'Family Income Report' shows the time period of the first half of this chart, when debt ratios were stable, was also one of the best periods ever of real median family income growth - most with one wage-earner per family.
Stated differently, in 1957 there was $1.86 in debt for each dollar of net national income, but in 2005 there was $4.42 of debt for each dollar of national income - up 137%. It also means this extra $2.56 of debt per dollar of national income produced zilch extra national income. What kind of 'so called productivity' is that?
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Since 1990, 81% of today's domestic financial sector debt was created, as it increased 2.5 times faster than growth of the economy; household debt increased 50% faster. During the same period the federal government siphoned off $2.9 trillion of trust fund surpluses, creating new un-funded IOUs (the total IOUs now stand at $3.5 Trillion, with no budgeted pay-back).
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2005 was a new, all-time record high in debt ratios of the household, business, and domestic financial sectors - also record debt ratios owed to trust funds.
*
In the past year the debt record was even more scary: household debt increased 2 times faster than the economy - - and the federal government's bite out of trust funds set another record high.
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In 2003, the average credit-card debt of US households with at least one card was $9,205, up from $2,966 in 1990, according to the research firm CardWeb.com - - that's 310% higher.
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Even students are learning how to go into debt up to their necks. The federal General Accounting Office, according to AP's Martha Irvin in January 2002, says college students are graduating with an average of $19,400 in student loans. Additionally, average student credit card debt rose 46% from 1998 to 2000, according to the student loan agency Nellie Mae. Meanwhile, universities promote credit cards issued by agencies who kick-back to them.
*
Since 1990 it is clear the economy was 'driven' almost entirely by the biggest injection of new debt in history, which produced a much diminished lower return in national income per dollar. Just as one hooked on drugs needs ever increasing amounts of drugs to 'survive', it appears America needs ever increasing amounts of new debt to eke out diminishing amounts of growth - - even with 2 wage earners per family.
*
America's total private and government debt is at least 100% higher compared to debt ratios of the recent past.
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According to the Federal Government Debt Report its total debt was $8.2 Trillion at the end of 2005. That includes $2.2 Trillion owed by the U.S. federal government to foreign interests (which represents 46% of all Treasury bonds & notes).
*
The total external debt of USA as of 9/30/05 was $9.3 trillion, representing about 21% of America's Total Internal and External Debt of $44 Trillion. In addition to that portion owed by the federal government this $9.3 external debt also includes $1.8 Trillion owed by the banking sector and $5.4 Trillion owed by other sectors.
*
as of 2004, according to Gillespie Research/ Federal Reserve, about $9 trillion of U.S. financial assets are owned abroad, including the above mentioned federal government debt, also including 13% of all stocks and 27% of corporate bonds, and foreign investors & central banks also own 13% of U.S. government agency debt (such as household mortgages financed by Fannie Mae) up from 5% in 1995. The largest supplier of mortgage funds is Fannie Mae which borrows the money on the open market - - and, according to Bloomberg Sept. 2002, "about a third of the Fannie Mae's benchmark debt is sold outside the U.S." - - (dangerous with a long-term falling dollar exchange rate).
*
Additionally, foreign interests own real estate and factories - - and some would be surprised to learn that the well-known and respected California-based Pimco, the world's largest bond fund, that many believe is an American firm is in fact a unit of Allianz.AG, a German firm.
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We should not be mad at foreign interests. We are the ones borrowing from others so we can consume beyond our own production and savings, and thereby creating unprecedented debts and trade deficits PLUS excessive government spending. While America's debt used to be nearly all owed domestically, increasingly huge portions are now controlled by foreign interests.
America, therefore, is less and less independently in control of its economy
- - not a nice bequest we are creating for our children and grandchildren.
While facing this accelerating debt Challenge:
*
America, already the world's largest international debtor with $5.7 trillion in cumulative trade deficits in goods since 1985, explodes international trade deficits to new records as it depends more and more on the production and savings of others than on itself (see International Trade Report); and,
*
with each citizen carrying on his/her back more state & local government employees than ever before, because their headcounts again increased faster than general population growth; and,
*
personal savings plunged to record lows; and,
*
real median family incomes (Family Income Report) ceased their solid increases after debt ratios took off.
*
with household debt at the highest ratios in history,
*
whereas in previous times one bread winner per family was sufficient to provide for the family, build savings and reduce get-started debt loads - - the family now allocates the 2nd bread winner plus more debt with less savings and less time for the children - - to do the same.
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and - in previous times students graduated from college debt-free to themselves and their parents, because many worked their way via part-time jobs while minimizing consumptive spending. No longer
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The above debt ratio chart also adds evidence about the period of what some call the "financialization" of the economy by debt, including increasing domination by the nation's financial sector of the total capitalization based weight of the S&P index - - a topic discussed as a part of naming debt causes - - in page 2 of the full debt report (from link below).
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More families than ever before, with every possible adult member in the work force, try to make-up the mounting pressure by turning to more debt with less savings - - while more business debt is accumulated despite paying out fewer dividends to shareholders, as well as a much smaller manufacturing base.
A Few Hard Questions > With the lowest personal savings rate on record, with the federal government relying more and more on foreign entities to lend it funds to operate and prop up its currency, and with run-away trade deficits, where will this debt monster lead? Does America simply borrow savings of non-Americans until either they stop lending or until America has mortgaged or sold-off all its assets to others? How can this direction be changed - - or am I the only one who does not believe individuals and a nation can, forever, borrow their way to guaranteed continual prosperity and security?
Is this a way to run an economy for my children and grandchildren
- - debt, debt and more debt?
Idea > > There can be little doubt that the only way energy (for example) will be better conserved with reduced dependence on foreign interests is with significantly higher economic (prices) costs. The same goes for debt > > a free market (without central-planning via the Federal Reserve to manipulate interest rates) setting significantly higher economic costs (higher interest rates, elimination of tax subsidies on debt, etc.) to debtors, until debt ratios fall back more in line with the past. Perhaps payroll taxes for social security and Medicare should be eliminated with its revenue loss (plus the gap missing for the future) transferred to the equivalent tax on energy and on debt.
What's your idea to get these debt ratios down significantly toward ratios of the past,
including reduced dependence on foreigners?
Most can agree >
The U.S. is more debt-dependent than ever.
That is not a nice bequest to our young generation - - on our watch !!
"We hear sad complaints sometimes of merciless creditors;
whilst the acts of merciless debtors are passed over in silence." - William Frend, 1817
"I place economy among the first and most important virtues,
and debt as the greatest of dangers to be feared." - Thomas Jefferson"
"The decline of great powers is caused by simple economic over extension."
The Rise and Fall of the Great Powers, by Paul Kennedy
"There is no means of avoiding the final collapse
of a boom brought about by credit (debt) expansion.
The alternative is only whether the crisis should come sooner
as the result of a voluntary abandonment of further credit (debt) expansion,
or later as a final and total catastrophe of the currency system involved." - Ludwig von Mises
No generation has a right to contract debts
greater than can be paid off during the course of its own existence."
- George Washington to James Madison 1789
"Growing domestic and international debt
has created the conditions for global economic and financial crises.”
Bank for International Settlements June 2005
Debt Burden Hinders FutureAmerica, that used to derive strong family values and incomes with savings and paying 'as you go', has moved to a more consumptive society financed by ever increasing liens on future income - - with debt ratios reaching new records.
America has become less a family-based, frugal society of strong real savings and small government. It has become a more consumptive, more debt-dependent with nil private savings, and more a government spending-dependent society - - depending more on the production and savings of others (including foreigners), and on debt, than ever before - - quite different from that envisioned by its founding forefathers. In the long-term there are consequences to be paid for excess debt reliance, in addition to sucking more mothers into the work force and away from their children.
The purpose of the Grandfather Economic Reports is to increase public awareness
of difficult trends facing today's families and youth - compared to prior generations.
KNOWLEDGE IS POWER - IF YOU HAVE IT
You have just viewed a summary with 2 of the trend charts of "America's Total Debt Report", a chapter of the Grandfather Economic Report series.
© 2006 Michael W. Hodges
All Rights Reserved.
Editorial Archive |
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User ID: 94402
5/17/2006 2:15 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Iraq, Iran and the end of petrodollar: The waning influence of the USA in the Asian century
Throughout history, empires and their civilisations have come and gone. During the first part of the last century, the US quietly built its empire, first in the North and Central Americas and in South America. Soon after the Second World War, the US worked to maximise the advantages it gained, and the power it assumed, between 1943 and 1945, from its victory over Germany and Japan, and as a consequence of massive Soviet casualties, and large British debt and financial burden caused by the war. The USA assumed the leading role in the Western world by, on one hand, containing the Soviet Union and preventing the spread of communist revolution beyond the borders of the Soviet bloc; and on the other hand, ensuring uncontested American supremacy within the Western world.
During the Cold War years, there was little or no challenge to the dominant position of the US in the Western world. However, with the end of the Soviet Union in 1991, the knot tying the basic objectives of the US global strategy together began to come unraveled. Once the communist danger was off the table, American supremacy ceased to be an automatic requirement of the Western system.
Since 20 September 2002, the US government has abandoned its former multilateral approach to global affairs, and adopted an imperial posture known as the so-called Bush doctrine.
This new agenda is based on militarist and imperial values with some theocratic overtones. This agenda looks much like what some people see in US foreign policy at the end of the 19th century, and the beginning of the 20th, when the US actively sought to dominate the entire Caribbean basin, Central America and even the western Pacific.
Six months after the Bush doctrine was announced, the new American doctrine was applied as a justification for an unprovoked war against Iraq by the neo-conservative administration of the US. Toppling Saddam Hussein's regime without the support of the UN, and in the face of strong opposition from traditional US allies, was a clear presentation of a new unilateralist American foreign policy. The 'regime change' in Baghdad was not an isolated event, but only an opening salvo in a much broader neo-conservative agenda. The neo-conservatives 'advocate a paradigm shift in which the United States spreads American values by asserting American power-by force, if necessary'. This agenda seeks to reshape American hegemonic practices according to old imperial doctrines, but with new post-colonial political and military tools. This was described most clearly by Irving Kristol, who is considered as founder of the US neo-conservatism: 'it would be natural for the United States to play a far more dominant role in world affairs, to command and to give orders as to what is to be done. People need that.'
Since 2005, there is a looming crisis brewing over Iran. In the media the phantom of Iran 'threat' is being amplified across the world. In order to justify a military operation against Iran, the neo-conservative rulers of the US have started a demonization campaign against this country, presenting the latest incarnation of America's enemy, in much the same way Saddam Hussein was in the run-up to the invasion of Iraq. They have put a lot of effort into making people believe that Iran is ruled by dangerously crazy people who are trying to make a nuclear bomb, and that they would not hesitate to bomb one or more US cities. In view of such a danger, the only answer is to wage a preventive war. Speculations about possible U.S.-Israel attacks on Iran have reached a stage of war propaganda by Western media.
A recent report by the Oxford Research Group revealed that any bombing of Iran by U.S. forces, or by their Israeli allies, would result in the unnecessary death of many innocent lives. 'A US military attack on Iranian nuclear infrastructure would be the start of a protracted military confrontation that would probably involve Iraq, Israel and Lebanon as well as the United States and Iran, with the possibility of western Gulf States being involved as well', says the report written by Paul Rogers. The report also argues that Military deaths in. (the) first wave of attacks against Iran would be expected to be in the thousands, especially with attacks on air bases and Revolutionary Guard facilities. Civilian deaths would be in the many hundreds at least, particularly with the requirement to target technical support for the Iranian nuclear and missile infrastructure, with many of the factories being located in urban areas. If the war evolved into a wider conflict, primarily to pre-empt or counter Iranian responses, the casualties would eventually be much higher.
Many observers view the US neo-conservative clique and its agenda as a conspiracy. This article, however, is based on the premise that they are merely part of a larger equation of global systemic structures. This view is rooted in an understanding that vested interests representing the energy, electronics, weapons, and influential segments of the media and communications industries in the US are always entrenched in key sectors of government. These interests are concerned with maintaining their privileged position. And key elements of the US economic and political elite are now responding directly to changes in global conditions that have arisen since the end of the Cold War. This is not a conspiracy. It is only business as usual.
Since the end of the Cold War, the US has waged four wars - two in Iraq, one in the former-Yugoslavia, and one in Afghanistan - and is threatening more. All this aggression is not the result of a paranoid theory, but simply a convergence of political and economic interests, traveling under the rubric of 'war on terror'. This argument is not based on the image of a few evil people, conspiring in secret, against the people for their evil aims. However, diverging from conspiracy theory does not ignore the fact that indeed there are real conspiracies, criminal or otherwise. In particular, the US political landscape is littered with examples of illegal political, corporate and government conspiracies, such as Watergate, and the Iran-Contra scandal.
Having said that the belief in conspiracy theories deflects attention away from the real geopolitical grounds behind the political-economic events. Conspiracy theories tend not to focus on impersonal forces like political and economic structures, geopolitical forces, market economics, globalisation, and other such abstract explanations of human events. They are based on notions that all of human history is shaped by secret societies. While real conspiracies have existed throughout history, history itself is not a conspiracy.
The economic power of the United States was in stagnation since the 1970s and is in decline since the end of the Cold War. Particularly its share of world trade and manufacturing is substantially less than it was just prior to the end of the Cold War, and its relative economic strength measured against the EU and the East Asian economic group of Japan, China and other Southeast Asian countries is similarly in retreat. The persistent use of US military power can be viewed as a reaction to its declining economic power and not merely as a response to the post-Cold War geopolitical picture. The American neo-conservative leaders see the military power of the USA's trump card that can be employed to prevail over all its rivals', and thus stop this decline. This is what the Bush administration is trying to achieve: to create a militarised world in which the strength of the US military forces can change and re-define the rules of the game. This is a clear goal, a specific agenda, which does not constitute a conspiracy. It is merely the way in which the system currently works, and the US administration is taking advantage of existing structural opportunities. This article is an attempt to provide primarily a macroeconomic explanation to the origins of and motivations behind the recent US policies shaped by the neo-conservative Bush administration.
American "Dollar" Imperialism
"Imagine this: you are deep in debt but every day you write cheques for millions of dollars you don't have -- another luxury car, a holiday home at the beach, the world trip of a lifetime. Your cheques should be worthless but they keep buying stuff because those cheques you write never reach the bank! You have an agreement with the owners of one thing everyone wants, call it petrol/gas, that they will accept only your cheques as payment. This means everyone must hoard your cheques so they can buy petrol/gas. Since they have to keep a stock of your cheques, they use them to buy other stuff too. You write a cheque to buy a TV, the TV shop owner swaps your cheque for petrol/gas, that seller buys some vegetables at the fruit shop, the fruiterer passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round -- but never back to the bank. You have a debt on your books, but so long as your cheque never reaches the bank, you don't have to pay. In effect, you have received your TV free. This is the position the USA has enjoyed for 30 years."
Since the US emerged as the dominant global superpower at the end of the Second World War, US hegemony rested on three unchallengeable pillars: 1) overwhelming US military superiority over all its rivals; 2) the superiority of American production methods and the relative strength of the US economy; 3) control over global economic markets, with the US dollar acting as the global reserve currency.
Of these three, the role of the dollar may be the greatest among equals. The US dollar is the world's reserve currency, meaning that central banks all over the world hold huge amounts of dollars in reserve. As a result of this situation, today America borrows from practically the entire world without keeping the reserves of any other currency. Because the dollar is the de facto global reserve currency, US currency accounts for approximately two-thirds of all official exchange reserves. America does not have to compete with other currencies in interest rates, and even at low interest rates capital flies to the dollar. The more dollars are circulated outside the US, or invested by foreign owners in American assets, the more the rest of the world has had to provide the US with goods and services in exchange for these dollars. The US even has the luxury of having its debts denominated in its own currency.
How does this work?
The United States runs a balance of payments deficit by spending more money in other countries (buying their products, investing in them, or giving them dollars) than they spend in the United States . - The extra dollars are held by the countries' central banks. The banks do not ask the United States to redeem them for gold or another currency. As long as foreign banks accept and hold dollars as if they were gold, the dollars act as reserves.
The US economy began to dominate the world economy in the early 20th century. The US dollar was then tied to gold, so that the value of the dollar neither increased nor decreased, but remained the same amount of gold. Most money was paper, as it is now, but governments were required, if requested, to redeem that paper for gold. This 'convertibility' put an upper limit on the amount of paper currency governments could print in order to prevent inflation. This link between paper money and gold was a product of law as well as custom. The Federal Reserve, which was established in 1913, had to ensure that every dollar of paper money was backed by at least forty cents of gold. There was no tradition (as there is today) of continuous inflation. The large levels of inflation and astronomic levels of government deficits during the Great Depression, 1929-1931, rendered the support of US dollars by gold impossible. By the early 1930s, this led the US President Roosevelt to adjust the dollar/ gold ratio as he saw fit. Until this point, the US may well have been a dominant power in the world economy, but from an economics point of view, it was not an empire. The fixed value of the dollar did not allow the US government to extract economic benefits from other countries by supplying them with dollars convertible to gold.
The American Empire was born, in a real economics sense of the term, with Bretton Woods in 1945. After 1945, the dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. As a result of this, the dollar established itself as the global reserve currency. No one planned this development. It came directly from the fact that the US was the dominant world power: well over half of all international money transactions were financed in terms of dollar; the US produced more than half the world output; the US also owned a large section of the gold reserves in the world. This became possible because during the Second World War, the US had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portions of the world's gold reserves. By 1945, the US had accumulated 80 percent of the world's gold, and 40 percent of the world's production.
The aggressive policies of the 1960s, however, put an increasing pressure on the US dollar. The US economy experienced a cumulative reserve deficit. In particular, the dollar supply was relentlessly increased to finance America's war in Vietnam. Financially the Vietnam War was a real mess. The US printed and spent more money than their gold reserves allowed. By 1963, the US gold reserve at Manhattan had fallen to alarmingly low levels -- it barely covered liabilities to foreign central banks. By 1970 the gold coverage had fallen to 55%, by 1971 22%. Before the Vietnam War, the US had $30 billion in gold reserves, but it spent more than $500 billion on the war alone. By this time, the post-war reconstruction period had come to an end, and the European and Japanese economies had improved their economic position relative to the US, which had increased pressure on the US dollar. The strain on the US financial system became evident in 1965, when French President de Gaulle demanded gold from the US in exchange for $300 million in debt.
The situation reached a crisis point in 1970-71 when more foreign central banks tried to convert their dollar reserves into gold. In response to a massive flight from the dollar, the US government defaulted on its payment on 15 August 1971 by cutting the link between the dollar and gold. This was because it seems that there was no other choice - the US government would not be able to buy back its dollars in gold. If governments and foreign central banks tried to convert even a quarter of their holdings at one time, the United States would not be able to honour its obligations. Hence the Bretton Woods system was ended. This was a serious crisis inspired by a significant loss of confidence in dollar. As a result, the dollar was left 'floated' in the international monetary market, which weakened the position of the dollar as the hegemonic currency. Now the dollar had no firm backing other than the 'full faith and credit' of the US government. From that point on, the US had to find a way convincing the rest of the world to continue to accept every devalued dollars in exchange for economic goods and services the US needed to get from others. It had to find an economic reason for the rest of the world to hold US dollars: oil provided that reason, and the term petrodollar became the crucial link in this.
Bulent Gokay
To be continued
Dr. Bulent Gokay is a Reader in International Relations, School of Politics, International Relations and philosophy, Keele University, United Kingdom. He can be contacted by e-mail at b.gokay@intr.keele.ac.uk
Petrodollar became the essential basis for the US economic hegemony in the 1970s
A petrodollar is a dollar earned by a country through the sale of oil. In 1972-74 the US government concluded a series of agreements with Saudi Arabia, known as the U.S.-Saudi Arabian Joint Economic Commission, to provide technical support and military assistance to the power of the House of Saud in exchange for accepting only US dollars for its oil. This understanding, much of it never publicised and little understood by public, provided Saudi ruling family the security it craved in a dangerous neighbourhood while assuring the US a reliable and very important ally in OPEC. Saudi Arabia has been the largest oil producer and the leader of OPEC. It is also the only member of the cartel that does not have an allotted production quota. It is the 'swing producer', meaning that it can increase or decrease oil production to bring oil draught or glut in the world market. As a result of this situation, Saudi Arabia practically determines oil prices. Soon after the agreement with Saudi government, an OPEC agreement accepted this, and since then all oil has been traded in US dollars. Hence the oil standard became the dollar standard.
Now why would this matter so much?
Oil is not just the most important commodity traded internationally. It is the key industrial mineral, without which no modern economy works. If you don't have oil, you have to buy it, and if you want to buy it on the world markets, you commonly have to purchase it with dollars. Other countries buy and hold dollars like they buy and hold gold because they cannot purchase oil without dollars. In 2002, a former US ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the US, is to insist that oil continues to be priced in dollars. Therefore the US Treasury can print money and buy oil, which is an advantage no other country has.'
This system of the US dollar acting as global reserve currency in oil trade keeps the demand for the dollar 'artificial' high. This enables the US to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the US has no serious challengers and the other states have confidence in the US dollar the system functions.
This has been the situation and the essential basis for the US economic hegemony since the 1970s. Needless to say, this system enables the US administration to effectively control the world oil market.
The petrodollar is one of the key foundations of the modern world economy that inescapably filters through geopolitics. While this has produced undeniable benefits for the US political and economic elites, it has left the US economy intimately tied to the dollar's role as global reserve currency.
In this situation, dollars rapidly accumulated in foreign banks, particularly those serving petroleum-exporting countries. These petrodollars created an additional financial issue, because unlike Western Europe and Japan most of the oil-exporting countries had limited possibilities for domestic development and consumption. The Nixon administration responded by coaxing these countries into buying up US Treasury bills and bonds, which has since that time been the primary strategy for the US administration to deal with its colossal trade deficits. For the oil exporters investing these petrodollars straight back into the US economy has been possible at zero currency risk. "So long as OPEC oil was priced in U.S. dollars, and so long as OPEC invested the dollars in U.S. government instruments, the U.S. government enjoyed a double loan. The first part of the loan was for oil. The government could print dollars to pay for oil, and the American economy did not have to produce goods and services in exchange for the oil until OPEC used the dollars for goods and services. Obviously, the strategy could not work if dollars were not a means of exchange for oil. The second part of the loan was from all other economies that had to pay dollars for oil but could not print currency. Those economies had to trade their goods and services for dollars in order to pay OPEC". (David E. Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets, Ithaca: Cornell UP, 1999, p. 121)
For a long time everything worked smoothly. But the end of the Soviet bloc and the emergence of a new single Europe and the European Monetary Union in the early 1990s began to present a completely new challenge to the global position of the US power. Especially with the creation of the euro in late 1999, an entirely novel element was added to the global financial system. 'The introduction of the euro is the most important event for the global financial markets since the United States abandoned the gold backing for the dollar in 1971'. In just a few years after this, the euro has emerged as a real alternative, establishing itself as the second most important currency in the world's financial markets.
If a significant part of petroleum trade were to use euros instead of dollars, many more countries would have to keep a greater part of their currency reserves in euros. According to a June 2003 HSBC report, even a modest shift away from dollars, or a change in the flow, would create significant changes. The dollar would then have to directly compete with the euro for global capital. Not only would Europe not need dollars anymore, but also Japan, which imports more than 80 percent of its oil from the Middle East, would have to convert most of its dollar assets to euros. The US, too, being the world's largest oil importer, would have to hold a significant amount of euro reserves. This would be disastrous for American attempts at monetary management: the US administration will be compelled to significantly change its current tax, debt and trade policies, all of which are severely unstable.
Today Americans spend 700 billion dollar a year more than they produce, so they have to borrow that 700 billion. This means that in average each US citizen enjoys $3,000 more imported products than he/ she earns. They get this large amount of money from the Central Banks of China, Japan and European countries, because they keep dollar reserves. China is currently the largest holder of US currency reserves with $853.7 billion, and Japan is the second largest with over $850 billion in dollar assets. So the rest of the world are sellers - China, Japan, India, and the EU. The rest of the world invests, produces, exports to the US, and they lend more and more to the US. The increasing fragility of the US economy is underlined by the 2005 report from the IMF. This report pointed out that the US economy is increasingly being supported by what the IMF report called 'unprecedented borrowing' from foreigners. The report went on to saying that the US deficit is unsustainable in long-term. David M. Walker, Comptroller General of the US, warned of the US's deteriorating financial situation, on 14 March 2006, saying that 'too many Americans - from individual consumers to elected officials - are spending today as if there is no tomorrow. Many Americans, like their government, are living beyond their means and are deeply in debt.' What does all of this have to do with Iraq and Iran ?
The 2003 Invasion of Iraq
The interplay between the reserve currency role of the dollar and link with the oil producing countries can be observed in the recent conflict in Iraq. On 6 November 2000, while Americans were distracted by the controversial Florida presidential vote count, the Iraqi government announced that it was no longer going to accept dollars for oil sold under the UN's Oil For-Food Program and decided to switch to the euro as Iraq's oil export currency - hence launching the so-called 'secret weapon' of Iraq. This was the first time an OPEC country dared violate the dollar-price rule. And since then, the value of the euro has increased and the value of the dollar has steadily declined. Libya has been urging for some time that oil be priced in euros rather than dollars. In 2001, Venezuela's ambassador to Russia spoke of Venezuela switching to the euro for all their oil sales. Iran , Russia , and other countries also indicated that they would like to denominate their petroleum in euros. Since the oil trade is a central factor underpinning the dollar's hegemony, all these are potentially very significant threats to the strength of the US economy, and US global hegemony.
The US , in alliance with Britain , intervened in Iraq militarily in March 2003, and installed its own authority to run the country. The invasion and subsequent occupation of Iraq may well be remembered as the first 'oil currency war'. There is now a wealth of evidence to suggest that the invasion of Iraq had less to do with any threat from Saddam's WMD programme and certainly less to do with fighting international terrorism than it has to do with gaining control over Iraq's oil reserves and in doing so maintaining the US dollar as the dominant currency for the international oil market. In June 2003, Paul Wolfowitz, then US Deputy Defense Secretary, was asked why Iraq , which didn't have weapons of mass destruction, was invaded, while North Korea, which claimed to have a nuclear deterrent, wasn't. Wolfowitz said that 'the most important difference between north Korea and Iraq was that economically we had no choice in Iraq'. There was, of course, a complex of forces and motives which impelled the US government toward war on Iraq . Among these factors, it seems to preserve the U.S. dollar as the leading oil trading currency was a leading motive -- perhaps the fundamental underlying motive, even more than the control of the oil itself.
Two months after the invasion, the Iraqi euro accounts were switched back to dollars, and it was announced that payments for Iraqi oil would be once again in US dollars only. Global dollar supremacy was once again restored. But the story does not end there. Wars often don't work out as planned. Ironically, the invasion of Iraq with its 'thousands' of 'tactical' mistakes -- as recently admitted by Secretary of State Condoleezza Rice -- was meant to solidify and ensure the US 's post Cold-War global dominance. Paradoxically, despite all these military and political advances and the rapidly increasing grip of US military power in Eurasia, for a variety of economic and political reasons, a growing number of oil producers in the Middle East, South America, and Russia are talking about openly trading oil for euros instead of dollars, or trading oil in a 'basket of currencies'. To do so would accelerate the US dollar's fall, and boost the euro's claim to become the world's second reserve currency. If a nation's economy is only as good as its currency, and the dollar continues to lose value, the US economy would be headed for a steep fall under these conditions.
Superior military forces of the US and other Western states may take but cannot hold Iraq's (and Iran's) oil. Far from staving off the downfall of the US dollar, their aggression and arrogance may instead compel OPEC to 'go euro' en masse. Since 2001, member countries of the OPEC have sharply increased deposits in euro's and placed less in dollars. US dollar-denominated deposits fell from 75 percent of total deposits in the third quarter of 2001 to 61.5 percent in the last quarter of 2004. During the same period, the share of euro-denominated deposits rose from 12 percent to 20 percent.
In the meantime, many people will be hurt and killed. In Iraq, for instance, 'the civilian death toll has risen inexorably for the entire duration of the US-led military presence. following the initial invasion'. Those who have hoped that a U.S. military victory in Iraq would somehow bring about a more peaceful world must be in for a rude awakening. Figures released by the Iraq Body Count project (IBC) on 9 March 2006 show that the total number of civilians reported killed has risen year-on-year since 1 May 2003 (the date that President Bush announced 'major combat operations have ended'). Back in February, the Bush administration renamed its 'Global War on Terror' to the 'Long War'. In its Quadrennial Defence Review to Congress, the Pentagon now produced yet another hyperinflated 'threat analysis', claiming that the threat from worldwide Islamic militancy has escalated to a 'generational' time frame requiring a large-scale war of long duration fought on many fronts, hence the name change.
Bulent Gokay
Dr. Bulent Gokay is a Reader in International Relations, School of Politics, International Relations and Philosophy, Keele University, United Kingdom. He can be contacted by e-mail at b.gokay@intr.keele.ac.uk |
| FHL(C)
User ID: 104269
6/10/2006 12:21 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Ok some alternatives to whats coming down.
The solution to the 40% loss of production that a collapse in the US dollar would bring about to the Chinese economy (and therefore world economy) is in my opinion not a difficult choice.
The Chinese Government approaches various central banks and economies in its immediate region(India, Russia, Korea, Japan, Taiwan, etc, and possibly the EU) and sets up a group support and agreement/free exchange of economic info/data mechanism, then the central Chinese monetary authority(as opposed to the central bank) devalues immediately or progressively, depending on the perceived rate of US$ dollar decline, the Yuan to approximately 40 RMB to 1 US dollar whilst simultaneously doing the same with the EU(if the USD should totally collapse in the process then transfer devaluing to the EU to again reach approximately 40RMB to 1 EU. This will have several benefits it will allow a great number of poorer nations to fill the gap left by the US economies 40% take of Chinese production, and thus will allow China (and there fore India) to continue the development of their internal markets to the point where they are not totally dependant of overseas exports for the economies developments, this will give also the other immediate nations around China stability and continued economic progress as well.
The question may be asked "But wont this affect Chinas internal economy?", the answer is again fairly simple, if the energy and life needs of families and business are kept at affordable levels which still allow for savings and profits, then , no, it wont radically affect Chinas internal economy by such a devaluation.
The benefits for both China, its near neighbors and the world are obvious in light of current conditions, The only major complicating factor would be if China allows a central bank to develop which is majority owned by international interests or their proxies (up to 45% is viable in my opinion), for otherwise the above scenario not only wont work but wouldnt be given the chance of the light of day to work or even get of the ground in the first place.
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 65005
6/10/2006 12:26 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
World Markets about to Crash Together?
By Chris Laird
May 31, 2006
www.prudentsquirrel.com
Recent stock headlines include a collapsed India stock market, collapsed not just dropping. Collapsed Middle East stock markets on the order of 50%. Dropping European markets, and US markets. Very weak Japanese stocks, probably looking to crash like the Middle East and India markets because the Nikkei is/was up 50% in a year.
Very weak Chinese stocks, rapidly weakening ‘emerging’ markets because of a slowing commodities bull. Weak Russian markets. … In short, the whole world is just about to fall into a synchronized stock cascade.
Here is a typical headline, one of many these last weeks:
European sell-off continues after U.S., Asia falls
Autos, miners among decliners following steep Wall Street fall
LONDON (MarketWatch) -- European markets dropped sharply Wednesday morning, extending the week's losses and taking their cue from a steep fall in the U.S. on the back of rising oil prices and falling consumer confidence.
I offered a theory in World Speculation Dominoes that the world financial markets are all synchronized and will crash together. It appears that we are very near such an event right now.
The causes
I have written several articles with ‘stock crash alert’ in the title this year. One of the major impetuses was the imminent unwinding of the Japanese Yen carry trade. In that ten year old free money spree, Japan allowed financiers world wide to borrow Yen for a literally zero interest rate and then invest that money in world stock markets and to buy other nations bonds for about a 3% interest rate premium. The amount of borrowed Yen invested in the world’s financial markets is astounding. We are talking trillions of dollars value in Yen that has found its way into every major financial market in the world.
The US is considering a pause in its interest rate hikes of late. The interest rate differential the US holds over Japan and Europe is as much as 3%. If that differential is not maintained, trillions of dollars of US denominated financial investments are going to be unloaded on the world markets. A combination of unwinding the Yen carry trade and a serious drop in the value of the USD will just simply pull the rug out from under every major financial market that has benefited from the cheap USD and Yen.
Liquidity is being pulled from world markets as we speak. It could get really ugly in a very short time friends. There are substantial reasons for major stock collapses due to very large macro economic trends affecting both the Yen and the USD.
This is made worse by the bubble nature of world stock markets as of the last year, where many Asian markets saw gains over 50%, such as the Nikkei and Korean markets. They are/ were in stock manias. And then add the literal collapse of the Middle Eastern markets in Saudi Arabia and Kuwait….and India.
Then add emerging market weakness, and the fact that the Nikkei and the US stock markets are also definitely tipping down as we speak, and there is definitely a little panic in the winds.
To say the least.
I’m going to go out on a small limb and say we are looking right now at a gigantic world stock collapse. I don’t like writing this, I get no fun out of writing gloomy financial analyses. It is still possible that these world market drops will be forestalled, but the end is nearing now for a world financial mania that started in Japan in the early 1990’s with their ridiculous zero interest rates. As a matter of fact, the whole financial mania we are about to see collapse began in Japan in the 1980’s when they created their own stock and real estate bubbles that collapsed in the early 1990’s.
Then the US had its financial and real estate bubbles in the late 1990’s and early 2000’s. Just as late as last year, the financial manias took hold in India, the Middle East and Korean and even emerging markets….and are now crashing as we speak.
Now the flagship markets of the US and Japan are shuddering. The final gasp of a world financial mania is appearing before our eyes right now.
The big story out now is the appearance of world stock collapses that may get out of control. I have been writing about this for months already for my readers. The other big story is an impending energy war in the Middle East.
Look at your stock portfolio right now. Imagine how you would feel if it dropped 50%.
That has happened this year in the Middle Eastern markets. Something like this has happened in India as well just recently. It’s so bad in the Middle East that the Saudi Royal Family has offered to guarantee middle income people ($144k a year there) with guaranteed stock purchases for several years if they will go back into their stock markets. How about that one?
As a matter of fact, I am only giving a brief rehash of the quite recent stock collapses. The number of nations involved is many. Trust me, go look for that kind of news, you will find a lot of it recently.
There are two major forces that are propelling gold upward. One is fear of financial market collapses that are appearing like burned popcorn everywhere. The other is an imminent energy war in the Middle East. Iran is the pretext. It does not help that their leader is a maniacal Iranian mystic/politician that believes he is ushering in the end of ‘history’ – his own words.
So, we have a huge overhang over the world financial markets with the unwinding of the Yen carry trade. The over blown real estate markets that are now collapsing just like everyone feared world wide. The imminent dropping of the USD that is making world central banks very afraid that a lower USD will pull more liquidity out of the speculative bubble world stock markets. And fear of an energy war in the Middle East with Russia and China and Iran on one side, Israel right in the middle, and the US and its few allies on the other side.
No wonder gold is up about 200 bucks this year, and is having no problem holding onto its 650$ range.
I’m sure gold is going to go well over 700 quite soon now. Read my article about “Huge Action and Earth Shaking Change Imminent”.
Now there is talk among central bankers that they are in crisis mode. The ECB and BOJ have both made comments like that, the BOJ much more gentle, but just as concerned. The ECB and friends are talking of crisis mode operations and financial crisis war games as we speak. They are concerned about the implications of a dropping USD and the liquidity that will pull out of world financial markets.
The list goes on. Russia, emerging now from its decade old financial collapse following ‘perestroika’ is now joining a growing list of energy producers who are creating oil bourses denominated in anything but USD. The Proposed Ruble bourse is the latest.
This is just one snippet, to be added to Iran’s Euro Oil bourse, and all the coordinated oil / resource nations now collaborating with hostility to the Western Economies.
A new world financial order is just now emerging and it looks very much, very much like the pre 1930’s.
Oh, did I mention that we are seeing the highest insider selling of stocks since about 2000??
I think this delineation of financial market bad news could be ten pages. I’m just hitting some of the more recent high points.
So perhaps some of you with gains in stocks should take some money off the table and put it where it is safe. OF course that is the big question of the day isn’t it?
What, with the usual safe haven of good sovereign bonds being very questionable. Besides the imminent decline of the USD and that affecting the yield of USD bonds, Japan will have some trouble maintaining their bond quality if they tip into deflation again. And of course who else has bonds people want? Not many.
There has been a lot of discussion about the Euro becoming the next alternative to the USD. Problem is there aren’t enough of them to do the job. There are probably over 100 trillion US dollars out there now working as the de-facto world currency. The number and penetration of Euros is less that one tenth of that.
It is going to be interesting to see what happens should there be a simultaneous precipitous drop in world stock markets of the order of 50%. I wonder if the USD is going to survive that. The last time there was a great world depression the USD was a flight to safety. This time, it could be just the opposite.
There are two big stories out now. One, and the biggest, is the impending energy war in the Middle East. The other is an emerging world stock collapse.
The Prudent Squirrel Newsletter is a big picture gold and economic commentary. Stop by and have a look. (This week’s issue was very short because I was ill this last week.)
Christopher Laird
Editor-in-Chief
www.PrudentSquirrel.com
[link to www.kitco.com] |
| Anonymous Coward
User ID: 65005
6/10/2006 3:58 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Pin this year and a half old thread!
C'mon...all your other friends think it's relevant, and you don't want to appear uncool, now do you? |
| FHL(C)
User ID: 284320
8/17/2007 11:19 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
[link to nymag.com]
Bloody and Bloodier
The subprime-lending crisis is worse than you think, and could crush financial and real-estate markets for years.
* By James J. Cramer
(Photo: Illustration by Brett Ryder)
You’re losing money right now. This very minute. You’re losing money if you own an apartment. You’re losing money if you own a country home. You’re losing money if you own a stock or bond mutual fund. You’re losing money if you have a pension plan. You’re probably losing money here or there, you’re probably losing money everywhere (except maybe from your savings account and wallet). But this is no Dr. Seuss story. It’s more of a John Steinbeck tale, and we are the victims, a new generation of Tom Joads, and it’s the damn bankermen who broke us. No, there won’t be a police officer to investigate, and the government, at least this federal government, won’t save us.
Our tale of woe starts not in New York but in flashy places like Las Vegas and South Beach and faraway onetime Okie haunts like Riverside, San Bernardino, and Ontario, California. In these towns, and dozens more like them, housing companies erected colossal communities of homes. Eager homebuyers and speculators fought each other for these properties, armed with cheap financing, courtesy of Alan Greenspan, who wanted to boost an economy reeling from 9/11 and create a legacy of homeownership for all, including those who could not document steady income or, for that matter, citizenship.
We think of him as Saint Alan now, but in a few years he will be known as the reckless Fed chairman who encouraged the creation and use of exotic mortgages that required you to put down very little money, odd creations like the “2 and 28,” an adjustable mortgage with low interest payments the first two years that explode into gargantuan fees for the next 28. Don’t have the money to pay for the 2 before the 28? Go “piggybacking”: Take out a home-equity loan against your new house to meet those minimal payments.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/17/2007 11:23 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
another quote from the above full article.
"But now all hell’s broken loose on Wall Street because of those mismarks. This spring, as many homeowners stopped paying, the mortgage bonds—for the first time—starting losing value. Hundreds of billions in bonds that were thought to be worth more or less the price they were sold at, it turns out, are worthless. That’s triggered a chain reaction: Brokers like JPMorgan, Goldman Sachs, and Merrill Lynch that lent money to the firms that bought the bogus loans—most famously, Bear Stearns—basically foreclosed on those firms to get their cash back. But the firms, which are always running full tilt, didn’t have the money to pay up. Bear, at the direction of the now-fired former co-president Warren Spector, let one fund just go down the drain. But Spector thought the other was still worth a great deal, so he put up $1.3 billion to pay back what the fund owed to the lenders and take direct control of the mortgage bonds. Spector, maybe one of the best minds in the bond business, genuinely believed that these mortgage-backed bonds still had substantial value. If someone as savvy as Spector thought these bonds were still good when they were actually worthless, that tells you that thousands of other managers are simply dreaming if they think their portfolios are worth anything near what they claim they’re worth. In other words, we’re looking at the start, not the end, of the lending meltdown."
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/17/2007 11:41 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
Simplest explanation of inflation and fiat money i have seen to date.
FU&FW
[link to www.321gold.com]
"There are many implications attached to this global flood of unbacked money. But the primary thing to ponder while looking at the chart is the definition of inflation. It is not the increase in the price of consumer goods, but rather an increase in the number of currency units. Of course, in time, consumer prices rise as a consequence of too many dollars chasing too few "things."
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/17/2007 11:53 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
And this, a great summary of what derivatives are used for.
FU&FW
[link to www.atlanticfreepress.com]
DERIVATIVES DOWNDRAFT
Banks routinely hedge against adverse moves in the market by purchasing various types of insurance in the form of derivatives contracts. Derivatives trading has skyrocketed in the last few years and the “British Bankers Association estimated last fall that by the end of 2006, the market for all credit derivatives was $20 trillion and expected to be $33 trillion by the end of 2008.”These relatively new instruments are about to be put to the test by worsening market conditions. “Hedge funds may account for as much as 30% of such credit protection” but that is little solace for the banks “because hedge funds that are losing money but also selling credit insurance may not be able to honor their commitments, rendering the protection worthless.” (“Insuring against Credit Risk can carry risks of its own” Henny Sender, Wall Street Journal)
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/18/2007 12:00 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Looking for an article i recently read, which suggested the US economy(and State) would go down to the very bottom of the top 20 in 2 years time, would(approaching/during?) this be a trigger point for a war in Iran and dictatorship in the USA(ie, end of constitutional rule and law)?
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/18/2007 12:08 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
The History of Bartering and Money
By James Harvey Stout (deceased). This material is now in the public domain. The complete collection of Mr. Stout's writing is now at [link to stout.mybravenet.com] >
Jump to the following topics:
1. Throughout the centuries, money has become more abstract.
2. Bartering is in its third cycle in the United States.
3. The history of money -- step by step.
Throughout the centuries, money has become more abstract. This evolution has carried us from a direct, personal trade of goods and services to an abstract system which is far removed from its roots. This chapter will show those changes -- and their dangers.
Bartering is in its third cycle in the United States. Before we go back to the beginning of money, let's look briefly at the history of money in the U.S. (More details are given later in the chapter.)
1. The colonial era. During the 17th and 18th centuries, money was scarce, so the colonists relied primarily on bartering, with commodities such as beaver pelts, corn, musket balls, nails, tobacco, and deer skins (from which we get our modern slang, "buck," meaning "dollar"). Colonists also used the money of other cultures -- the Native Americans' wampum, (which consisted of beads made from shells), and the coins of foreign countries.
2. The Great Depression. During the1930s, money was scarce. People established barter groups like The Unemployed Citizens League of Denver (with 34,000 members) and the National Development Association.
3. The early 1980s. During a long recession, bartering regained popularity; it was featured in many magazine articles and many new books. Hundreds of barter clubs were created throughout the nation. More companies learned about the the advertising industry's "trade-outs," and international commerce's "countertrade," and the other possibilities for bartering in business.
The history of money -- step by step. Please note the theme of this story: as our money has evolved, it has become increasingly abstracted from a basis in the tangible value of usable goods and services.
1. Direct barter. In the beginning of mankind, there was, obviously, no money. People traded items which had a practical value: food items (e.g., cattle, fishes), decorative items (e.g., gold, shells), apparel (e.g., furs, cloth), tools, weapons, etc. However, in direct trades, both parties must have what the other person wants. For example, the cavewoman possessed blackberries, which the caveman craved, and he had the arrowheads which she needed. However, if he wanted berries, but she didn't want his arrowheads, then no trade could occur.
2. "Media of value." For example, a man might have traded his handcrafted spear for a pile of corn (even though he didn't like corn) just because he knew that he could then trade the corn to a woman for some animal skins (which he wanted). These trades were a step toward the idea of abstract money; the objects weren't valued for themselves, but for what they could get.
3. Standard media of value. Gradually, particular commodities began to be treated as the standards against which we would determine the value of other items; for example, there might have been a "wampum standard" (analogous to a "gold standard" in modern society). To help people to understand this abstraction of value, these early forms of money were practical items; for example, the gold could be used either as a medium of exchange or it could be melted into jewelry. We can still see this type of correlation, in our terminology:
* Salary. This word originates in the Latin word, "sal," from which we derive the words "salt" and "salary." Salt was used to pay the wages of Roman soldiers; today, we might say that an employee is "not worth his salt."
* Pecuniary. This word originates in the word, "pekus," which refers to oxen. (Webster's Dictionary defines "pecuniary" as "taking the form of or consisting of money." )
* Capital. This word originates in a word which means "cattle." (We have the same derivation for the word "chattel," which refers generally to personal property.)
* Wealth. In the Chinese language, almost every word related to "wealth" is a sign for a shell (which has been form of money in many societies).
4. Metal as a standard of value. Metal was more practical than other forms of primitive money: it had a practical value (for use in jewelry, etc.); it was small enough to transport in one's pocket (unlike, say, an equally valuable horse); it did not die like cattle; it was durable (i.e., it did not decay or break). By 2500 BC, the Egyptians were "spending" copper rings like money; Babylonia had a well-developed barter system based on barley and uncoined silver hundreds of years before coins were adopted.
5. Metal in early coins. Unfortunately, gold dust, gold objects, and other metals had to be weighed each time they were "spent." To avoid that task, people began to shape the metals into standardized sizes to establish fixed values; this was the beginning of the use of coins. However, people were unaccustomed to coins, so some of them were given names and shapes which referred directly to tangible objects:
* The names of coins. For example, even today, we refer to the weight of the metal in words such as lira, ruble, shekel, drachma, mark, and pound; the "pound" was originally worth one pound of sterling silver.
* The shapes of coins. For example, the ancient Egyptians traded with sheep; therefore, when they began to use gold as money, they fashioned the gold into the shape of small sheep. In China, the people had been using metal tools as standards of exchange; eventually, they started to make miniaturized bronze tools to be used as a type of coin.
6. Standardization of coins. Coins were probably invented independently in China, India, and in a nation called Lydia, which is now a part of Turkey. Around 600 BC, those Lydian coins were bean-shaped nuggets made of a mixture of silver and gold; a stamped design on the coins indicated that they were, indeed, coins of uniform size. No longer did people in that country have to weigh their metals to determine the value. When other nations heard about this new standard for commerce, they developed coins of their own -- like the early Roman coins, which were made of silver, copper, or gold. Although coins were an abstraction of value, the metal still had a practical value of its own; for example, the gold coins could be melted down and made into a necklace. However, the abstraction of value permitted abuse: when people became accustomed to using coins, the kings who owned the mints began to reduce the proportion of precious metal in each coin. This trick, known as "debasement," would create more money for the king by putting more coins into circulation -- but it would reduce the coins' value and cause inflation. (In a "standard" coin, the face value of the coin is worth as much as the metal in it; in a ''token" coin, the metal is worth less than the face value. The U.S., and most other modern countries, issue nothing but token coins. An estimate in the mid-1970s said that the raw materials in a U.S. quarter were worth only half a cent.)
7. Paper money. In a huge leap toward the further abstraction of money, paper money was introduced in China around 600 AD. Marco Polo, who visited China in the 1200s, explained, apparently with a feeling of awe, "All [the Chinese emperor's] subjects receive [paper money] without hesitation because, wherever their business may call them, they can dispose of it again in the purchase of merchandise they may require."
8. Goldsmith's receipts. Despite Marco Polo's discovery of paper money in China, Europeans did not immediately embrace the concept. Not until the 1600s did they begin to use a simple form of paper money. During that century, many London merchants would deposit their gold in the secure storage rooms of the city's goldsmiths for safekeeping; the goldsmiths would give receipts for the deposits. As more goldsmiths began to issue these paper receipts, it became possible to take a receipt to any smith and cash it in, even if this smith wasn't the smith who originally wrote the receipt. Eventually, people were using the receipts among themselves, trading them for goods and services. People grew accustomed to this paper currency, and they began to trust its value. However, this is not much of an abstraction, because the receipts could be cashed in for gold, which had a "real" value.
9. Fractional reserves. The goldsmiths (like modern-day bankers) began to lend their depositors' gold. This lending had implications: At any one time, there would not be enough gold to cover all of those deposit slips. (A smith might keep only a tiny percentage of the metal in stock at any moment.) If all of the depositors had wanted to take out their gold at once, a smith would have been unable to comply. Thus, the slips were not worth the gold which they represented; they were worth only as much as the smith's promise to redeem them -- but that promise could not be honored if too many withdrawals occurred at once.
10. Fiat currency. Eventually paper money became popular, and so it was printed by governments -- but the money was usually not "backed" by anything tangible (like the gold in a goldsmith's vault). In the colonial United States, this "fiat" (unbacked) currency was printed freely by the federal government -- and it was also printed legally by states (such as New Jersey with its 15-shilling notes) and by individuals (such as Ben Franklin). Because the paper money had no basis in real value, inflation occurred to the point where the money was worthless. After that bad experience, the U.S. government stopped printing paper money. People returned to barter (and to banks' promissory notes); in fact, the 1810 census showed that the average income of U.S. citizens was only $2 per person. In the 1860s, the U.S. began to print money again, to pay for the Civil War; however, by the end of the war, this fiat currency had inflated such that $300 in paper money was worth only about $100. Not trusting this currency, many people hoarded their coins -- and they bartered. By 1880, the U.S. made a step backward toward a stable economy, by backing its currency with gold (and allowing people to cash in their currency for that gold). The monetary system returned to a foundation on the real substance of gold, rather than on the empty metaphor of a fiat paper note.
11. The end of the gold standard. During World War I, the U.S. government abandoned its gold standard, in order to pay for the war with unbacked money. Inflation went wild with all prices (except for the fixed price of gold). In 1933 the "gold standard" was officially killed in the U.S.; the government stopped minting gold coins, and people could no longer own that metal except in jewelry and coin collections. Production of silver dollars ceased two years later. Later, during the second World War, many national governments were supplementing their gold holdings with U.S. dollars; ironically, at a time when the dollar had lost its gold backing and was being crippled by the inflation of the wartime economy, other nations were turning to it for stability. The story of money's evolution suddenly became more serious, as those nations based their economies on a dollar which was not solidly based itself. Eventually the dollars overseas were worth more than all of the gold in our treasury. Like depositors who are afraid their bank might fail, some of those nations in the late 1950s began to trade in their dollar reserves for gold. This was a step backward toward a reliance upon gold instead of the paper symbol. As huge amounts of gold were traded away from U.S. reserves, some U.S. economists began to worry about this loss. The private gold market price rose above the "official" price of $35 per ounce. (Silver was in trouble, too; the silver content of coins became worth more than the coins themselves, so the U.S. Treasury stopped minting silver coins in 1965.) As the private market price of gold continued to elevate, more countries demanded gold in exchange for the U.S. dollars which they had hoarded. Finally, in 1971, U.S. President Richard Nixon said that the dollar could no longer be redeemed for gold. Since that time, the dollar has been "an I.O.U. nothing" (according to former Federal Reserve Bank vice president John Exter). Or, as writer George Simpson said, "The whole system is based more or less on confidence in the stability and economic strength of the U.S.A. and the Treasury's ability to come up with the cash. If all together, we decided to convert our savings and checking accounts into money, the whole system would come tumbling down and everyone would be broke." However, there is one bright spot: The U.S. government legalized the private ownership of gold in the mid-1970s, allowing citizens to possess a time-tested medium of value and exchange.
12. Electronic money. Now, much of our money is so abstract that its only physical reality is in the form of electrons -- in the electronic processes of our online banking, credit cards, internet commerce, automatic teller machines, electronic funds transfers, etc.
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pbb-24.htm
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/18/2007 12:14 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
big heads up , this one , IMO.
[link to www.atlanticfreepress.com]
On Friday, the Dow Jones clawed its way back from a 200 point deficit to a mere 31 point loss after the Federal Reserve injected $38 billion into the banking system. The Fed had already pumped $24 billion into the system a day earlier after the Dow plummeted 387 points. That brings the Fed’s total commitment to a whopping $62 billion. By some estimates, $326.3 billion has now been added to the G-7 Nations’ intra-banking system to prevent a breakdown. That amount will steadily rise in the weeks ahead as the situation continues to deteriorate. Some readers may remember that on Tuesday, August 7, the Fed announced that it was NOT planning to bail out the market. My, how quickly things change. So far, the economic pundits and CEOs have applauded the Fed’s intervention as a “constructive” way of staving off an impending credit crisis.
Are these the same “experts” who always sing the praises of unregulated “free markets” while condemning any government intervention?
Yes.
The investment banks and fund mangers love “free markets” when it means eliminating the rules that prevent them from gaming the system. But they don’t like it so much when their shabby Ponzi-rackets start to unravel. Then they’re the first in line to beg for a bailout.
That’s what’s happening right now. The Fed is keeping the stock market afloat by increasing liquidity at the banks. If it wasn’t for Bernanke’s billions of dollars of low interest credit — the banking system and stock market would collapse in a heap. The Fed’s “not-so-invisible hand” is the only thing holding the whole dilapidated system in place.
Is that the way it’s supposed to work in a free market system — with the Fed acting as the nation’s Economic Central Planner intervening whenever it suits the interests of its wealthiest constituents?
Sounds more like a Financial Politburo, doesn’t it?
In truth, the “free market” means nothing to the men who run the system. It’s just a public relations scam designed to dupe investors into plunking their money into a system that’s rigged for the carnivores at the top of the economic food-chain.
Does anyone really believe that the market-commissars would allow the system to operate according to the arbitrary swings in investor confidence and random speculation?
This is THEIR SYSTEM and they run it THEIR WAY. The only time that changes is when their twisted schemes go haywire and they need a handout from the taxpayer. In the present case, they are asking Big Brother Bernanke to bail them out on trillions of dollars of non-performing subprime garbage-loans which masquerade as securities in the secondary market. The Fed has already indicated that it will do whatever it can to help.
But what good will it do?
The banks are currently holding (roughly) $300 billion in collateralized debt obligations (CDOs) and another $225 billion in collateralized loan obligations (CLOs) More than one-half trillion dollars in debt which is essentially “illiquid” and has no clear market value. It could be worthless for all we know.
That hasn’t stopped the Fed riding to the rescue, buying up many of these toxic CDOs and increasing banking reserves so the great fractional banking con-game can continue unabated. This is what one astute observer called “alchemy finance”.
Central banks around the world have opened up the liquidity spigots to avoid a global credit meltdown. But their efforts are bound to fail. The banks are sitting on huge losses from assets that they can’t move through the pipeline and which have gobbled up their reserves. Bloomberg News summed it up like this: “The $2 trillion market for mortgages not backed by government-sponsored agencies is at a standstill”.The same is true of the corporate bond market. As the Wall Street Journal reported last week:
“The investment grade corporate bond market HAS GROUND TO A HALT, making it difficult for companies to access capital and hard for investors to find a place to put their money to work. ….The problems in the primary market could, if they persist, throw a wrench in the workings of corporate America, making it tougher for companies to finance, among other things, investments, buyouts and equity buybacks….For July, corporate bond issuance was down 77% from June.” (“Corporate Bond Market has come to a Standstill”, Wall Street Journal)
The mighty wheels of commerce have rusted in place. Nothing is moving. Trillions of dollars poisonous CDOs need to unwind, but the banks cannot put them up for bid for fear that they’ll only get pennies on the dollar. It’s like watching a slow-motion train-wreck. The Fed’s cheap credit won’t help either. At best, it’ll just buy a little time before the true value of these bonds is established and trillions of dollars in market capitalization vanish into cyber-space. Banks, equities, hedge funds, insurance companies and pension funds are all in line to suffer major losses.
Last week BNP Paribas suspended three funds because they couldn’t get bids on the CDOs they own. When securities have no fixed market-value; who is going to buy them?
No one. Besides being complex and opaque, real estate CDOs have become the global pariah — “leper equities” that no one will touch. That’s why no transactions are taking place and the system is freezing up. If Paribas shuttered its doors; there must be many other funds close behind.
The Federal Reserve started this mess by lowering interest rates to 1% and flushing trillions of dollars into the economy. That cheap money created equity-bubbles in housing, credit, stocks and bonds which are now beginning to unwind. Expanding the money-supply might be a good short-term fix, but it’s dangerous, too. It just adds hyper-inflation to the long-list of existing problems.
The volatility in the stock market has diverted attention from the problems facing the banking system. The banks have been originating loans and bundling them off to Wall Street to avoid the normal reserve requirements. Now they’ve been “caught short” and don’t have adequate funding to cover their bets. If the Fed doesn’t help out, we’ll see at least one or two major bank closures.
This is a story that won’t appear in the media. Bank-runs are the beginning of the end — financial Armageddon.
The problems facing the stock market are serious but not catastrophic. If the market corrects more than 10 or 15%, the massive overleveraged hedge fund industry will cave in taking (potentially) $1.7 trillion down a black hole. This may explain why the market has behaved so erratically lately. There’ve several late-day rallies with no good news to support the soaring equities prices. Is the market being micro-managed behind the scenes to keep it above a certain level?
Many people think so. A number of articles have been written recently about the activities of the Plunge Protection Team; the secretive group (comprised of the SEC, US Treasury, Federal Reserve, and Investment Banks) which allegedly buys futures to forestall violent sell-offs in the market. The Fed’s desperate infusions of credit into the banking system will only reinforce growing suspicions of market manipulation.
DERIVATIVES DOWNDRAFT
Banks routinely hedge against adverse moves in the market by purchasing various types of insurance in the form of derivatives contracts. Derivatives trading has skyrocketed in the last few years and the “British Bankers Association estimated last fall that by the end of 2006, the market for all credit derivatives was $20 trillion and expected to be $33 trillion by the end of 2008.”These relatively new instruments are about to be put to the test by worsening market conditions. “Hedge funds may account for as much as 30% of such credit protection” but that is little solace for the banks “because hedge funds that are losing money but also selling credit insurance may not be able to honor their commitments, rendering the protection worthless.” (“Insuring against Credit Risk can carry risks of its own” Henny Sender, Wall Street Journal)
Credit insurance in the form of credit default swaps have created a false sense of security that may prove to be unfounded. In fact, the Credit insurance business has probably encouraged lenders to make shakier and shakier loans believing that they were protected from risk. But that doesn’t appear to be the case. For example, Bear Stearns tried to soothe investor’s fears during the collapse of its two hedge funds by pointing to its derivatives coverage.
“Bear executives repeatedly referred to their dependence on hedges, including credit derivatives, to offset their losses on subprime mortgages and loans to poorly rated companies, stating that such hedges would offset losses.” (Ibid, H. Sender, Wall Street Journal)
We all know how that story ended up.
Derivatives have been celebrated as a critical part of the “new architecture of the financial markets”. Now we can see that they are poor-performers under real-life conditions and liable to trigger an even greater disaster. If the stock market stumbles, we can expect a major breakdown in credit insurance-trading with trillions of dollars in derivatives disappearing overnight.
The abstruse world of derivatives trading will suddenly explode onto the headlines of newspapers across the country.
HOUSING BRUSHFIRE SWEEPS THROUGH THE ECONOMY
The contamination from the massive real estate bubble has now infected nearly every area of the broader market. The swindle which began at the Federal Reserve — with cheap, low interest credit — has spread through the entire system and is threatening to wreak financial havoc across the planet. The Fed’s multi-billion dollar bailout will do nothing to contain the brushfire they started or avert the catastrophe that lies ahead. Greenspan opened Pandora’s Box and we’ll all have to live with the consequences.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 284320
8/18/2007 12:45 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Can anyone explain how they do this, that is mop up excess liquidity, please and thank you
FU&FW
[link to www.atimes.com]
The central banks will recover the funds they injected when market instability recedes or when open-market operations expire. The BOJ absorbed surplus funds for two straight days on Tuesday and Wednesday when the Japanese market settled down, but was forced into action again on Thursday.
[link to freewordofgod.yuku.com] |
| wing-ed
User ID: 281371
8/18/2007 12:59 AM
 | | Re: Watch, Its happening ,the global economic change. | Quote |
Can anyone explain how they do this, that is mop up excess liquidity, please and thank you
FU&FW
[ link to www.atimes.com]
The central banks will recover the funds they injected when market instability recedes or when open-market operations expire. The BOJ absorbed surplus funds for two straight days on Tuesday and Wednesday when the Japanese market settled down, but was forced into action again on Thursday.
Praise The Holy Of Holy :: We look at the world and say what kind of power can make such changes to the world !! Well lets look closely at just who is running the world!!Luk 4:5 And the devil, taking him up into an high mountain, shewed unto him all the kingdoms of the world in a moment of time.
Luk 4:6 And the devil said unto him, All this power will I give thee, and the glory of them: for that is delivered unto me; and to whomsoever I will I give it.
Luk 4:7 If thou therefore wilt worship me, all shall be thine. :::: I guess who ever runs the kingdoms of the world must bow to the devils wishes !! This explains the unexplained!! Praise The Lamb:: Amen Jesus gives us his door out of Satan's control!!
Holy, holy,holy, Lord God Almighty, which was, and is, and is to come.Praise the one who gives you peace beyond all understanding |
| .
User ID: 284474
8/18/2007 8:10 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Well it all looks like the end of one empire, and the rise of the 2nd last, we shall soon see if that is the case. |
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