| | | 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.
| Anonymous Coward
User ID: 358114
1/19/2008 12:35 PM | | FHL(C)
User ID: 358420
1/22/2008 3:07 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
[link to www.tickerforum.org]
FU&FW
It's all in the FED stats...average of 10% reserves are required, , the amount of negative non-borrowed reserves is the indicator for the capital shortfall, the TAF money is being used to maintain reserves because the debt service cost of DW or EFF money is too high.
Look at non borrowed reserves from December of this year and then look at September. There was $41 billion in non borrowed reserve in September which had been slashed by $33 billion by December leaving 8 billion in reserves left. The Fed and other institutions are loaning approximately $35 billion to bolster reserves.
The banks have to borrow this amount to maintain their reserves. They have very little of their own reserves left. If the money wasn’t available from the Fed they would not be allowed to operate. The TAF auctions are a panic move. The banks are on Fed life support.
Borrowed reserves are not reserves. If the Fed were not there, then the entire U.S. credit system would currently be supported on $8.75 billion dollars of the banks own reserves.
Vault cash falling is a solvency issue. Required reserves falling is a slow run by big money.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 3:09 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
If the above is true that there is less than 9 billion in vault cash in the US banks, then where is all the printed fed money going too?
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 3:24 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
[link to www.crainsnewyork.com]
The worst lies ahead for Wall Street
More losses certain; more expensive capital to be needed
January 19. 2008 4:07PMBy: Aaron Elstein
Last week, Citigroup Inc. and Merrill Lynch & Co. raised $21 billion between them to fill the craters left by their latest rounds of mind-boggling losses.
Both firms paid dearly for those transfusions at a time when they can least afford to do so. With the economy weakening, odds are increasing that a hapless gaggle of financial institutions, including some of New York's best-known names, will face further massive losses.
That will force them to borrow still more at terms that will likely only get stiffer, dragging down their earnings for years to come.
"As bad as things are for the banks, it's only going to get worse," says Michael Shedlock, an analyst at Sitka Pacific Capital Management. "The next shoes to drop are commercial real estate and credit card loans."
In the past three months, Citi, Merrill, Morgan Stanley, Bear Stearns and others have tapped investors for more than $60 billion in cash to help cover their mortgage-related losses. Most firms have turned to Asia and the Middle East, far from the frozen credit markets of the United States and Europe.
"The scale is unprecedented," says Manhattan College finance professor Charles Geisst, author of Wall Street: A History.
Furthermore, the banks' troubles show no signs of receding anytime soon. For openers, the subprime fiasco that has already cost Wall Street $100 billion in losses has not finished playing out. Matters took a grave turn late on Friday when Ambac, the second-largest insurer of bonds in the country, had its credit rating cut. The company had guaranteed billions of dollars of subprime-backed debts.
Meanwhile, Citi still has more than $37 billion in subprime mortgage-related holdings on its books.
In addition, new problems are emerging. Corporate bond defaults are doomed to more than triple this year, according to Standard & Poor's. A similar fate is forecast for the $750 billion commercial mortgage market; delinquencies could triple in 2008, a report from a Merrill Lynch strategist says.
In fact, bond-rater Moody's Investors Service cited Merrill's $18 billion commercial mortgage exposure as one reason it is maintaining its negative outlook on the Wall Street titan's creditworthiness even though Merrill has raised billions in fresh capital. Big additional losses could hit not just Merrill but also Citi, which has $20 billion in commercial real estate loans on its books, and J.P. Morgan Chase, which has $16 billion in commercial mortgage-backed securities.
Springing new leaks
Losses are also starting to pop up in consumer-lending sectors beyond mortgages.
Charge-off rates in the $900 billion credit card market will jump to at least 6.6% this year from 4.7% as of Nov. 30, according to S&P. That doesn't even factor in the possibility of a recession. The situation with car loans is similar: Delinquencies are soaring.
Home equity loans are also in trouble. At J.P. Morgan, for example, fourth-quarter charge-offs quintupled compared with year-earlier levels.
The good news is that loan losses are increasing from unusually low levels. In many cases, markets are merely reverting to normal. Default rates on junk and investment-grade bonds were just 0.5% last year, well below historical norms of 1.25%.
However, the dramatic acceleration in losses is catching banks off guard and short of cash. That's forcing them to scramble to bolster their balance sheets by turning to investors for mountains of fresh funds, at hurtful prices.
We owe you
Citi, for example, was so starved for cash after posting record losses of $10 billion in the fourth quarter that it tapped parties including the government of Singapore for $12.5 billion. The price is steep: The bank must pay its new owners $875 million in annual dividends, or a 7% yield. Citi also agreed to grant these investors 20% more shares than they would normally get when their securities are converted into stock.
All told, Citi is paying about 11% for its money, according to independent bond analyst David Merkel. That's roughly 5 percentage points more than it would have paid in calmer times.
Merrill, which posted a whopping $12 billion in losses over the second half of last year, is also paying through the nose for help. To entice investors to buy $6.6 billion of preferred stock, the bank agreed to pay them $600 million in annual dividends, or a 9% yield.
Such payouts will depress earnings for affected firms for years. Had Merrill cut its deal in 2006--the last year the firm was profitable--the new dividend charge would have reduced income available to common shareholders by 9%.
Cash-strapped Morgan Stanley, meanwhile, is on the hook for $450 million in annual interest payments to China Investment Corp., which bought a $5 billion stake last month, after it reported a $3.6 billion loss. The move infuriated some analysts, since Morgan Stanley paid staffers about $10 billion in bonuses late last year before raising the costly capital.
"That really reeks," grouses Sitka Pacific's Mr. Shedlock.
A Morgan Stanley spokesman could not be reached for comment.
HIGH COST OF HELP
Amount raised, in billions, followed by annual (pretax) cost, in millions
Citigroup $20; $1,700
Merrill Lynch $13; $594
Morgan Stanley $5; $450
E*Trade $2; $219
MBIA $1; $140
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 3:28 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
[link to www.bloomberg.com]
Stocks Plummet in Germany, Hong Kong, India, Brazil in Rout
By Sarah Thompson
More Photos/Details
Jan. 21 (Bloomberg) -- Stocks plunged in Germany, Hong Kong, India and Brazil, and U.S. index futures dropped on mounting speculation that the global economy is slowing and company defaults will rise.
Europe's Dow Jones Stoxx 600 Index fell the most since the Sept. 11 terrorist attacks and sank into a bear market, as Allianz SE and BNP Paribas SA slid. Hong Kong's Hang Seng Index had its biggest drop in six years after BNP Paribas said Bank of China Ltd. may write down overseas securities by $4.8 billion because of losses from U.S. subprime mortgages. Citigroup Inc. retreated in Frankfurt.
The MSCI World Index slipped 2.4 percent to 1,402.75 at 2:44 p.m. in London, extending its decline from an Oct. 31 record to 17 percent. India's Sensitive Index lost the most since 2004, while Germany's DAX slid the most since March 2003. Futures on the Standard & Poor's 500 Index sank 3.4 percent. Trading in the U.S. is closed today for Martin Luther King Day.
``It's the worst I've ever seen,'' said Johan Stein, who helps manage the equivalent of about $14 billion at Nordea Asset Management in Stockholm. ``The financial system is in terrible shape, and no one knows where this will end.''
Today's declines follow the worst week for U.S. stocks in five years after President George W. Bush's $150 billion plan to revive the economy and expectations of interest-rate cuts failed to allay recession concerns.
The risk of European companies defaulting soared to a record today on speculation credit-rating cuts at bond insurers including Ambac Financial Group Inc. may trigger forced asset sales. European Central Bank council member Nout Wellink said economic growth in the region may slow more than policy makers had expected.
Market Crisis
``This is a stock-market crisis,'' said Alberto Roldan, head of research at Inverseguros SVB in Madrid. ``Investors believe that neither a government package nor a huge rate cut is going to help evade a recession in the U.S.''
White House spokesman Tony Fratto said in Washington today the government doesn't comment on daily market moves.
``We're confident that the global economy will continue to grow, and that the U.S. economy will return to stronger growth,'' Fratto said in an e-mailed message.
The Stoxx 600 slid 4.1 percent, extending its drop from a 6 1/2-year high on June 1 to 22 percent. A decline of more than 20 percent is the common definition of a bear market. The gauge earlier fell as much as 5.8 percent, which would have been the biggest drop in six years. France's CAC 40 lost 4.9 percent. The U.K.'s FTSE 100 sank 3.6 percent, and Germany's DAX slid 6 percent.
Volatility Climbs
The VDAX-New Index, a benchmark gauge of European stock- market volatility, surged as much as 39 percent, the most since 2001. The measure of expected price swings for stocks is derived from prices paid for options on Germany's DAX.
The MSCI Asia Pacific Index lost 3.7 percent. Australia's S&P/ASX 200 Index slumped for an 11th day. Hong Kong's Hang Seng Index lost 5.5 percent. Japan's Nikkei 225 Stock Average dropped 3.9 percent as the Finance Ministry cut its evaluation of five of 11 regional economies as housing investment fell and employment worsened.
The MSCI Emerging Markets Index, a global benchmark, sank 5.4 percent, extending its retreat from an October record to 19.7 percent.
Brazil's Bovespa index slid 5.2 percent, the most since February 2007. Russia's Micex Index declined 7.5 percent, the biggest drop since June 2006.
Canada's Standard & Poor's/TSX Composite Index fell 4.1 percent.
Allianz, Europe's biggest insurer, tumbled 8.4 percent to 122.01 euros. BNP Paribas, France's second-biggest bank, sank 6.1 percent to 65.15 euros. ING Groep NV, the biggest Dutch investment bank, declined 7.6 percent to 21.66 euros.
`Sharp Contraction'
``The market is finally catching on to the fact that a recession will lead to a sharp contraction in earnings,'' said Jane Coffey, head of equities at Royal London Asset Management, where she helps oversee about $11 billion. ``We need to see more aggressive changes to forecasts before investors become more positive about looking through the downturn.''
Swiss Reinsurance Co. decreased 8.5 percent to 69.9 Swiss francs. UBS AG cut its share-price estimate for the world's largest reinsurer to 80 francs from 88, citing the probability of more investment losses related to credit-market problems.
``We see on-going downside risk to earnings and stock performance until we have better visibility,'' London-based analysts including Ben Cohen wrote in a report to investors.
Bank of China
Bank of China, which has the largest holdings among Asian banks of U.S. subprime mortgages, slid 4.7 percent to HK$3.43. The bank may write down 17.5 billion yuan ($2.4 billion) for the fourth quarter of 2007, and an equal amount for this year, Dorris Chen, a Shanghai-based analyst at BNP Paribas wrote in a note on Jan. 18.
Commonwealth Bank of Australia, the country's second largest, dropped 2.5 percent to A$51.89. National Australia Bank Ltd., the nation's largest, declined 2 percent to A$35.55.
Morgan Stanley raised its 2008 forecast for loan-loss charges at the country's major banks by 26 percent, analyst Richard Wiles wrote in a note today, citing a deteriorating global economy and ``the difficulty faced by some companies in refinancing maturing debt.''
Citigroup, the biggest U.S. bank by assets, dropped 3.6 percent to $23.56 in Frankfurt. JPMorgan Chase & Co., the second- largest U.S. bank by market value, slid 3.2 percent to $38.30 also in Frankfurt trading.
The slump has made stocks cheap by historical standards. Europe's Stoxx 600 is valued at 11.1 times its companies' profits, the lowest since at least 2002, according to data compiled by Bloomberg. The 1,953-member MSCI World has a price- earnings ratio of 14.3, the cheapest since at least 1998.
Rio Tinto
Rio Tinto Group, the world's third-biggest mining company, dropped after BHP Billiton Ltd. failed to make a new offer. Rio, defending a hostile $108 billion takeover bid from rival mining company BHP, fell 6.6 percent to 4,392 pence.
BHP may not make a new offer before the Feb. 6 deadline set by the U.K.'s Takeover Panel, the London-based Times newspaper reported. The BHP board has not met to discuss a new bid, the newspaper said, after its initial three-for-one all share offer in November was rejected.
Samantha Evans, a BHP spokeswoman in Melbourne, declined to comment. Rio spokeswoman Amanda Buckley also declined to comment.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net .
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 7:09 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
[link to www.telegraph.co.uk]
Euro at risk from Europe's economic storm
By Ambrose Evans-Pritchard
Last Updated: 1:12am GMT 22/01/2008
One begins to glimpse the distant end of America's financial crisis.
A mood of capitulation is sweeping Wall Street, the time-honoured moment of black darkness before dawn. Losses are coming into focus.
We know that rates on $1,500bn in adjustable mortgages will jump by 300 basis points over 18 months.
advertisement
House prices may fall by 15pc from peak to trough. S&P has raised the default forecast on 2006 sub-prime debt from 14pc to 19pc. "The US housing market slump may last far longer than previously expected," it said. The phase of denial is over.
# Read more of Ambrose Evans-Pritchard
# The latest news and analysis on the credit crisis
Goldman Sachs and Merrill Lynch expect recession. "The perfect storm took time to brew, but it hit hard and fast - much harder and faster than we expected," said Bank of America.
Few still insist that the real economy can shrug off an implosion of credit. Fund managers are adapting to the new consensus. A fifth now expected a global slump.
Citigroup is coming clean on write-offs with abject confessions: a further $18.1bn last week. Merrill swallowed $16.7bn.
The apparatus of the US government is now in rescue mode.
The Federal Home Loan Bank system has quietly slipped mortgage banks $750bn since the crunch. It injected $210bn in November alone, with taxpayer guarantees. Citigroup gobbled $95bn. God bless socialism.
The Fed will cut rates a half point to 3.75pc by month's end, if not more.
Ben Bernanke is "exceptionally alert" after unemployment jumped from 4.7pc to 5pc in December, the sharpest rise in a quarter century.
"It is patently obvious that the Fed has thrown its inflation worries to the wind," said Stephen Stanley, from RDB Greenwich Capital. Quite right too.
Oil has broken below $90 a barrel. The Baltic Dry Index is in free fall. Shipping shares are crashing. Will anybody care about US inflation in six months?
The White House is crafting the Bush bail-out, an instant helicopter drop worth 1pc of GDP. Congress is not going to get in the way. "Everyone should put their ideological baggage aside and try to pump money into the economy to get things going," said Charles Schumer, Senate Banking chairman.
Spending is no cure. It will add to imbalances that have already degraded the US economy from top creditor to top debtor in a generation.
But a double-shot of fiscal and monetary stimulus, laced with moral hazard, can stabilise credit. Note that the US commercial paper market finally stopped disintegrating last week. It added $35bn.
Yet if the storm is peaking in the US, it has hardly begun in Europe. Bernard Connolly, global strategist at Banque AIG, says euro-losses may surpass the US debacle.
"The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic," he said.
Budget deficits must stay below 3pc of GDP, on pain of fines. Germany once breached this with impunity, but that was before Angela Merkel appeared. Virtuous again, Germany now demands rigour.
Since France and Italy are already nearing the 3pc buffer, they may have to tighten into a downturn.
Monetary bail-outs are not allowed either, at least not until the German bloc gives a green light to the European Central Bank.
We are a decade into EMU. The outcome is what Bundesbank sceptics feared. Interest rates have been far too low for Club Med and Ireland, fuelling property booms.
These have burst, are bursting, or will burst. The victims are beached with current account deficits of 10pc of GDP in Spain, 13pc in Greece. The "Nordics" have surpluses, at Club Med expense.
Italy and Spain have lost 30pc in labour competitiveness against Germany under EMU. France has lost 20pc. An attempt to deflate these countries back to balance will run into revolt.
Hedge funds are already circling.
One has set up a Euro Divergence Fund. BNP Paribas said spreads on Club Med debt will soar this year to levels never seen in the euro-zone. "The markets are going to punish wrongdoing," said Hans Redeker, the bank's currency chief. "The politicians in Italy and Spain do not seem to realise how deep-rooted their problems are. They may have to cut real wages," he said.
"While tensions can be camouflaged during economic upswings, they surface during downswings. All failed currency unions were abandoned during times of economic stress," said the bank.
We are nearing the moment when the ECB must decide whether it is a bank or the political guardian of the EU Project. It cannot be both.
The monetary crunch needed to restrain German wage deals after the rail workers won 11pc will crucify Spain.
Over 40,000 estate agents closed doors in Spain last year. Property prices are dropping in Madrid, Barcelona, and Seville.
Spanish banks are issuing mortgage bonds to use as collateral at the ECB's window, without even trying to sell them on the open market. La Gaceta said this "abuse" has reached €40bn.
The ECB has taken the political pulse of Latin Europe and concluded that rigour is now too dangerous. It will face a hostile troika of Paris, Madrid and Rome if it persists, risking EMU schism. Trumped by politics, the Germanic hawks have climbed down.
The euro fell hard last week. It is the start of a long slide to levels that reflect a sluggish, half-reformed bloc in demographic decline.
The euro must be weak, or it will break.
Whatever happens, it is already too late to avoid the Latin Crisis of 2008.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 7:32 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Secrets Of The Plunge Protection Team
The Four Derivative US Dictators
There are just four people who control all of the U.S. markets through their use of dangerous and explosive DERIVATIVES. They are risking the assets and retirement funds of all Americans. Because of their manipulations, especially since 2001, U.S. financial markets are now based on the gambling whims of a special fraternity of Federal Government DERIVATIVE dealers.
This group is known among Wall Street as the Plunge Protection Team (PPT). Their "official" role was to prevent another 1987 "Black Monday". They have the entire U.S. Treasury at their disposal to manipulate the markets through DERIVATIVES (futures options). In other words, they are using the assets behind the U.S. Treasury to rig the prices of commodites (gold, currencies, etc.) and stocks.
This fraternity comprises of Fed Chairman Alan Greenspan, the Secretary of the Treasury, and the heads of the SEC and the Commodity Futures Trading Association. It works closely with all the U.S. exchanges and Wall Street banks, including the largest DERIVATIVE risk holders Citibank and JP Morgan Chase.
Few people are aware of Executive Order 12631 signed by Ronald Reagan on March 18, 1988. In a nut shell, this is the "authority" behind the four dictators and the [sic] "laws" and "regulations" that have backed their casino-style DERIVATIVE gambling spree since 2001. Here are some highlights of this Executive Order to ponder:
Executive Order 12631 - Working Group on Financial Markets - Mar. 18, 1988; 53 FR 9421, 3 CFR, 1988 Comp., p. 559.
"By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:
Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:
(1) the Secretary of the Treasury, or his designee; (2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee; (3) the Chairman of the Securities and Exchange Commission, or his designee; and (4) the Chairman of the Commodity Futures Trading Commission, or her designee.
Section 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.
(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.
Section 3. Administration. (c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions."
Get out of the markets before the inflated DERIVATIVE bubble bursts
The pre-911 U.S. markets showed an astounding - yet confounding and puzzling - rise for the 4 months proceeding 911. The U.S. media dubbed it a "patriotic rally". The European Press called it a "PPT [Plunge Protection Team] rally". Obviously, the U.S. markets were manipulated and rigged to an inflated value in advance of the 911 disaster. Was this a coordinated measure in anticipation of what was to come? Only The Powers That Be can answer that question directly.
Since 911, there have been at least three major long-term stock market rallies. In all 3 instances, when the markets opened all the indexes began to quickly plunge. In each incidence, by early afternoon the markets were brought back from the brink of collapse to the surprise of everyone, including historical analysts.
An event that should have sent markets spiraling downward was the Enron, et al, unprecedented corporate accounting scandals. Yet despite this, an unprecedented accross-the-board markets rally began on July 24, 2002. Once again, the European Press called it a "PPT rally".
Outside the U.S., it's no secret who is behind these secretive "no-name" purchases of high risk DERIVATIVE gambling wagers:
On September 16th, 2001, The Guardian reported "that a secretive committee... dubbed 'the plunge protection team'... is ready to coordinate intervention by the Federal Reserve on an unprecedented scale. The Fed, supported by the banks, will buy equities from mutual funds and other institutional sellers... "
On Feb 21, 2002, the Financial Times featured an article about Japan's Stock Buying Body. The article stated that "...government backed equity markets, as Japan has recently become aware, do not work... Plunge protecting the world's markets may be a hazardous pursuit."
In each of these occurances, a large "no-name" buyer in the futures market secretly plunged in and bought up massive quantities of DERIVATIVES through banking groups such as JP Morgan. These were completely reckless gambling bets that the futures index [S&P] would rise even though it was obvious that it was going to fall. Because such a large amount of money was wagered on the S&P's rise, in each instance, it reversed the market's free-fall.
At the Federal Open Market Committee meeting on Jan 29-30, 2002, the Federal Reserve System (Greenspan) openly discussed the use of "unconventional methods" to stimulate the economy. Recently, the Financial Times of London quoted an anonymous U.S. Fed official who stated that one of the extraordinary measures "considered" in January 2004 was "buying U.S. equities".
These gambling interventions by the "Four Financial Dictators" have successfully brought the markets back each time... despite the inflated financial realities that existed. The purchase of these gambling DERIVATIVES at a great loss have transformed each market crisis into a rally. By manipulating the markets in this way, they have further inflated the highly overvalued market indexes.
Perhaps Americans can now understand why the major U.S. banks, such as JP Morgan, are holding TRILLIONS of gambling derivatives on their books as the PPT group of four use them to rig the markets. Sooner or later, these market "fixes" will no longer hold the bubble from bursting.
Thus, we have witnessed the creation and growth of the financial bubble that is on the brink of explosion... and we know who rigs and controls the markets to create this inflated bubble of gambling debt.
Paper Stocks Rise as Metals Loose - PTT Rigging is Obvious
In the same motus opperandi, the PPT group of 4 are currently buying metals futures (DERIVATIVES) in great amounts on the New York and Chicago exchanges. For the past two weeks, they have created a loss in silver and gold indexes by purchasing (at U.S. taxpayer's expense) large gambling bets (derivatives) against the true value of intrinsic metals.
The result is that they have rigged the value of metals to discourage investors from purchasing gold and silver instead of U.S. Federal Reserve Notes. This is a measure by the PPT to plug a large hole in the bursting dam of the financial bubble, but even Hans Brinker cannot stop this leak.
The bottom line? Stick with history and prepare for the financial explosion. When the bubble deflates and pops, economic deflation will control our daily lives. The PPT cannot continue to spend what it doesn't have. The retirement funds they are "borrowing" from are already exhausted. Get yourself some gold and silver... it will buy your bread to survive in the coming future... while paper Federal Reserve Notes will burn in your furnace to heat your homes.
[link to www.rense.com]
Bush convenes Plunge Protection Team
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:18am GMT 11/01/2008
Have your say Read comments
Bears beware. The New Deal of 2008 is in the works. The US Treasury is about to shower households with rebate cheques to head off a full-blown slump, and save the Bush presidency.
On Friday, Mr Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit - officially the President's Working Group on Financial Markets - was created after the 1987 crash.
It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry "short" traders in the hottest of oils.
The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.
Judging by a well-briefed report in the Washington Post, a mood of deep alarm has taken hold in the upper echelons of the administration. "What everyone's looking at is what is the fastest way to get money out there," said a Bush aide.
Emergency measures are now clearly on the agenda, apparently consisting of a mix of tax cuts for businesses and bungs for consumers. Fiscal action all too appropriate, regrettably.
We face a version of Keynes's "extreme liquidity preference" in the 1930s - banks are hoarding money, and the main credit arteries of the financial system remain blocked after five months.
The Plunge Protection Team - long kept secret - was last mobilised to calm the markets after 9/11. It then went into hibernation during the long boom.
Mr Paulson reactivated it last year, asking the staff to examine "systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis", he said...
[link to www.telegraph.co.uk]
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 7:35 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
To the point
Anonymous Coward
User ID: 357219
1/22/2008 6:11 AM
Report abusive post
Re: The Plunge Protection Team will Intervene today Quote
The PPT team has intervened nearly every day of the New Year... Hundreds of billions of dollars have been siphoned from the Fed, Euro & lately Asian currency markets for months now.
The REAL problem is that they're running out of deck chairs to rearrange, if that is, you catch my drift.
They can shut down trading (as was done in India earlier today) every time losses exceed 400 points whatever, but in reality it's the age old story of the little Dutch boy with his finer in the dike at this point in time. the so-called correction will bleed into each succeeding day as continuing reports of runs on short term bonds, panic selling and currency troubles persist... and they will.
This one is long as it is deep. The Aussie market today is at an 80 year low. I got up @ 2:00 AM to check it out and the usually chipper CNBC Euro pundits were all wearing long faces and not one had a positive thing to say about the tide yet to come.
Hunker down and buy only what you can eat, use for hygiene
purposes, purchase 90 day supplies of RX drugs instead of 30 day and buy the items that every depression victim since the dawn of man has claimed to be in shortage and most wanted in their time of need: soap, protein, vitamins (C & E), potable H2O back up and blankets, for those in colder climates. It could get ugly.
IGNORE the recent (four days) absurd ads to SPEND your way out of the coming "recession" (autos, Charles Schwab investments (Ha!), luxury items etc.). Save what you can, DON'T pay off bills, as it's too late for that to improve anyone's situation (those in deep credit card debt or in homes they couldn't afford in the first place are stuck, I'm afraid and will have to deal with the consequences,one way or another.
TAKE any rebate the Federal government sends your way and by the time you receive it, you'll probably want to SPEND it as the $ will likely be circling $.52 value by that time.
These lame attempts @ stimulating the economy did do a certain degree of good the first time around, but will not help the overall crash and can help you only if you wisely spend the $ wisely as sson as it arrives.
File your tax return EARLY if you have a significant refund coming and again, spend wisely before the $ loses any more value.
Oh yeah1 Have a nice day : )
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 9:16 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
From Jim Sinclair
Please take heart. The Formula is unfolding. If you have faith in me you can stop worrying. We have traveled a great distance together. So far, so good.
Believe me that the Formula is 100% correct. The Formula will support the rise in the price of gold from its recent high at $913 to $1050 and then to $1650. As I see it, there is NO question about it.
This is it, trust me.
The meltdown is not in the billions, it is in the trillions. Central banks will seek to hold off the deluge by standard operating means that will only feed the INFLATION side of the STAGFLATION equation. Be assured it is happening as we speak, right here and right now today.
The recent drop in equities markets has the Bush administration extremely worried. At present the White House holds Bernanke’s strings.
The Bernanke Federal Reserve will not fail to serve its masters and in fact will exceed any such effort in the past.
The disinformation that a major slowdown in business is negative to gold is totally incorrect. It is the foundation of the next major move to the upside.
Those of you overcome by fear are operating on your emotions.
Because of today the PPT will demand the Federal Reserve take EMERGENCY ACTION and act prior to its scheduled next meeting.
Today European investors are throwing gold bullion and gold shares into the trash can and are running like scared cats motivated by JUST WHAT WILL BE THE CAUSE OF GOLD going to and probably through $1650.
Take heart and put your hand in mine, as long as you have not used margin.
Regards,
Jim
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 9:33 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Quote from another site
driving BMWs owned by the bank. Living in houses owned by the bank. In debt up to their eyeballs. Living paycheck to paycheck with no savings and all of the toys. Sound like anyone you know? It should. It describes what, 90% of Americans? No one is ever ready for the next Great Depression. But some are more prepared than others.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 10:16 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
[link to business.timesonline.co.uk]
World markets plunge on US recession fears
A trader wipes his eye in Frankfurt's stock exchange
Gary Duncan and Roger Boyes in Berlin
More than £77 billion was wiped off the value of Britain’s stock market yesterday in its biggest one-day percentage loss since September 11, 2001. Shares across the world plunged over fears that the threatened US recession will undermine the global economy.
London’s leading shares tumbled by 5.5 per cent in brutal market conditions, with the FTSE 100 index losing more than 323 points, its steepest points fall on record, to end the day at 5,578.2.
George Soros, the billionaire investor who prompted Britain’s withdrawal from the European exchange-rate mechanism on Black Wednesday in 1992, said the situation was “much more serious than any financial crisis since the end of the war”. Investors were “drowning in a sea of red,” said Henk Potts, an equity strategist at Barclays Stockbrokers.
The losses in London and across Europe came as global markets remained fearful that President Bush’s plans for tax cuts to stave off a US recession would not give a big enough boost to growth. Warnings from two leading US banks that the losses from America’s sub-prime home loans crisis were spreading to China triggered a sell-off of shares in Asia, which quickly rippled around the world.
Related Links
* Warning of more turmoil as markets slump
* Fear of the unknown takes toll
* City concern at Treasury deficit figures
Multimedia
* Graphic: the market misery at a glance
The FTSE is now on the brink of a new bear market. The index has fallen about 13 per cent since the start of the year — its worst start to any year since its creation in 1984. With the market now down more than 17 per cent from its recent peak, set in mid-July last year, it is on the verge of the 20 per cent losses that would now signal bear market conditions — when investors expect sustained declines in share values.
The latest bloody trading day fuelled growing anxieties that America’s economic woes will spread across the Atlantic and infect Britain at a time when the economy is already faltering under the toll of sliding house prices, and an emerging slowdown in consumer spending.
New York stock markets were closed yesterday, but traders will return today with futures markets already pointing to steep losses.
Fears over the outlook for shares worldwide and broader world economic prospects were stoked yesterday by Mr Soros, who told Der Standard, a Vienna daily newspaper, that the danger of a US recession spreading to Europe was clear. “Naturally there is such a threat,” he said. “It’s just surprising that this has been so little understood.”
The timing and tone of Mr Soros’s warning struck home with nerve-wracked investors in Europe already in a state of high anxiety over deteriorating US and European conditions.
Across Europe, bourses succumbed to a ferocious sell-off, with Germany’s benchmark Dax index plunging by 7 per cent, and France’s CAC40 registering losses on almost the same scale.
The combined losses of the London, Paris and Frankfurt markets alone amounted to more than $350 billion (£180 billion) — roughly the size of the combined economies of New Zealand, Hungary and Singapore.
Official acknowledgement of the dangers to world economies came from Dominique Strauss-Kahn, the managing director of the International Monetary Fund. “The situation is serious,” he said. “All countries are suffering from the slowdown in growth in the US.”
Signs emerged yesterday that China, which will be the biggest single national contributor to global growth this year, could be hit by serious losses at its banks from the US sub-prime home loans debacle. Until recently, investors had believed that Chinese banks were well-insulated from the crisis. But that assumption was challenged yesterday by warnings from two leading banks that big Chinese banking groups could be forced to write-down millions in losses on sub-prime investments.
China’s financial regulator said banks in his country had also built up substantial amount of bad loans during an investment boom.
Sliding scale
Biggest falls for the FTSE 100 or its equivalent since 1935
11.4% Oct 20, 1987 Fears over UK economic outlook
9.1% Oct 19, 1987 Black Monday
7.3% Mar 1, 1974 Shock Labour election win stuns market
7.2% Oct 26, 1987 Market swings lower after brief rally
6.4% 29 May, 1962 Big drop on US steel industry woes
6.4% Jan 2, 1975 Burmah Oil financial crisis
6.1% Mar 11, 1975 Wild market dip on Burmah Oil crisis fallout
5.7% Sept 11, 2001 Attack on the World Trade Centre
5.5% Jan 21, 2008 Investor fears of recession
5.5% Dec 6, 1973 Oil shocks, Opec raises prices
5.4% Sept 26, 1938 Second World War looms
5.4% Dec 14, 1973 Market dips again on oil crisis
5.4% Mar 16, 1938 Fears of war, rising taxes
5.4% Oct 22, 1987 October 1987 sell-off continued
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 10:33 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
US shares plunge despite interest rate cut
US shares fall 3.63 per cent after authorities move to stop a recession by making the biggest cut to interest rates in 26 years
Ben Bernanke, Chairman of the US Federal Reserve
Patrick Hosking and Leo Lewis in Tokyo
America took the axe to interest rates today, cutting its key federal funds rate by a drastic 0.75 per cent - the biggest cut in 26 years - in a desperate attempt to prevent recession and restore calm to panicky financial markets.
However the reduction to 3.5 per cent - the fourth cut since the credit crunch hit last summer - did little to placate nervous traders.
In the first half hour of trading this afternoon, Wall Street's closely watched Dow Jones Industrial Average, an index of blue chip companies, plunged by 356 points to 11,743.
It was the first opportunity for US investors to react to the massive shares sell-off in the rest of the world yesterday because Wall Street was closed for a public holiday.
Related Links
* Analysis: Why are stock markets falling now?
* Warning of more turmoil as markets slump
In London, after a roller coaster day during which prices swung wildly, the FTSE 100 was by up 44.5 points to 5,677.7 in mid-afternoon trading. Earlier it had plunged by as much as 239.5 points.
The US Federal Reserve said today that it was reducing its rate to 3.5 per cent "in view of a weakening of the economic outlook and increasing downside risks to growth".
The Bank of England said this afternoon that it had no plans to bring forward its interest rate decision due at the beginning of February after keeping borrowing costs unchanged at 5.5 per cent this month.
America's emergency cut came a week before the normally scheduled six-weekly meeting of the Fed's interest rate setting committee. In its explanatory statement, it referred to the deterioration in financial market conditions, a deepening of the housing market contraction and a softening in the jobs market.
Ted Scott, manager of F&C's UK Growth & Income Fund, said: "The rate cut is a response to the rapidly deteriorating economic conditions that the market is increasingly factoring in.
“In the short term that may provide a fillip to equities and a relief to borrowers. However, the move also smacks of panic. It suggests that the economy is already in dire straits and paradoxically confirms the markets worst fears.”
Economic gloom continued to hit energy and commodity prices. Crude oil prices fell $2.38 to $88.19 on the New York Mercantile Exchange.
Overnight, Japanese shares suffered one of the worst trading days in history, with the Nikkei diving 5.7 per cent as entire trading screens turned crimson with “sell” orders.
So far this week, the Nikkei has lost 1,288 points, or 9 per cent of its value.
In Hong Kong, a second day of misery saw the Hang Seng in near freefall, down more than 8.4 per cent towards the end of afternoon trading.
it isn't a 0.75% cut - it's a 0.75 percentage point cut.
elementary
rachel, london, london
From its peak in late 1999 at around 6930 - the FTSE 100 fell in 2000, 2001 and 2002 ending up somewhere around the 3560 mark - a sustained three year fall of 48%. Now that's a real bear market.
If this turns out to be as bad (and judging by the Fed's panicky 0.75% cut it's not going to be pleasant) and you take last summer's peak at around 6700 as the start of the slide (note we never made it back to 1999's high) then we are about half way down.
Sure there will be rallies but a real bear will chew them up and spit them out - so the bottom might not arrive until 2010.
Meanwhile, watch out as the credit crunch returns when the Monolines come off the rails and the issuers of Credit Default Swap start crumbling as the recession bites and defaults rise.
Then we will see banks raising interest rates no matter what the Fed does to base rates, simply to encourage more depositors to rebuild their balance sheets.
Lenders here have already started raising rates
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 358420
1/22/2008 10:53 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
this is an interesting quote
Most of this damage will be done in the first 2 quarters as the street pukes up the losses. Remember what most Bearish economists say guys. You stay short until you are about 50% into a recession. It will then be buying time when there is blood in the streets.
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 360543
1/23/2008 2:41 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
MAY WE SUGGEST A FEW OPTIONS?
Posted On: Monday, January 21, 2008
Author: Monty Guild & Tony Danaher
Markets are queasy all over the globe but there is no reason for us to be losing sleep and feeling unsettled. There are many options to protect you from the global bear market in stocks. May we suggest a few options?
BUY ON DIPS
A) GOLD
As we have written for months now, inflation is becoming a worldwide problem. We do not believe in the traditional U.S. centric wisdom that as the U.S. economy slows, U.S. and world inflation will moderate. In our opinion (and based upon a great deal of research by ourselves and others), inflation will rise for several reasons.
They are:
1. The money supply globally has been growing very rapidly for at least the last 2 years.
2. Inflation has been held in check in the developed world by lower cost imports from the developing world replacing high priced manufactured goods. This cycle has now ended. Manufactured goods are rising in price, especially in the developed countries due to a rise in costs in the manufacturing countries and the lower U.S. dollar.
3. Every solution currently being employed and/or contemplated to solve the current world’s financial woes (especially, the so called subprime crisis) will breed inflation in the longer term, and cause the rate of inflation to accelerate. I could waste a lot of your time going into this in detail, but I realize that I may already wearing out my welcome by mentioning these points so frequently.
4. Historically, inflation has continued to rise for at least a year after the economy turns and begins experiencing a recession. Does this mean inflation combined with economic recession, or stagflation, is in our future for at least a year? I am afraid that it does.
5. The question of will the U.S. dollar’s decline continue to feed inflation remains to be seen. I certainly hope that the powers that be in the U.S. have realized the unwise nature of the weak dollar policy. Soon the U.S. should start to do more to strengthen the dollar. Of course, this will have to wait until the Fed stops lowering rates to solve the financial crisis, but taking a strong dollar policy is essential.
B) FOOD GRAINS
Food Grains will rise in price for a number of reasons:
1. Wheat inventories are at their lowest in 60 years.
2. Corn inventories are at their lowest in 34 years.
3. The developing world is adding more meat to their diet.
4. High food prices have not caused consumption to decline. Consumption is holding steady, even two years
5. after food prices have risen in China, India, Russia, Brazil, and many other countries. If demand was
6. going to decrease we would see indications of that by now.
These are two areas that may be the best areas for investments for a few months. Sure, market rallies will come, even big rallies, but the underlying problems are serious, and the markets have finally realized it. Why they took so long I don't know, but they are now aware of the problems and will look at the world through negative glasses for a few months to come.
HOW WE ARE POSITIONED
THOSE WHO READ OUR COMMENTARY REGULARLY KNOW THAT WE HAVE BEEN CALLING FOR A RECESSION FOR MANY MONTHS.
We are mostly out of stocks, with the exception of some gold, a small amount of energy, and agriculture shares. We are holding the vast majority of clients’ portfolios in cash. For those clients who are able we have sold shares short in the past few months.
HOW WE PLAN TO COPE WITH THE PANIC
1. We are honing our buy list, we have a list of several hundred companies and industries we like worldwide and we are setting price targets and entry points.
2. Monitor stocks closely to find buy points. We do not see stocks as yet ready to buy, but the current panic has made them a lot cheaper and we have a large amount of cash to spend when the time is right.
3. In our opinion, knowing when to sell is just half of the task, the second half of the task is to buy when the time is right. Although we do not believe that the time is yet right, the current panic means that it is probably fairly close at hand.
LONG TERM...WE STILL LIKE THE SAME INVESTMENT THEMES. Greed has retired temporarily, and fear has taken the stage.
We plan to wait until the current market corrections end before buying the Russian, Indian, Brazilian, and Chinese stocks we have selected. All of these markets have risen in the last few years and even the greatest investments need to rest periodically before heading higher.
Many countries will enjoy very good growth during and after the recession. The current period is one of waiting and preparing to buy as the markets find their footing. Thus, we hold a large part of our portfolios in cash.
Holding cash has 3 benefits:
1. In addition to preserving assets during a decline, your psychology is better when you have not had to watch your stocks fall for months on end.
2. If new countries or industry groups lead the next bull market you have cash to buy them, and you do not have to sell the stocks of your old favorites to raise cash.
3. Cash earns interest while you wait to reinvest.
Obviously, recent events prove that human nature and the human tendency to oscillate between greed and fear is still alive. The more I watch the markets, the more I think that human emotion is as wildly out of control as ever.
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 360543
1/26/2008 3:07 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
While it's an ill wind that blows nobody any good, as the supporters of American capitalism appear to be saying, and that is very true, and given that the US is indeed one of the most, if not the most, dynamic of industrialised nations, it would be as much folly to say the US will never fall as the US is on it's last gasp. Neither are true.
What is true, however, is the shift that is happening in the world's balance of economic power. Pretty soon China is going to rule the roost. It won't have the same cultural significance of America's 20th Century rule and in appearance America will dominate with her corporations and Hollywood as always, but the real power will lie with a quietly domineering China. It is simplistic and naive to assume China is only a place for Western businesses to build their cheap goods. China is playing a very sure game of, one, removing the West's manufacturing capacity, two, buying up its intellectual properties and finally three, with her masses of surplus wealth, swallowing up the west's energy, food and finance industries. From then on the world is China's to command.
Not that this is done belligerently, unlike the west, China needs no vast military to accomplish her goals, she will do it with an army of millions of happy workers, graduates, engineers and shrewd, shrewd businessmen who will spot an opportunity at every turn (to our American cousins who may not have heard of MG Rover, do a read up on what happened there - it's merely the dry run for the future)
And cleverly, we are all invited to China's party. But it's a case of not 'bring your own food' but 'bring your own intellectual rights and sell 'em'. Salami style, China is taking the world bit by bit, slice by slice whilst Western capitalists rub their hands with glee over the fabulous profits to be made in the short term. Long term, those hands will look sorely chaffed.
America is the Great Consumer now, and China needs her willing customers to buy buy buy, then sell sell sell. Once China's happy workers, graduates, engineers etc etc, become the Great Consumers, China will have no need of the once mighty dollar.
Study history and see that production leads to wealth leads to dominion - Gt Britain did it, America did it, and now China is doing it on a scale that is breathtaking, but subtle. Britain and the US were militaristic economic superpowers, China is doing it with a velvet glove.
All who indulge in delusional hubris remind me of the British who refused to believe the Empire was dead. But dead it was, and from way before WW2 if the truth be told. The writing was on the wall as the world changed, but we refused to believe it. Now look, the pound is a safe bet for long term speculation, but not the standard currency, the same will be the case with the dollar. There will always be an America, just as there will always be an England, but in name only, and only useful so long as their citizens are spending their dough and believing the sun had never set. Watch out world, the days of Empire are ending, long live the Empire.. |
| Anonymous Coward
User ID: 360543
1/26/2008 3:20 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
By Jim Willie CB Printer Friendly Version
Jan 24 2008 3:28PM
www.GoldenJackass.com
Bankers, Wall Street hucksters, financial network commentators, and floating analysts seem to have flunked basic arithmetic in grand fashion. Maybe they only expose the next link in a long chain of deception, their apparent expertise. One hears estimates of $200 billion on total mortgage bond losses from the Secy of Inflation Ben Bernanke. One witnesses the series of bond writedowns by Wall Street banks. One can read of Wall Street economists like Jan Hatzius of Goldman Sachs, who cites $400 billion in potential bond losses, a favorite figure cited by other bankers. One is subjected to press anchors and their simplistic echoes of bond losses. One is endlessly lectured by highbrow analysts of the extent of bond damage. The trouble is, they all cannot do simple arithmetic and observe the billboards on mortgage bond indexes, fully available.
Put aside for a minute the fact that the mortgage debacle in the United States is described as a subprime loan problem. The entire gaggle of banker goons and press parrots have their reasons for insisting on focusing entirely on subprimes. It makes the problem more marginal, more understandable, more excusable. Dumb lenders gave home loans to bad borrowers. OK! Follow this path of incredibly easy math. The total of all US$-based mortgage bonds is $10.4 trillion. A conservative estimate of the prime mortgages within this giant mass is $7 trillion. We all know it is more, so bear with my lowball for argument sake. The prime mortgage bond index measures an aggregate of prime rated bonds scattered across the beleaguered fifty states, varying over loan size from large to medium to small. The ‘AAA’ mortgage bond index has lost a whopping 30%, a fact that continuously eludes the big bankers and their legion of obsequious monitoring mavens. Simple math, within the grasp of a 9-year old kid, results in prime mortgage losses amount to at least $2.1 trillion. The kid might have trouble with all the zeroes though, and even be confused by what a trillion is. A trillion is a million millions.
The size of the subprime mortgages in the United States is estimated at $1.4 trillion. The ‘BBB’ mortgage bond index has lost 80% of its value. It too measures an aggregate of such mortgage bonds across the US, of various size loans. So subprime mortgage bonds have lost over $1.1 trillion. If subprime bonds have lost a trillion$, why cannot supposed experts estimate that the total asset backed bond losses to be at least a cool trillion$? Add the two numbers from subprime and prime together to reach a $3.2 trillion in their bond losses. This total does not account for the middle tier ‘Alt-A’ mortgages, no small sum either. That is probably close to another $1 trillion in bond losses. Alt-A mortgages do not receive much attention. They are essentially more subprime slime with a more obscure name. Their decline rate for associated bonds is almost as horrible as the subprimes. Even if they are omitted in the argument, the point remains just as dire. This summer the avalanche of innovative prime adjustable mortgages will be the wreckage to report. The bonds have fallen in value, but the writeoffs have yet to make the news. All in time.
DAMAGE SUMMARY ON A NAPKIN
Let’s summarize in plain bold letters so as to avoid any confusion. These comments require plan language. Clear numbers are needed in clear statements.
PRIME MORTGAGE BOND LOSSES AT LEAST $2 TRILLION
SUBPRIME MORTGAGE BOND LOSSES TOTAL OVER $1 TRILLION
THE TOTAL MORTGAGE BOND LOSSES ARE OVER $3 TRILLION
THE OFFICIAL ESTIMATES ARE WRONG BY A FACTOR OF 10 !!!
GOLD WILL SKYROCKET WHEN THESE NUMBERS ARE FINALLY REPORTED
So why are all the so-called experts spouting about $200 billion in total bond losses? Why are Wall Street economists talking about $400 billion in extensive losses? A simple conclusion is that they prefer to lie and deceive, as they defend their industry. Most savvy observers are hard pressed to identify the last time Wall Street and their gaggle of advertisement vehicles actually told the truth. When people ask me why such a huge volume of lies is routinely told, my answer is always the same. Check the advertisers of CNBC, Wall Street Journal, Barrons, even Investors Business Daily. They are almost all the same: big banks, brokerage houses, mutual funds, mortgage lenders, and related firms, mostly of them headquartered in New York City. By the way, not a single felony conviction has stuck against a New York City defendant in court. All the convictions are of non-club members roaming other regions. The consequence of being beholden to such a chorus of advertisers is lost objectivity, blatant bias, active deception, and comprehensive obstruction to present the facts in a truthful light. Their message has become simple. “Do not panic, wait it out, because we are desperately trying to sell from our cratering portfolios.”
The USGovt stimulus package at $150 billion is being floated, replete with minor tax cuts, and a puny amount of money doled to each households. This is peanuts. Ben Bernanke is a bit late in living up to his name of ‘Helicopter Ben’ actually. The name ‘B-52 Ben’ is in no way deserved, not yet. Questions are asked if the USGovt fiscal plan is enough. Of course not! The stimulus is ten times smaller than required, because the estimated size of the problem is ten times smaller than reality. Unless and until the authorities in charge of this implosion of financially engineered tinkertoys get serious, when a rescue package and resolution platform are designed and put into action valued in the trillion$, they are urinating on raging bonfires. The USFed has put a very small amount of money into the banking system since August, under $20 billion net.
BIAS AMONG BANKERS
Without any doubt, the Wall Street conmen and the clueless rookies running the US Federal Reserve choose not to properly assess the problem. They are totally unwilling to tell the public that the risk price modeling system is being unraveled totally, that the mortgage debacle has wrecked the banking system totally, that the USEconomy is going to be dragged down in a tragedy. The USFed and even the US Dept of Treasury are delighted to see a recession, since it makes demand grow for USTreasurys. Therein lies a blatant bias. These clowns talk a lot about transparency, when such spotlights have exposed the banking system as insolvent. These charlatans talk a lot about the virtues of home ownership, when they have become agents to destroy life savings. A grotesque transfer of wealth has taken place using mortgage bonds as the theft vehicle, from the homeowners to the mortgage originators and mortgage bond sales force, FROM FEES. Big investment institutions are bag holders, like pension funds, insurance firms, hedge funds. As USTBill yields decline, borrowing costs for the increasingly bankrupt US book of business decline. Borrowing costs might become a huge portion of the ongoing federal budget and its deficit.
The banking leaders much prefer a recession to a big bout of price inflation. They have a destructive policy at work, to prevent what they call ‘Secondary Inflation Effects’ from taking root. In other words, they can tolerate systemic price inflation in energy costs, material costs, service costs, insurance costs, but heaven forbid any increase in wages. They steer the system towards a Middle Class squeeze. Wages have fallen by USGovt nitwit analyses by 4% to 5% since 2003 on an inflation adjusted basis. So if realistic inflation adjustment is used, employing the 7% to 10% CPI rise seen in the last few years, the Middle Class has suffered a 20% to 25% wage crush in real terms!
Those analysts who have been forecasting severe problems do not receive proper credit. Instead, they are criticized, disrespected, and called lucky. They are even called part of the problem, as they contribute to the erosion of confidence. My position is steadfast, consistent, and stern. The US financial system embodies institutional dishonesty, fully intertwined throughout the entire system. With each passing month, another huge story of fraud is revealed. We need a new cable television network just to track US financial fraud.
Today we were treated to yet another deceptive home sales report. The December existing home sales were down 2.2% in sequential sales. Yet, the home inventory supply improved to only 9.6 months, down from 10.2 months in November. Just how did inventory improve when sales continued to decline? EASY, people are removing homes for sale, taking their listing off multi-listing services, in response to a lousy market. They hope for a better day, one which will not come. The homes were not sold, so supply was reduced by decisions.
RESILIENT GOLD, SHINY TOO
Gold is resilient. Its price has a fail-safe mechanism against declines. When gold falls in price, the factors weighing it down are the same as what forces central banks to cut interest rates. At the Vancouver Gold Show on Monday, on stage my words were to watch gold bounce back when the USFed made an interim rate cut in the next couple days. My guess was given a 30% chance of occurrence. It happened the next day! An argument was claimed that in several months, the decline in the gold price toward 850 would be part of a uptrend not even recognized for the one-day big selloff. My words at the breakout session were to expect the gold price to rebound with strength as soon as the USFed took responsive action, since London bankers were making telephone calls now. And London guys share the big power with other guys in Old Europe. The Swiss uber-bankers are angry. They are taking back control. See Basel 2 bank rules and their changes.
When the Europeans soon join in the coerced rate cuts, the gold price will rise in Europe. In a competing currency war, gold wins across the board since they all devalue their currencies versus gold!!! The gold price is back over 900 again, set to retest the 915 high. Notice the mild ‘Bull Hammer’ signal evident this week, an incomplete week. The intra-week lows have been erased. The reversal was bullish. The Arabs and Asians would have come to rescue gold if not for the USFed. Be totally assured that Goldman Sachs was buying gold contracts on Monday, knowing full well that the USFed would make an interim cut. Such are the benefits of the Fascist Business Model. The rally is back, but my suspicion is the 915 gold price will hold and a retest under 900 must be completed. The key here is the Euro Central Bank. They can force a recession across the Eurozone, or else join in the global price inflation engineering. Debts cannot be permitted to grow out of control. A bank crush cannot be permitted to spill over to the mainstream economies.
JUSTICE SERVED AND TO BE SERVED
The financial sector to date has avoided felony charges, but not lawsuits. Regulators have permitted untold fraud, sitting on their hands. Those committing fraud have friends in the regulatory agencies, even the federal prosecutor posts. The lawsuits might possibly bring some semblance of justice to the big picture. Of course, the compromised USGovt officials, the hapless USFed chairman, the omnipotent Goldman Sachs henchmen, the sleazy hidden JPMorgan spooks, they might deliver a message or phone call to some judges to interfere with the lawsuit process. WE MIGHT JUST FIND OUT HOW ANGRY INDIVIDUAL STATES ARE AT THE FEDERAL YESMEN AND CANCEROUS CONMAN NEW YORK BANKERS. The nation is a collection of states, after all. The federal government has usurped powers. The Manhattan Made Men have sucked so much blood out of the living American corpse, that the states might be in the process of fighting back. Watch the Cleveland city lawsuit set against a dozen big banks for a clue. The state of Ohio has been hard hit by home foreclosures. The city mayor accuses the big banks of predatory practices and worse. He likens them to organized crime. Wow! Finally an accurate description. He might be in line for a car accident, or a heart attack, or much missing funds in the city coffer, some smear.
For the longest time white collar crime has been minimized and tolerated. Rob a store of $500 with a gun and receive 10 years in prison. Rob a pension fund of $500 million with a pen and not even be indicted, let alone even be deemed in need of social isolation. Why are Wall Street bankers not being indicted for fraud? Of course, it makes sense. Because the banking system would collapse without their beneficence and key role steering the economy. We all need their guiding hands. And also, because they run the government prosecutor agencies, a minor fact. In the last month, when watching the debacle unfold, a mindboggling thought came. The criminals on Wall Street are designing the solution. Why is that? Only in America can perpetrators of fraud design solutions to the grotesque problems they caused. Not only that, they will probably administer the programs as part of the solutions, thus profit more. More fraud will appear in the programs as well, just like with the Hurricane Katrina relief program. Neither has the fraud been prosecuted in the Hurricane programs nor the Wall Street bond fraud. Watch the lawsuits, especially the class action suits. Class actions are different, and involve federal courts, unlike the individual cases. When an account holder challenges the brokerage house, the case goes to compulsory arbitration with a former brokerage firm official presiding, and very few wins for more minions. Watch the class action lawsuits!!!
REALITY SINKING IN
As the situation becomes more clear on the broad and deep extent of the wreckage, more and more people will realize that my summertime forecast of a $2 to $4 trillion bailout makes sense. They will trot out their insane platform of a New Resolution Trust, built atop an acidic cesspool of Fannie Mae and Freddie Mac. Some wonder why fresh new platforms are not built, why fresh new banks are not erected as the old fraud-ridden Wall Street banks are let go to liquidation in bankruptcies. The answer is simple: liquidation of old corrupt financial entities would require a complete accounting of their mountain of credit derivatives, of their gold derivatives, of their currency derivatives. The 1998 LongTerm Capital Mgmt was not permitted to endure liquidations, since the powerful men in suits did not want for gold to rise by $500 more per ounce, exposing the Bank of Italy in its hidden leases to Wall Street hedge funds. So the monetization papering over of the problems will continue on a greater scale.
News items are growing uglier by the day. The second biggest bank in France, Société Générale announced a $7.1 billion loss from a rogue bond trader involved in fraud. Was blame put on one man instead of putting their entire bank management under scrutiny? They join in the Hall of Shame the firms Sumitomo, Barings, and Kidder Peabody in lax trading oversight. Ford Motors announced a 54 thousand job cut, at a time when USGovt officials claim the economy is still expanding. Not to worry! The Qatar government has decided to put $15 billion of cash into twelve ailing US and European banks. Why do they do that? Simply because many US & Euro banks are insolvent, a nice word for bankrupt.
The bond insurers are the big story these days. Ambac was downgraded by the debt rating agencies last Friday. MBIA, ACA Capital and a small gaggle of bond insurers are sitting on a mountain of dead credit default swaps. One day we might awaken to learn that those who thought they had a profit from credit default swaps are actually holding nothing, since the counter-party is dead as a doornail. If only we could arrange counter-party risk holders to reside on the planet Mars, outside our system. A credit default swap is an insurance contract against $10 million in debt securities, such as mortgage bonds or corporate bonds. As distress is felt, the bond loses value while the swap rises in value. The 50% annual rise in the credit derivative volume of outstanding contracts owes mainly to the burgeoning growth in credit default swaps. As mortgage loans flooded the banking system, and their bonds flooded the credit market system, some measure of insurance was taken out. Too bad pay days on those insurance claims will be absent. Watch the municipal bonds insured by Ambac and MBIA. They might be forced into sales by institutions soon, or else just permit the munis to run naked without insurance at all. Some cities and towns might order huge budget cuts.
The USDollar money supply is growing at alarming rates, sure to go much higher. The gold price rises with this growing supply, now clocking a 15% annual rate. The biggest story among central bankers right now is how the Euro Central Bank is being coerced to cut rates. We are watching the quintessential ‘Competing Currency Wars’ with a series of competitive currency devaluations to ensue. The Canadians relieved their loonie rise by cutting rates. The Bank of Canada will cut more. The British relieved their sterling rise by cutting rates. The Bank of England will cut more. My January Gold & Energy Hat Trick Letter contains a very important forecast on the British banks, sterling currency, and economy. The EuroCB is mired in internal confrontations. The Germans remain hawks against price inflation, with vivid memories of Weimar times. The French advocate rate cuts, led by Sarkozy. In time, the EuroCB will cave in from the currency war. The US Federal Reserve cut the official interest rate by 75 basis points, a forecasted call made on stage by me on Monday at the Vancouver Gold Show. Now pressure is extreeeeme on the EuroCB to cut also, or else suffer from a euro currency vaulting over 150. Bond yield spreads favor the euro too much. The tougher the Europeans act against price inflation, the more serious damage their economies will suffer from a high currency rendering harm to exporters. Unlike the USEconomy, the Eurozone economy has a hefty trade surplus on the order of $10 billion per month. The USFed remains well behind the curve. With a 2-year TBill yield at 2.2% (it was under 2.0%), and the Fed Funds at 3.5% now, the USFed is still behind the curve. Their rate cuts will not affect the USEconomy for some time, maybe six to nine months. The stock market likes the news, but corporate profits are sure to decline badly.
THE UPSHOT OF THE COMPETITIVE CURRENCY DEVALUATIONS IS THAT GOLD WILL RISE IN EACH ECONOMY WHOSE BANKERS EXECUTE INTEREST RATE CUTS. THAT MEANS ALL OF THEM, WITH THE EUROPEANS BEING THE LAST.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
Jim Willie CB
Editor of the “HAT TRICK LETTER”
Hat Trick Letter
****
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com |
| Anonymous Coward
User ID: 360543
1/26/2008 3:23 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
America is the Great Consumer now, and China needs her willing customers to buy buy buy, then sell sell sell. Once China's happy workers, graduates, engineers etc etc, become the Great Consumers, China will have no need of the once mighty dollar. Quoting: Anonymous Coward 360543
For China, America is no longer the great consumer, 2 years ago yes, 45% approx of exports, last 18 months down to 25% approx and going down fast. |
| Anonymous Coward
User ID: 360543
1/27/2008 8:09 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Will Hutton
Sunday January 27, 2008
Observer
Never in human affairs have so few been allowed to make so much money by so many for so little wider benefit. Across the globe, societies and governments have been hoodwinked by a collection of self-confident chancers in the guise of investment bankers, hedge and private equity fund partners and bankers who, in the cause of their monumental self-enrichment, have taken the world to the brink of a major recession. It has been economic history's most one-sided bargain.
Last week's financial panic was further evidence of the extreme foolhardiness with which global finance has been organised and managed. There was the biggest one-day fall in Wall Street since 11 September, which spilled over into every world stock market and the largest single cut in American interest rates for 25 years as an emergency attempt to stop the rout. A new crisis emerged in an obscure American insurance business (monoline, it is called). To cap it all, there was the £3.7bn bank fraud at Société Générale.
The growing realisation of how exposed the financial system is - and from transactions that should never have taken place - is reinforcing the mounting credit crunch, which, in turn, is spooking stock markets. The US economy is weakening while in Britain new mortgage lending is at a 10-year low. The staples of a settled life - jobs, pensions and house prices - are all under threat.
The availability of credit is one of the fundamental pillars of any economic system. Like the delivery of gas, electricity and water, finance should be regarded as a utility and after the credit-crunch disasters of the 1930s, following the free-market 1920s, it was regulated as one. But Anglo-American financiers have used the theories of the free-market fundamentalists to argue that it should be liberated from such regulatory 'shackles' and again run as a business like any other.
Yet finance is not like any other business. When a bank makes a mistake, the ramifications for the rest of the financial and economic system are so severe that it has to be bailed out - witness Northern Rock. Because of this truth, financiers have organised themselves so that actual or potential losses are picked up by somebody else - if not their clients, then the state - while profits are kept to themselves. An industry that socialises losses while privatising profit, and that has the capacity to create booms and busts alike, has to be as closely regulated as any utility.
I was reminded of the system's proclivities by a consultant friend who was hired to arbitrate over a performance bonus between a hedge fund and one of its asset managers. The individual in question was paid a base salary of some $100,000, but the investment funds he managed had done well over 2007, rising in value by more than $500m. His bonus was $206m and he felt that to conform to industry norms, his bonus should be nearer $250m - the cause of the dispute.
What, I asked, would happen in 2008 if the assets he managed fell in value? He would get paid his base salary and no bonus came the reply. And would he be required to repay any of the $250m he had pocketed this year? Of course not.
This is the one-way, short-term bet that is endemic in the way the financial services industry rewards itself and which incentivises recklessness. Raghuram Rajan, former chief economist of the IMF, differentiated between two sources of wealth generation in the financial markets in an insightful article in the Financial Times earlier this month. There is run-of-the-mill 'beta' value created because stock markets and the economy are set fair and going up; then there is special 'alpha' value generated by investors such as American billionaire Warren Buffett who see opportunities others do not.
The problem is that while we know a priori that there are only one or two Buffetts around who deserve alpha-style pay, this has become the way the entire financial system's executive class rewards itself - being paid as if just one year's performance revealed them to be alpha superstars when, in truth, most are ordinary beta performers. It takes longer than a year to reveal who is alpha and who is beta, whatever executives like the hedge-fund manager in dispute over his bonus may claim.
The remuneration structure is a disaster. One of the reasons why rogue trader Jérôme Kerviel faked a stunning £3.7bn of transactions at SocGen may have been because he regarded himself as being paid as a beta when he should have been paid as an alpha like everybody else. Moreover, he was able to fool the bank by trading in the daffy instruments that the financial system created to persuade national governments that it is not running excessive risks, an insurance that laid off risks to others. Hence the casino character of many new financial markets, which essentially operate as bookmakers accepting differing bets on future prices. Underneath their technical names - monoline insurance, derivatives, debt securitisation - lies little more than bookie principles and practice.
But selling off bad risks doesn't mean the catastrophe won't occur. And when the balloon goes up, the financial system screams for government intervention - to cut interest rates aggressively and to bail out stricken banks and insurance companies. Indeed, better still for the financiers, a gullible government can be persuaded to assume the risk, the exact principles of the Goldman Sachs-devised bail-out of Northern Rock - lubricated by excessive fees to the partners.
Thirteen years ago, I tried to blow the whistle on financial market liberalisation in my book The State We're In. It was obvious then what is even more obvious now: financial market freedom embeds short-termism, guarantees lower investment, works against business building and innovation, generates booms and busts, inflates house prices, creates system-wide risk and excessively rewards those who work in them. I thought the Germans and Japanese were better than the British and Americans in the way they organised and regulated finance and that while Britain and America might look good in the short term, their economies would eventually come back to earth with a bump.
New Labour threw a protective mantle around the financial markets in a way it never would for industry and sceptics were patronised as backward-looking, Old Labour know-nothings. Let's hopes these new crises will prompt a root-and-branch rethink. Of course, like the Americans, the British need to respond by aggressively cutting interest rates, cutting taxes and lifting public spending.
But more, we need to regulate closely how the financial system deploys its capital, develops its loans and how its people are paid, an initiative that requires global support. We need the financiers to serve business and the economy rather than be its master.
This is not a question of helping the financial system better to understand the risks it runs through more 'transparency', the friendly diagnosis deployed by both the Governor of the Bank of England and the Prime Minister in speeches last week. This is about reworking the one-sided bargain between finance and our economies. Only then can we lay the foundations for recovery and bring some semblance of fairness and rationality to the way these plutocrats behave.
[link to politics.guardian.co.uk] |
| Anonymous Coward
User ID: 360543
1/28/2008 9:25 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FRENCHY
User ID: 234231
1/28/2008 8:22 AM
Report abusive post
Societe Generale : 100 millions € insider trading by an American shareholder ?
Quote
On the 10th of January 2008, the CEO of Trust Company of the West (TCW and Board Director at Societe Generale (France) sold out 900,000 shares of Societe Genrale worth 86 million euros.
This could be an insider trading case after the Societe Generale announcement of huge loss (5 billions €) last Monday.
[link to www.boursier.com] |
| Anonymous Coward
User ID: 360543
1/28/2008 10:34 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
A bad market? You ain't seen nothin'
A worldwide decline may be harsher, longer and deeper than expected. Here's why financials may soon be in even more trouble.
By Jon Markman
Nearly seven decades ago, the eight months between Germany's invasion of Poland in 1939 and its invasion of France in 1940 was known as the "phony war" -- a period of escalating anxiety, denial, appeasement, danger and death, but nothing like the murderous global train wreck soon to follow.
Likewise, we may come to look at the period between July 2007 and January 2008 as a sort of phony war in the worldwide credit crisis, because although the market has fallen 15% since summer, there have been no defaults of key bonds or asset-backed securities. The curious lack of real blowups has led even seasoned observers to believe that fears were exaggerated and that chaos will be averted.
In reality, however, the skirmishes we've seen so far might be little more than a prelude to a deeper, harsher, longer decline than most yet perceive possible. And in a very postmodern twist, it is beginning to look like unexpected consequences of an investment instrument designed to mitigate risk could turn out to be the nuclear option that bombs the globe into the financial equivalent of World War III.
Banks left exposed
That instrument is the credit default swap, or CDS. It was developed as a way for bondholders to buy insurance against the possibility that companies might fail to pay their debts, and later it morphed into a way for big traders to actively bet on the likelihood of the default of bonds and other credit instruments. But what is only now becoming clear is that major U.S. and European banks and hedge funds bought up to $20 trillion worth of that insurance to offset their exposure to mortgage-related securities they owned. And those banks and hedge funds are discovering the sellers of the swaps may not pay up.
This leaves already deeply troubled banks virtually naked at just the moment they most need protection, as the pace of credit defaults is likely to accelerate this year so long as the Federal Reserve remains behind the curve in cutting interest rates. It's as if the banks already have pneumonia, and they're now being marched into a snowstorm wearing little more than bathrobes.
The problem surfaced to an important degree in a footnote to the news last week that Merrill Lynch (MER, news, msgs) would take an $11.5 billion write-down of bad debts for the fourth quarter. Of that amount, $3.1 billion was a write-down of credit default swaps that Merrill had purchased from bond insurer ACA Capital to hedge the risk of owning a lot of collateralized debt obligations, or CDOs, which are leveraged bundles of asset-backed securities. (In a typical CDS transaction, a debt holder or speculator agrees to pays 1.5% or more per year for $10 million worth of insurance on a specific slice of a debt security.)
This means that not only is Merrill unprotected against a default in the CDOs, but it has lost all the money it has paid for that insurance. It's as if you had paid $200,000 in premiums over the years in a $1 million life insurance policy for your spouse, and when a death occurs not only does the insurer tell you it's broke and can't pay -- but your premiums are down the drain, too.
Don't count on insurers
Several other major banks and brokers, such as the Canadian Imperial Bank of Commerce (CM, news, msgs) and Lehman Bros. (LEH, news, msgs), have been stiffed by ACA to the tune of billions, and all have let the insurer seek more capital before forcing it into bankruptcy. So the case gives us just a taste of what may come. Consider that ACA was no fly-by-night outfit. It was AAA-rated and met all standard benchmarks for safety. Yet those benchmarks now look ridiculous, as the company was allowed to provide $60 billion worth of guarantees on a capital base of just $500 million.
Can you imagine, as a citizen, if you were allowed to collect fees on $60 million worth of loan guarantees because you owned a house worth $500,000? It's nuts.
Specialty bond insurers such as ACA and troubled Ambac Financial Group (ABK, news, msgs) at least are well-known companies subject to modest scrutiny. But because we are coming out of a long period in which debt defaults have been unusually low, hundreds of little-known hedge funds, pension funds and insurers worldwide were lulled by a false sense of complacency into the practice of selling CDSs -- and their ability to pay up in the event of widespread defaults amid a long, hard recession is not just in doubt but completely unlikely. |
| Anonymous Coward
User ID: 360543
1/28/2008 10:36 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
In other words, if you think it's hard to get your insurance company to pay off in the event of a car accident, just wait until you hear the screaming from CDS holders in the next couple of years. Here are a few ways insurance sellers will try to jump off the hook, according to derivatives expert Satyajit Das, who spoke to me this week from Pune, India:
* Documentation difficulties. Ever go into a store to try to return a piece of merchandise and forget your receipt? Or have you had clerks point out that the return period expired two weeks ago, or that the fine print says the warranty is not good if the package been opened or if the item was bought on a Tuesday, or that they're sorry, but Bob, the guy who wrote the receipt, doesn't work there anymore, and current management can't honor it? Das says CDS sellers' attorneys have innumerable ways of claiming your contract does not apply. The big problem is that the standard CDS contact is a trading instrument that is standardized for simplicity and may not match the risk in the way its owner expects, even if the owner is a sophisticated investor like Merrill. It cannot be tested except by a real default, and by then it may be too late.
* Weakness in the instrument. If you bought a CDS contract on the bonds of a company that has been bought by another firm, the new owners may not be obligated to pay up. This is particularly true if the original "reference obligor," as they say in the business, is based in one country and the new owner is based in another. Foreign courts might not enforce contracts. Ownership change can also change the credit risk of a derivative in unforeseen ways, preventing you from even having a seat at the table to protect your interests.
* Credit event definition. CDS contracts rely on a trigger to go into effect -- typically a sharp downgrade, failure to make a payment or bankruptcy. But CDS buyers may not be protected against all defaults in all currencies, particularly if a bondholder restructures rather than enter bankruptcy. CDS holders may thus have trouble proving a default has taken place. Additionally, CDS sellers may be in such dire straits that forcing them into bankruptcy may exacerbate losses.
* Settlement and collateral problems. The CDS holder must deliver a defaulted bond or loan, but today CDS sales are six to 10 times larger than all bonds outstanding due to the way they were resold and leveraged. In the case of car-parts maker Delphi (DPHIQ, news, msgs), protection buyers received an average of just $3.6 million per $10 million CDS contract, meaning they were not fully hedged and had no further legal recourse to recover.
* Counterparty risk. This is when you realize that CDS contracts don't eliminate credit risk -- they only transfer it. Instead of just worrying if a bond will pay off, now you have to worry about the health of the insurer. Transference of risk was the main reason to buy CDSs, but in an era of extreme leverage, the example of ACA Capital shows that no counterparty is safe, especially as many banks and funds have "daisy-chained" their risks together.
In September, Das told us he believed the unwinding of the great post-millennial credit bubble had barely begun. Now he thinks that the game is finally in the first inning, with much more pain and heartache to come. He points out that all of the new capital raised by UBS AG (UBS, news, msgs), Citigroup (C, news, msgs) and Merrill Lynch has only made up for the losses they have acknowledged so far in the fourth quarter of last year, and that if they continue to need to write off their credit default swaps and loans as customers sink under the weight of recession and default on loans, they will be taking equally large deductions against earnings in every quarter of this year and into 2009.
With at least $1.5 trillion in off-balance-sheet debt coming onto their books and tens of billions of dollars in CDS contracts potentially up in smoke, Das figures the banks will need $200 billion in new capital to shore up reserves at the same time they suffer $100 billion in real loan losses. If they need $300 billion -- and so far the sovereign wealth funds have, with some reluctance, put up only around $25 billion -- you start to see the potential size of the problem that lies ahead.
"The hole is bigger than they or their investors expected," Das said. "And they're still digging."
In short, though it appears the Federal Reserve has answered its wake-up call with an interest-rate cut of unprecedented size, I continue to recommend that you treat financial stocks with skepticism. Their Maginot Line has been breached, and reinforcements are bogged down.
Fine print
To learn more about bond insurer ACA Capital, visit its Web site. To learnmore about Merrill's ACA write-down, check out this Bloomberg story. . . . Satyajit Das occasionally publishes a blog on quantitative finance at his publisher's Web site. His latest book, "Traders, Guns and Money," is a very amusing and detailed look at the "knowns and unknowns" in the Wild West world of structured finance. It's the best book to help you understand the underpinnings of modern credit and currency markets. . . . The Economist published a good primer on credit derivatives last April. Read it here. . . .
Business is booming for professionals skilled in unwinding and auditing the credit-derivatives wagon trail. One pro on the case is Janet Tavakoli. Check out her Tavakoli Structured Finance site here. She calls the whole mess the "largest Ponzi network in financial history." . . . The leader in credit-derivatives indexes and trading is International Index Co. and its Markit brand. Visit its site here. . . . The business is fully international, as you can learn at Vinod Kothari's Credit Derivative Web site. To learn more about the "phony war" phase of World War II, click here. Learn about the Maginot Line here. |
| Anonymous Coward
User ID: 360543
1/28/2008 10:39 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
quick solution, make the owners, shareholders and controllers of the banks , especially the central ones and international ones, responsible for their indebtedness, let them be bankrupted and forbidden from trading ever again, instead of what they are planning to do and that is rip the population of the world, and start wars, to recoup, and also hide who was at fault |
| Anonymous Coward
User ID: 360543
1/28/2008 11:51 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
Government the Destroyer
by Llewellyn H. Rockwell, Jr.
by Llewellyn H. Rockwell, Jr.
DIGG THIS
This talk was delivered at the 2008 Mises Circle in Houston.
The claim of the Austrian School that has scandalized members of other schools for 150 years is the following. The propositions of economics are universal. The principles apply in all times and all places, because they derive from the structure of reality and human action.
What brought about economic growth, inflation, or the business cycle in China 300 BC are the same institutions that drive phenomena in the United States in AD 2008. The circumstances of time and place change, but the underlying economic reality is identical.
That claim has made other economists – to say nothing of sociologists, historians, and politicians – scatter like pigeons. The Historical School poured scorn on this idea, and Carl Menger, the founder of the Austrian School, fought them tooth and nail. The Chicago School of positivists found the claim preposterous, and Mises and Hayek and Rothbard battled them. The Keynesians have long been outraged, and the postwar Austrian generation reasserted the truth. The socialists, who posit that rearranging property titles will transform all of reality, say that the claim is absurd, capitalistic nonsense.
But there it stands. No matter where or when, the essential prerequisite for economic growth is capital accumulation in a framework of freedom and sound money. The consequence of price control is shortage and surplus. The effect of money expansion is inflation and the business cycle. The effect of every form of intervention is to make society less prosperous than it would otherwise be.
The list of universals is endless, which is why every age needs good economists to explain and articulate the truth.
Well, I would like to add that there are universal fallacies too.
Frédéric Bastiat pointed to one: the belief that the destruction of wealth fuels its creation. He explains this by means of an allegory that has come to be known as the story of the broken window. Most famously it was retold as the opening of Henry Hazlitt's Economics in One Lesson, which is probably the bestselling economics book of all time.
A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all-knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items and the circle of rising prosperity will expand without end.
What's wrong with this scenario? As Bastiat put it, "It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented."
You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?
It is not a good thing to destroy wealth. Bastiat puts it this way. "Society loses the value of things which are uselessly destroyed."
It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.
If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction is actually a good thing. Let me try to show that the fallacy is as pervasive as ever.
After every natural disaster, we at the Mises Institute start what we call the Broken Window Watch.
After Hurricane Katrina, the Labor Secretary said: "What will happen – and I have seen this in previous catastrophes and hurricanes – there is a bright spot in that new jobs do get created."
And The Economist said, "While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins."
And the New York Times said: "Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding."
After last year's California fires, we heard this. "In the odd nature of economic accounting, this will probably be a stimulus," said Alan Gin, a University of San Diego economist. "There will be a huge amount of rebuilding in the next couple of years, financed by insurance payments."
And CBS Marketwatch said: "Economists have noted the perverse reality that in the wake of disasters, re-construction spending helps the economy, even as people are still struggling to recover from their personal losses."
Note that personal loss here is deemed rather irrelevant compared with the beneficial macroeconomic results. Here we have a theme we find often in economics, the attempt to drive a wedge between what makes sense for individuals and what is good for society. We see this on display in this recessionary environment, when people are told to spend spend spend, even though most people understand that recessions are times for saving.
Continuing on, we find the Broken Window fallacy popping up even after 9-11.
Timothy Noah of Slate wrote: "We live in a very wealthy nation that responds to horrible disasters by spending large sums of money…. It will also provide a meaningful Keynesian stimulus to a national economy that, let's face it, was tottering on the brink of recession well before Sept. 11. The recession may still come, but the countercyclical spending should help shorten it."
Another economist declared: "Initially, this could provide a significant boost to an economy that had been slumping. The construction industry could benefit from the rebuilding process. There may also be a boon for slumping tech sales, in replacing lost equipment."
Thus can we see the continuing relevance not only of Bastiat's allegory but also of the characters in the story. The posturing wiseguy who says that breaking windows is good for the economy keeps reappearing again and again. So entrenched is this mistake that we might call it official economic doctrine for the whole country.
I ask you to consider the absurd discussion of a stimulus package designed to rescue the economy from recession. The idea is that the government will inject funds into private markets to stimulate them to the point that they will run on their own. Not once in this debate have I heard anyone ask the core question: where is this money going to come from?
It seems that Washington wants us to believe that they have some magic machine that can turn up $150 billion in new assets without anyone having to do anything to make these assets appear. One wonders, then, why we need to wait until a recession to stimulate the economy. Why not magically create hundreds of billions every day, and not just for this country but for the entire world? Why are we holding back?
Now, the ideas of the stimulus package are not 100% awful. Some people are talking about tax cuts, which is a good thing but rather pointless without spending cuts. I'm particularly intrigued by the underlying assumption here that taxes work as a drag on an economy whereas tax cuts fuel expansion. If that is the case, and is indeed true but for different reasons than Washington gives, why wait until the recession to cut taxes? If taking less from us is good for the economy, we should institute this as a universal policy.
One great lesson of political economy, emphasized for centuries, is that the government creates no wealth of its own. Everything it has it has to get from you and me, one way or another. It can tax. It can borrow. And, finally, it can inflate by means of credit market manipulation. This third option is the most disguised. When people hear the words monetary policy, they figure that this is something they will leave to experts. And central bankers have an astonishing talent for obfuscation to the point that no one knows with certainty precisely what they are doing.
The whole show is designed to make us go to sleep and not think about what is really going on. The unvarnished truth is that when the Fed artificially lowers rates, it is creating new money that waters down the value of the existing money stock, yielding a lower purchasing power for the dollar. That's another way of saying that it creates inflation – perhaps not right away, and perhaps not across all economic sectors, but eventually and certainly.
This, my friends, is a form of breaking windows. It is wealth destruction. It matters not that there will be more dollars to spend, because prices will be higher and wealth has been drained out of the private sector, and redistributed within it. It is Bastiat's fallacy reinvented in a new form.
New money also distorts production structures. At the very time when the market is pressuring long-term investment to pull back, the lower rates encourage expansion in ways that prolong the crisis. It only delays and worsens the inevitable. The Great Depression taught us that government is capable of doing this to the point that the crisis can last for 17 years. So this is no small matter. A government determined to prevent recession is a government that might end up sustaining one to the point of the collapse of civilization itself.
It is a perverse belief, but pervasive nonetheless. It is believed by both political parties. It is held by the president, the media, and the congress (except for Ron Paul). It is a reflexive belief, one that reflects a failure to think between stages and see the unseen effects of government intervention.
One reason that Bastiat's example has power is that it applies not just in one area of policy but all areas. If it isn't true that breaking windows creates wealth, it is not true that government spending and inflating is a boon to the economy. It only ends up draining wealth from the private sector, which is the only source of wealth creation.
It doesn't matter what the government spends money on. For example, building pyramids with tax dollars is not good for the economy, despite what Keynes claimed. But neither is waging war good for us or the victim country, despite constant claims to the contrary.
It is surely one of the most deadly myths that the Second World War ended the depression. As Robert Higgs has shown, it further prolonged it, all phony data aside. And consider the spending on the war on terror. If government spending were capable of stimulating the economy, we would not have recession right now.
Chris Westley assembled some data on the last seven years of economic conditions, and it is sobering indeed. Since 2000, tax revenues are up 25%. That's wealth destruction. Government spending is setting records for expansion, with $1 trillion added to the annul budget, with military spending up $250 billion each year over the egregious $400 billion spent annually in 2000. That's wealth destruction. The national debt is up 59%. That has to be paid. More destruction.
Social security liabilities are up 60%. That too is the promise of future destruction. The money supply is up 72%. More destruction. Inflation itself has risen 20%, so the dollar of 2000 is now worth 80 cents. The gas price alone is up 118%, so that too is wealth destroyed. As an indication of economic trouble, the gold price is up 206%.
Here is the story so far of the government's great stimulus. It has led to hard economic times. More of the same will create more of the same and worse. The unemployment rate is rising. Savings are falling. Prices are rising. We are less secure, less prosperous, and we have fewer opportunities than ever to dig our way out of this mess.
Government expansion has actually created the absurd scenario mentioned above. The boy threw the rock, the crowds in Washington believed the sophist, and now they are plotting to raze all homes on the block, in the name of economic recovery.
Have we learned from the Great Depression? Ben Bernanke believes that he has learned something. He believes that the key problem of that period was a failure of the central bank to pump in enough money and credit. He has never absorbed the critical observation of Rothbard that the Fed did attempt to pump up the money supply from 1929–1934. They used every mechanism, but the credit markets found few takers, and without their cooperation, the money supply does not expand.
The real lesson of the Great Depression is that there is nothing that the central bank can do to forestall a recession whose time has come, and nothing government can do to improve the situation once the recession has arrived. Everything it attempts to do – except shrink – only ends up making matters worse.
So it is in our time. We must ask ourselves what Washington is capable of doing this time around. I believe that the answer is anything and everything. Bernanke will attempt to flood the economy with money. Washington is perfectly capable of imposing price and wage controls on the entire economy. It is capable of terrifying levels of protectionist legislation. New taxes are less likely but taxation through debt accumulation is probably inevitable. There might be rationing, spending mandates, anti-hoarding legislation, and more.
The assumption that driving up consumption is the key to prosperity is particularly dangerous, and also pregnant with irony. During good economic times, we are hounded constantly by the intellectual elites for our consumption habits. It is said that we are a greedy nation, buying ever more fripperies and not looking after the long term. The American public is decried by the intellectual elites as materialist, consumerist, and short sighted.
Then recession hits and the tune changes completely. Reliable leftists, fresh from having complained about the egregious spending habits of the American consumer, suddenly turn on a dime and tell us that more consumption is the key to economic growth. They favor policies that would get us to fork over ever more of our money, under the belief that the core problem is a lack of demand!
A recent example is Barack Obama, who said last year that the problem with popular culture is that it "saturates our airwaves with a steady stream of sex, violence and materialism." But only this week, he seemed to endorse one of the three. "If the economy continues to decline in the coming weeks, we should send checks to people," he said. "This is the quickest way to help people pay their bills and get them to start spending."
In fact, less spending and more saving is what is called for during a recession, which is nothing but a market correction writ large. Attempting to coerce spending threatens the value of the dollar itself.
Here we face a very dangerous situation. If the dollar ever ceases to be the international currency of choice, and this could happen, we could face roaring inflation. And with dreadful legislation that prohibits any kind of choice in currency, Americans will be stuck. Here is a problem that could cause near panic in Washington.
The irony here is that after a century of failed interventionism and socialism, Washington is no less likely, and probably far more likely, to take the path of least resistance and accumulate ever more power unto itself, at our expense.
We are in an election season, so of course people ask who would be the least bad person to head the state in the years ahead. The answer here is not at all clear, if it is not Dr. Paul. As with the 1930s we face a choice between militaristic fascism and Keynesian-style socialism combined with environmentalism. These are two very grim choices.
I tell you this not to spread gloom but merely to be realistic about the prospects for the future of American politics. But there is also good news to be considered. The private sector has raced so far ahead of the state, and is so global, that it is far more resilient than before. There are safety valves available in the form of international capital markets.
The government is so much bigger now than in the 1930s, but, paradoxically, that also makes it less effective than it once was, which is very good news. It is a massive, lumbering giant, whereas the markets are a speed racer.
I might also point out that the government enjoys nowhere near the respect it once had. Once the governing elite consisted of the nation's elite, coming from the best families and the best schools. Today, the governing elite has never been more transparently ridiculous and even freakish. Gone are the aristocratic public servants of yesterday; today, the government is made up of a class of hucksters and gangsters that inspires no confidence.
This is all to the good, for as Mencken said, it is always great when we do not get all the government we pay for.
On the intellectual level, the teachings of economics in the Austrian School tradition have never been more available to the world, or more frequently cited and discussed. And a recessionary environment guarantees more attention to the Austrian theory of the business cycle simply because this is the only model that makes sense of our current problems.
We should never underestimate the power of ideas to make a difference in the world. During the Great Depression, the resistance to the state was present but weak. Today we have built up a mighty intellectual army that extends across the globe. We are prepared in ways that they were not. We have thousands of students and faculty, and men and women of affairs who know real economics. We have the internet. We have new books that put the whole problem in perspective, such as Jesús Huerta de Soto's work on business cycles. We have the biography of Mises now, and it illustrates the heroism of political dissidence. The works of Rothbard on the Great Depression and central banking have never been more widely circulated and available. This time our masters in Washington will not go unopposed.
At the Mises Institute, now in our 26th year, we tried to maintain a careful balance between serious and fundamental scholarly work, and public advocacy. We must never lose sight of the need for research and detailed work. It is not enough to merely repeat slogans. At the same time, there are some foundational lessons of economics that must be taught again and again with each new generation. The fallacy of the Broken Window is one of them, and its implications are truly radical.
Both Bastiat and Hazlitt saw that the government is the great window breaker, that destroyer of wealth that drives the economy backwards. The engine of creativity, recovery, and expansion is the private sector, completely unencumbered by state intervention. Ron Paul's newest book is called Pillars of Prosperity: Free Markets, Sound Money, and Private Property. The title nicely sums up the message of the economics of freedom.
It bears repeating in every age, in all places, for we will never be completely free of the great threat of the window breaker. So long as there are governments with stones ready to throw, there will be a need for someone to point out that destruction is never productive, never beneficial, and never a path to the good life that we all seek.
Speaking
of Liberty Irrepressible
Rothbard The Economics
of Liberty Why Austrian Economics Matters The Gold Standard: Perspectives in the Austrian School
January 28, 2008
Llewellyn H. Rockwell, Jr. [send him mail] is founder and president of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Speaking of Liberty. |
| Anonymous Coward
User ID: 360543
1/29/2008 8:42 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
DISPATCHES FROM AMERICA
Going bankrupt: The US's greatest threat
By Chalmers Johnson
The military adventurers of the George W Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men thought that they were the "smartest guys in the room", the title of Alex Gibney's prize-winning film on what went wrong at Enron. The neo-conservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.
As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous
expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries.
Instead, the Bush administration puts off these costs for future generations to pay - or repudiate. This utter fiscal irresponsibility has been disguised through many manipulative financial schemes (such as causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.
There are three broad aspects to our debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on "defense" projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.
Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures - so-called "military Keynesianism", which I discuss in detail in my book Nemesis: The Last Days of the American Republic. By military Keynesianism, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.
Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call "opportunity costs", things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world's number one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs - an infinitely more efficient use of scarce resources than arms manufacturing. Let me discuss each of these.
The current fiscal disaster
It is virtually impossible to overstate the profligacy of what our government spends on the military. The Department of Defense's planned expenditures for fiscal year 2008 are larger than all other nations' military budgets combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part of the official defense budget, is itself larger than the combined military budgets of Russia and China. Defense-related spending for fiscal 2008 will exceed $1 trillion for the first time in history. The United States has become the largest single salesman of arms and munitions to other nations on Earth. Leaving out of account Bush's two on-going wars, defense spending has doubled since the mid-1990s. The defense budget for fiscal 2008 is the largest since World War II.
Before we try to break down and analyze this gargantuan sum, there is one important caveat. Figures on defense spending are notoriously unreliable. The numbers released by the Congressional Reference Service and the Congressional Budget Office do not agree with each other. Robert Higgs, senior fellow for political economy at the Independent Institute, says, "A well-founded rule of thumb is to take the Pentagon's (always well publicized) basic budget total and double it."
Even a cursory reading of newspaper articles about the Department of Defense will turn up major differences in statistics about its expenses. Some 30-40% of the defense budget is "black", meaning that these sections contain hidden expenditures for classified projects. There is no possible way to know what they include or whether their total amounts are accurate.
There are many reasons for this budgetary sleight-of-hand - including a desire for secrecy on the part of the president, the secretary of defense and the military-industrial complex - but the chief one is that members of Congress, who profit enormously from defense jobs and pork-barrel projects in their districts, have a political interest in supporting the Department of Defense.
In 1996, in an attempt to bring accounting standards within the executive branch somewhat closer to those of the civilian economy, Congress passed the Federal Financial Management Improvement Act. It required all federal agencies to hire outside auditors to review their books and release the results to the public. Neither the Department of Defense, nor the Department of Homeland Security, has ever complied. Congress has complained, but not penalized either department for ignoring the law. The result is that all numbers released by the Pentagon should be regarded as suspect.
In discussing the fiscal 2008 defense budget, as released to the press on February 7, 2007, I have been guided by two experienced and reliable analysts: William D Hartung of the New America Foundation's Arms and Security Initiative and Fred Kaplan, defense correspondent for Slate.org. They agree that the Department of Defense requested $481.4 billion for salaries, operations (except in Iraq and Afghanistan), and equipment.
They also agree on a figure of $141.7 billion for the "supplemental" budget to fight the global "war on terror" - that is, the two on-going wars that the general public may think are actually covered by the basic Pentagon budget. The Department of Defense also asked for an extra $93.4 billion to pay for hitherto unmentioned war costs in the remainder of 2007 and, most creatively, an additional "allowance" (a new term in defense budget documents) of $50 billion to be charged to fiscal year 2009. This comes to a total spending request by the Department of Defense of $766.5 billion.
But there is much more. In an attempt to disguise the true size of the American military empire, the government has long hidden major military-related expenditures in departments other than Defense. For example, $23.4 billion for the Department of Energy goes toward developing and maintaining nuclear warheads; and $25.3 billion in the Department of State budget is spent on foreign military assistance (primarily for Israel, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, the United Arab Republic, Egypt, and Pakistan).
Another $1.03 billion outside the official Department of Defense budget is now needed for recruitment and reenlistment incentives for the overstretched US military itself, up from a mere $174 million in 2003, the year the war in Iraq began. The Department of Veterans Affairs currently gets at least $75.7 billion, 50% of which goes for the long-term care of the grievously injured among the at least 28,870 soldiers so far wounded in Iraq and another 1,708 in Afghanistan. The amount is universally derided as inadequate. Another $46.4 billion goes to the Department of Homeland Security.
Missing as well from this compilation is $1.9 billion to the Department of Justice for the paramilitary activities of the Federal Bureau of Investigation; $38.5 billion to the Department of the Treasury for the Military Retirement Fund; $7.6 billion for the military-related activities of the National Aeronautics and Space Administration; and well over $200 billion in interest for past debt-financed defense outlays. This brings US spending for its military establishment during the current fiscal year (2008), conservatively calculated, to at least $1.1 trillion.
Military Keynesianism
Such expenditures are not only morally obscene, they are fiscally unsustainable. Many neo-conservatives and poorly informed patriotic Americans believe that, even though our defense budget is huge, we can afford it because we are the richest country on Earth.
Unfortunately, that statement is no longer true. The world's richest political entity, according to the Central Intelligence Agency's World Factbook, is the European Union. The EU's 2006 GDP (gross domestic product - all goods and services produced domestically) was estimated to be slightly larger than that of the US However, China's 2006 GDP was only slightly smaller than that of the US, and Japan was the world's fourth-richest nation.
A more telling comparison that reveals just how much worse we're doing can be found among the "current accounts" of various nations. The current account measures the net trade surplus or deficit of a country plus cross-border payments of interest, royalties, dividends, capital gains, foreign aid, and other income.
For example, for Japan to manufacture anything, it must import all required raw materials. Even after this incredible expense is met, it still has an $88 billion per year trade surplus with the United States and enjoys the world's second-highest current account balance. (China is number one.) The United States, by contrast, is number 163 - dead last on the list, worse than countries like Australia and the United Kingdom that also have large trade deficits. Its 2006 current account deficit was $811.5 billion; second worst was Spain at $106.4 billion. This is what is unsustainable.
It's not just that our tastes for foreign goods, including imported oil, vastly exceed our ability to pay for them. We are financing them through massive borrowing. On November 7, 2007, the US Treasury announced that the national debt had breached $9 trillion for the first time ever. This was just five weeks after Congress raised the so-called debt ceiling to $9.815 trillion. If you begin in 1789, at the moment the constitution became the supreme law of the land, the debt accumulated by the federal government did not top $1 trillion until 1981. When Bush became president in January 2001, it stood at approximately $5.7 trillion. Since then, it has increased by 45%. This huge debt can be largely explained by our defense expenditures in comparison with the rest of the world.
The world's top 10 military spenders and the approximate amounts each country currently budgets for its military establishment are:
1. United States (FY08 budget), $623 billion
2. China (2004), $65 billion
3. Russia, $50 billion
4. France (2005), $45 billion
5. Japan (2007), $41.75 billion
6. Germany (2003), $35.1 billion
7. Italy (2003), $28.2 billion
8. South Korea (2003), $21.1 billion
9. India (2005 est.), $19 billion
10. Saudi Arabia (2005 est.), $18 billion
World total military expenditures (2004 est.), $1,100 billion
World total (minus the United States), $500 billion.
Our excessive military expenditures did not occur over just a few short years or simply because of the Bush administration's policies. They have been going on for a very long time in accordance with a superficially plausible ideology and have now become entrenched in our democratic political system where they are starting to wreak havoc. This ideology I call "military Keynesianism" - the determination to maintain a permanent war economy and to treat military output as an ordinary economic product, even though it makes no contribution to either production or consumption.
This ideology goes back to the first years of the Cold War. During the late 1940s, the US was haunted by economic anxieties. The Great Depression of the 1930s had been overcome only by the war production boom of World War II. With peace and demobilization, there was a pervasive fear that the Depression would return.
During 1949, alarmed by the Soviet Union's detonation of an atomic bomb, the looming communist victory in the Chinese civil war, a domestic recession, and the lowering of the Iron Curtain around the USSR's European satellites, the US sought to draft basic strategy for the emerging Cold War. The result was the militaristic National Security Council Report 68 (NSC-68) drafted under the supervision of Paul Nitze, then head of the Policy Planning Staff in the State Department. Dated April 14, 1950, and signed by president Harry S Truman on September 30, 1950, it laid out the basic public economic policies that the United States pursues to the present day.
In its conclusions, NSC-68 asserted: "One of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living."
With this understanding, American strategists began to build up a massive munitions industry, both to counter the military might of the Soviet Union (which they consistently overstated) and also to maintain full employment as well as ward off a possible return of the Depression. The result was that, under Pentagon leadership, entire new industries were created to manufacture large aircraft, nuclear-powered submarines, nuclear warheads, intercontinental ballistic missiles, and surveillance and communications satellites. This led to what president Dwight D Eisenhower warned against in his farewell address of February 6, 1961: "The conjunction of an immense military establishment and a large arms industry is new in the American experience." That is, the military-industrial complex.
By 1990, the value of the weapons, equipment, and factories devoted to the Department of Defense was 83% of the value of all plants and equipment in American manufacturing. From 1947 to 1990, the combined US military budgets amounted to $8.7 trillion. Even though the Soviet Union no longer exists, US reliance on military Keynesianism has, if anything, ratcheted up, thanks to the massive vested interests that have become entrenched around the military establishment. Over time, a commitment to both guns and butter has proven an unstable configuration. Military industries crowd out the civilian economy and lead to severe economic weaknesses. Devotion to military Keynesianism is, in fact, a form of slow economic suicide.
On May 1, 2007, the Center for Economic and Policy Research of Washington, DC, released a study prepared by the global forecasting company Global Insight on the long-term economic impact of increased military spending. Guided by economist Dean Baker, this research showed that, after an initial demand stimulus, by about the sixth year the effect of increased military spending turns negative. Needless to say, the US economy has had to cope with growing defense spending for more than 60 years. He found that, after 10 years of higher defense spending, there would be 464,000 fewer jobs than in a baseline scenario that involved lower defense spending.
Baker concluded:
It is often believed that wars and military spending increases are good for the economy. In fact, most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment.
These are only some of the many deleterious effects of military Keynesianism.
Hollowing out the American economy
It was believed that the US could afford both a massive military establishment and a high standard of living, and that it needed both to maintain full employment. But it did not work out that way. By the 1960s, it was becoming apparent that turning over the nation's largest manufacturing enterprises to the Department of Defense and producing goods without any investment or consumption value was starting to crowd out civilian economic activities.
Historian Thomas E Woods Jr observes that, during the 1950s and 1960s, between one-third and two-thirds of all American research talent was siphoned off into the military sector. It is, of course, impossible to know what innovations never appeared as a result of this diversion of resources and brainpower into the service of the military, but it was during the 1960s that we first began to notice Japan was outpacing us in the design and quality of a range of consumer goods, including household electronics and automobiles.
Nuclear weapons furnish a striking illustration of these anomalies. Between the 1940s and 1996, the United States spent at least $5.8 trillion on the development, testing and construction of nuclear bombs. By 1967, the peak year of its nuclear stockpile, the US possessed some 32,500 deliverable atomic and hydrogen bombs, none of which, thankfully, was ever used.
They perfectly illustrate the Keynesian principle that the government can provide make-work jobs to keep people employed. Nuclear weapons were not just America's secret weapon, but also its secret economic weapon. As of 2006, we still had 9,960 of them. There is today no sane use for them, while the trillions spent on them could have been used to solve the problems of social security and health care, quality education and access to higher education for all, not to speak of the retention of highly skilled jobs within the American economy.
The pioneer in analyzing what has been lost as a result of military Keynesianism was the late Seymour Melman (1917-2004), a professor of industrial engineering and operations research at Columbia University. His 1970 book, Pentagon Capitalism: The Political Economy of War, was a prescient analysis of the unintended consequences of the American preoccupation with its armed forces and their weaponry since the onset of the Cold War. Melman wrote (pages. 2-3):
From 1946 to 1969, the United States government spent over $1,000 billion on the military, more than half of this under the Kennedy and Johnson administrations - the period during which the [Pentagon-dominated] state management was established as a formal institution. This sum of staggering size (try to visualize a billion of something) does not express the cost of the military establishment to the nation as a whole. The true cost is measured by what has been foregone, by the accumulated deterioration in many facets of life by the inability to alleviate human wretchedness of long duration.
In an important exegesis on Melman's relevance to the current American economic situation, Thomas Woods writes:
According to the US Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation's plant and equipment, and infrastructure, at just over $7.29 trillion. In other words, the amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock.
The fact that we did not modernize or replace our capital assets is one of the main reasons why, by the turn of the 21st century, our manufacturing base had all but evaporated. Machine tools - an industry on which Melman was an authority - are a particularly important symptom.
In November 1968, a five-year inventory disclosed (page 186) "that 64% of the metalworking machine tools used in US industry were 10 years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States' machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of World War II. This deterioration at the base of the industrial system certifies to the continuous debilitating and depleting effect that the military use of capital and research and development talent has had on American industry.
Nothing has been done in the period since 1968 to reverse these trends and it shows today in our massive imports of equipment - from medical machines like proton accelerators for radiological therapy (made primarily in Belgium, Germany and Japan) to cars and trucks.
Our short tenure as the world's "lone superpower" has come to an end. As Harvard economics professor Benjamin Friedman has written:
Again and again it has always been the world's leading lending country that has been the premier country in terms of political influence, diplomatic influence, and cultural influence. It's no accident that we took over the role from the British at the same time that we took over ... the job of being the world's leading lending country. Today we are no longer the world's leading lending country. In fact we are now the world's biggest debtor country, and we are continuing to wield influence on the basis of military prowess alone.
Some of the damage done can never be rectified. There are, however, some steps that this country urgently needs to take. These include reversing Bush's 2001 and 2003 tax cuts for the wealthy, beginning to liquidate our global empire of over 800 military bases, cutting from the defense budget all projects that bear no relationship to the national security of the United States, and ceasing to use the defense budget as a Keynesian jobs program. If we do these things we have a chance of squeaking by. If we don't, we face probable national insolvency and a long depression.
Chalmers Johnson is the author of Nemesis: The Last Days of the American Republic, just published in paperback. It is the final volume of his Blowback Trilogy, which also includes Blowback (2000) and The Sorrows of Empire (2004).
(For those interested, click here to view a clip from a new film, Chalmers Johnson on American Hegemony, in Cinema Libre Studios' Speaking Freely series in which he discusses "military Keynesianism" and imperial bankruptcy.) |
| Anonymous Coward
User ID: 365469
2/1/2008 1:17 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
The Minsky Moment
by John Cassidy February 4, 2008
Text Size:
Small Text
Medium Text
Large Text
Print E-Mail Feeds
Keywords
Minsky, Hyman P.;
Subprime Mortgages;
Economy, Economics;
Real Estate;
Economic Stimulus Package;
Bernanke, Ben;
Greenspan, Alan
Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.
Many of Minsky’s colleagues regarded his “financial-instability hypothesis,” which he first developed in the nineteen-sixties, as radical, if not crackpot. Today, with the subprime crisis seemingly on the verge of metamorphosing into a recession, references to it have become commonplace on financial Web sites and in the reports of Wall Street analysts. Minsky’s hypothesis is well worth revisiting. In trying to revive the economy, President Bush and the House have already agreed on the outlines of a “stimulus package,” but the first stage in curing any malady is making a correct diagnosis.
Minsky, who died in 1996, at the age of seventy-seven, earned a Ph.D. from Harvard and taught at Brown, Berkeley, and Washington University. He didn’t have anything against financial institutions—for many years, he served as a director of the Mark Twain Bank, in St. Louis—but he knew more about how they worked than most deskbound economists. There are basically five stages in Minsky’s model of the credit cycle: displacement, boom, euphoria, profit taking, and panic. A displacement occurs when investors get excited about something—an invention, such as the Internet, or a war, or an abrupt change of economic policy. The current cycle began in 2003, with the Fed chief Alan Greenspan’s decision to reduce short-term interest rates to one per cent, and an unexpected influx of foreign money, particularly Chinese money, into U.S. Treasury bonds. With the cost of borrowing—mortgage rates, in particular—at historic lows, a speculative real-estate boom quickly developed that was much bigger, in terms of over-all valuation, than the previous bubble in technology stocks.
As a boom leads to euphoria, Minsky said, banks and other commercial lenders extend credit to ever more dubious borrowers, often creating new financial instruments to do the job. During the nineteen-eighties, junk bonds played that role. More recently, it was the securitization of mortgages, which enabled banks to provide home loans without worrying if they would ever be repaid. (Investors who bought the newfangled securities would be left to deal with any defaults.) Then, at the top of the market (in this case, mid-2006), some smart traders start to cash in their profits.
The onset of panic is usually heralded by a dramatic effect: in July, two Bear Stearns hedge funds that had invested heavily in mortgage securities collapsed. Six months and four interest-rate cuts later, Ben Bernanke and his colleagues at the Fed are struggling to contain the bust. Despite last week’s rebound, the outlook remains grim. According to Dean Baker, the co-director of the Center for Economic and Policy Research, average house prices are falling nationwide at an annual rate of more than ten per cent, something not seen since before the Second World War. This means that American households are getting poorer at a rate of more than two trillion dollars a year.
It’s hard to say exactly how falling house prices will affect the economy, but recent computer simulations carried out by Frederic Mishkin, a governor at the Fed, suggest that, for every dollar the typical American family’s housing wealth drops in a year, that family may cut its spending by up to seven cents. Nationwide, that adds up to roughly a hundred and fifty-five billion dollars, which is bigger than President Bush’s stimulus package. And it doesn’t take into account plunging stock prices, collapsing confidence, and the belated imposition of tighter lending practices—all of which will further restrict economic activity.
In an election year, politicians can’t be expected to acknowledge their powerlessness. Nonetheless, it was disheartening to see the Republicans exploiting the current crisis to try to make the President’s tax cuts permanent, and the Democrats attempting to pin the economic downturn on the White House. For once, Bush is not to blame. His tax cuts were irresponsible and callously regressive, but they didn’t play a significant role in the housing bubble.
If anybody is at fault it is Greenspan, who kept interest rates too low for too long and ignored warnings, some from his own colleagues, about what was happening in the mortgage market. But he wasn’t the only one. Between 2003 and 2007, most Americans didn’t want to hear about the downside of funds that invest in mortgage-backed securities, or of mortgages that allow lenders to make monthly payments so low that their loan balances sometimes increase. They were busy wondering how much their neighbors had made selling their apartment, scouting real-estate Web sites and going to open houses, and calling up Washington Mutual or Countrywide to see if they could get another home-equity loan. That’s the nature of speculative manias: eventually, they draw in almost all of us.
You might think that the best solution is to prevent manias from developing at all, but that requires vigilance. Since the nineteen-eighties, Congress and the executive branch have been conspiring to weaken federal supervision of Wall Street. Perhaps the most fateful step came when, during the Clinton Administration, Greenspan and Robert Rubin, then the Treasury Secretary, championed the abolition of the Glass-Steagall Act of 1933, which was meant to prevent a recurrence of the rampant speculation that preceded the Depression.
The greatest need is for intellectual reappraisal, and a good place to begin is with a statement from a paper co-authored by Minsky that “apt intervention and institutional structures are necessary for market economies to be successful.” Rather than waging old debates about tax cuts versus spending increases, policymakers ought to be discussing how to reform the financial system so that it serves the rest of the economy, instead of feeding off it and destabilizing it. Among the problems at hand: how to restructure Wall Street remuneration packages that encourage excessive risk-taking; restrict irresponsible lending without shutting out creditworthy borrowers; help victims of predatory practices without bailing out irresponsible lenders; and hold ratings agencies accountable for their assessments. These are complex issues, with few easy solutions, but that’s what makes them interesting. As Minsky believed, “Economies evolve, and so, too, must economic policy.” |
| FHL(C)
User ID: 366066
2/1/2008 11:03 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
[link to www.naturalnews.com]
Americans have always been fond of the idea of getting rich without effort by putting their money in things that produce no profits and then magically being able to ride those investments, milking them for spending cash that supports a drunken spending lifestyle. From 1998 - 2001, that profit vehicle was, of course, dot-com stocks. From 2001 to the present, it's been housing. Never mind the fact that a house produces nothing real, earns nothing real and actually loses utility with each successive year of its existence (roof repairs, anyone?) -- Americans have been convinced over the last seven years that housing prices would rise forever, allowing people to simply extract money from their home equity as if their house were some sort of giant ATM machine.
As the markets are finally demonstrating today, the "economic good times" spurred by a runaway housing price boom (and powered by astonishingly fraudulent lending practices by dishonest banks) are over. A day of reckoning has arrived, and the unwinding of this false wealth that has been propping up the U.S. economy for so many years is about to be unleashed upon the American people. (Today's stock market meltdown is only the beginning...)
That this day of economic reckoning would arrive has been obvious to me for years. On December 29, 2005, I published a two-part article series entitled, "Don't get caught in the housing bubble crash."
In those articles, I stated:
Quote:
There's no question whatsoever that this housing market will experience a correction. ...It's eventually going to come tumbling down. The only question is whether it's going to be a correction or a crash.
Friends, I believe it is time to take your money and exit the speculative real estate market. The average person doesn't understand anything about finances and never will. The average person can't even calculate a 15 percent tip at a restaurant, and he or she is buying real estate because he or she wants to double his or her money. Are you kidding me? Take your money and run; that's my advice. Run from the inflated real estate marketplace before you become another victim. These super hot, speculative housing bubbles and stock market bubbles cannot continue. They always correct. Gravity kicks in, and, eventually, things unwind. A lot of people get hurt. They lose their money. To some of those people, I say, "That's a really expensive education you just paid for." A lot of life's lessons are hard to learn, but some of them can be rather expensive.
So, it's December 2005. I'm going on the record as saying this bubble is going to pop, folks, and you can call me a pessimist or a doomsayer if you want. The fact is, if you understand math, you know I'm right. If you want to protect your own finances, you'd better take a good, hard look at this and make some decisions about what you're going to do. Do not leave yourself over-leveraged in speculative real estate. You thought you were going to retire on the beach, and it ends up you're flipping burgers as a second job to pay off what you owe the bank, and they garnish your wages on top of that. That's what happens to people who don't get out in time.
Two Years Later, the Housing Crash is On
I point out these predictions not to prove I was right, but rather to demonstrate how easy it was to see these things coming. The inevitable bursting of the housing bubble was a no brainer to any rationally-minded person, and yet everywhere I turned back in 2005, I kept hearing (from apparently intelligent folks) things like, "Housing prices have never fallen," or, "Buying a house is the best investment you can make!"
Nonsense. Any fool could see that while housing prices were rising 15 - 25% a year in some regions, there were no underlying fundamentals that would justify such an increase in the value of the property. The population, for example, wasn't increasing by 25% per year. Houses weren't becoming 25% more useful. Land wasn't becoming 25% more scarce. So what could possibly explain the rapid rise in housing prices? Easy money, of course.
That easy lending practices were being so aggressively pushed could only mean that more money was being artificially injected into the housing market, causing a fictitious rise in the value of homes based on the fact that there was too much money floating around in the hands of people who probably wouldn't qualify for such loans under normal, rigorous lending conditions. And once you realize that, it's not difficult to figure out that such lending practices will sooner or later backfire with a massive round of bankruptcies and bank repossessions.
And that, of course, will inevitably lead to a sustained drop in housing prices that, as I predicted, could ultimate see many homes drop to 50% of their peak values.
That's what's coming. I don't even have to offer a prediction of it: It's just a natural reaction to the economic practices that have been so unwisely pursued in this country for years.
The Domino Effect on the U.S. Economy
The U.S. economy, as any astute financial observer has noted for years, is running on artificial wealth that has been manufactured by the Federal Reserve and swallowed by gullible consumers chasing that pot of gold at the end of the easy money rainbow. An alarmingly large percentage of U.S. economic activity is driven by consumer spending and the taxation of such activities. So when housing prices plummet and consumer bankruptcies start piling up, here's what we're going to see next:
My prediction for 2008 - 2012 is a massive wave of municipal bankruptcies, state bankruptcies and escalating national debt. We are going to see cities and states go belly up, pension programs terminated (or watered down), and financial institutions teetering on the brink of disaster.
And the worst part of it all? The only way out of this financial mess is for the Federal Reserve to steal yet more money from the American people by printing more money and hyperinflating the currency.
This is the part where the late Aaron Russo and his film Freedom to Fascism comes into play. If you haven't already watched this documentary on the massive fraud of the Federal Reserve and the IRS, watch it now at Google Video: [link to video.google.com]
This is also the part where Ron Paul comes in (www.RonPaul2008.com), since Ron Paul is the only Presidential candidate who understands the financial destruction being caused by the Federal Reserve and has pledged to end the Fed's control over the U.S. money supply. (The Fed, by the way, is a privately-owned corporation that isn't even controlled by U.S. lawmakers.)
But given that most Americans are still likely to vote for status quo candidates and not for the radical changes required to bring economic sanity to our nation, it seems inevitable that this nation won't learn its lessons about the laws of economics until the currency is near-worthless, the population is destitute, the banks are owned by wealthy foreigners and the neighborhoods are boarded up and abandoned due to a massive wave of foreclosures.
While all that's happening, of course, the Federal Reserve is going to be trying (in vain) to print its way out of the debt implosion by creating hundreds of billions of dollars out of thin air -- an act that quietly steals money from the people due to the loss of purchasing power (inflation). The amount of money needed to bail the U.S. out of its impending financial crisis will be so large that the real value of saved money in U.S. currency (i.e. dollars) could be reduced anywhere from 30% to 80%. Imagine: One day you have $25,000 in the bank that buys a car, and the next year, that same $25,000 only buys half a car. Nobody stole dollars from your account, but the Federal Reserve stole your purchasing power by inflating the currency while trying to print its way out of a national debt crisis! This is what's coming next.
The mathematically-impaired American masses, largely unable to follow basic economics, are destined to watch all this unfold with bewilderment, not knowing why their dollars are becoming worthless, but being rightly outraged by the turn of events at the same time. The MSM (Mainstream Media) will be no help, of course, since it's in on the scam. It will likely find some foreign scapegoat like blaming China's currency or Middle East oil prices for the disastrous effects of stupid domestic economic policies that have been pursued by Democrats and Republicans alike. (Of course, nobody has put the U.S. more deeply into debt than George W., largely thanks to spending on war.)
There's little question that hard economic times are coming, and not one in a hundred people has any real clue what to do about it. Not even many mainstream investment professionals, by the way -- they're the same idiots who probably told you to buy into the housing bubble in the first place, am I right? (Remember, through 2006 and 2007 when I was urging everybody to get OUT of the housing market, many investment "professionals" were urging people to keep on buying and leveraging their money in yet more housing! We'll all get rich! [Insert Howard Dean scream here...] Yaaaargh!)
So what can YOU -- the intelligent reader -- do with all this information? You're the exception to the idiocy of the masses, as is evident by the very fact that you get at least part of your news and information from non-mainstream sources. So how can you protect yourself from these hard economic times?
Here are some sensible solutions:
Solutions for Surviving the Economic Downfall of America
First off, let me share with you one of the best books on what's coming in terms of the U.S. economy. (It's also loaded with financial investment recommendations in the last chapter.) The book is called The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 A Barrel by Stephen Leeb.
Leeb is right on the money when it comes to understanding economics trends (and telling the truth about what's coming). He was one of the first to predict oil would reach $100 a barrel (which it did just a few weeks ago), despite the raucous laughter from the investment community following his prediction. (He predicted that price when oil was hovering around $25 a barrel, by the way...)
His book gives outstanding investment recommendations for those who have savings or retirement funds they wish to protect from the coming economic fallout. Rather than repeating that investment advice right here, I would prefer that you get his book, read it and the follow his recommendations that best suit your risk vs. reward goals.
Secondly, let me say that the great drunken spending orgy is nearly over for everybody involved: Households, cities, states and even the U.S. federal government. Although there may be a few remaining grunts and gasps of debt spending that manage to squeeze through the cracks, the bottom line is that this debt bubble party is essentially over. This means we're going to see a contraction in spending at all levels, and a significant lull in the national economy.
You see, until now, we've actually been partying on China's money. It's true! China has been lending the U.S. hundreds of billions of dollars, and the U.S. has been using that money to finance wars and lousy health care spending policies that keep the American people perpetually diseased. This nation has actually been partying like a rich banker's daughter on her 21st birthday who borrowed daddy's credit card and hit the town for a night of (finally) legalized drinking. It's largely been someone else's money that has financed our drunken-sailor spending spree, and that line of credit will soon be significantly slowed (or made a whole lot more expensive to finance).
Why? Because the United States will, I predict, lose its AAA credit rating in international debt markets. With the U.S. in debt far more than ever before -- and hemorrhaging wealth by the second through spending on war and disease (health care) -- it won't be long before the serious lenders of the world (China, Japan, Abu Dhabi, etc.) figure out that loaning money to the U.S. Treasury Department at low rates of return is an idiot's gamble. They'll hike up the rates for future loans to the U.S., and that will cause the U.S. federal government's debt spending addiction to suddenly become a more expensive habit than a D.C. Mayor's crack addiction.
Overnight, the U.S. could become a sub-prime borrower. Its banks have already landed in that category, thanks to the huge cash injections from wealthy foreigners we've seen taken on by U.S. banks in the last few weeks!
And all this, of course, means yet more contraction of the U.S. economy.
Getting back to how you can protect yourself in these hard economic times, this is a time to control your own spending. Here's what I've consistently recommended to intelligent people over the years:
1) Own your car. Don't borrow money to drive a car. It's better to own a beater than to make payments on something you can't really afford.
2) Own your home. Instead of moving to a larger home when you qualify for loans, work to pay off your existing home mortgage and own your home outright. At the very least, pay down your loan so you have 50% equity in your home, which should insulate you from all but the very worst housing bubble price drops.
3) Stop spending money on stupid overpriced things like Starbucks coffee, soda, brand-name laundry detergent, diamond jewelry and processed foods. Stretch your money by buying low-cost, bulk food ingredients like lentils, brown rice and quinoa.
4) Protect your health! Mark my words: There will be no such thing as a national health care system that's any good; not under ANY future president. Why? Because our entire health care paradigm is focused on treating disease rather than promoting health. If you're waiting around for a health care system to make you healthy, you're on a fool's errand. Take charge of your health right now and use nutrition, superfoods, sunlight, exercise and avoidance of all toxic chemicals to boost your health (and thereby insulate yourself from future health care minefields).
5) Own some productive land. Can you actually grow at least 10% of your own food? How about 25%? Owning productive land that actually generates fruits, nuts or edible herbs and plants is a form of permanent wealth. Regardless of what happens to the world economy, land that can produce food and medicine will always hold value (to yourself and others). Climate matters. An acre of land in wind-swept South Dakota isn't worth much. That same acre in Southern California or Hawaii is a whole lot more useful in terms of producing things that people value.
6) Own a good bicycle (and know how to repair it). There's no form of transportation that's more affordable. Too out of shape to pedal? No worries: Get yourself an Electric Bike from Electric Bikes Northwest (they ship all over the country). Electric bikes cost almost nothing to operate (far less than a penny per mile) and still give you a bit of exercise.
7) Don't save all your money in one bank! And certainly don't save it all in U.S. currency. Diversify. Banks may fail. The currency may even fail. Be prepared to wake up one day and see your green U.S. dollars declared worthless.
Disclaimer: I'm not offering you financial advice. Do your own research on this and make informed financial decisions using the help of financial professionals. My information here is offered as-is, with honest intent but no promise of accuracy. You'll have to decide for yourself what's really ahead in terms of a bankrupt nation and a depressed economy.
It's not all bad news, by the way...
The Good News
The good news in all this is that the U.S. government simply won't be able to afford its campaign of imperialism and war mongering against the nations of the world. Troops will eventually have to come home for one good reason: The government will no longer be able to afford to pay them! (What? No Pay? Watch all those soldiers turn around and head directly home when the money stops. The proper term for such employees is "mercenaries," by the way...)
Much the same will happen to Big Pharma and the massive medical scam right now masquerading as health care in the United States. When the U.S. government can no longer acquire easy debt money, the monopoly-priced spending on pharmaceuticals through Medicare and Medicaid will have to be halted or significantly reformed. Somewhere along the line, somebody might get the idea that we could halt health care spending by 90% in a single decade by simply investing in disease prevention and health education rather than pushing pills and disease. So the good news is that a bankrupt nation will eventually be forced to just say no to Big Pharma's monopoly-priced drugs.
So far, not bad, huh? Ending stupid wars and dangerous health care practices is definitely a step in the right direction, and it's all coming our way soon thanks to the inevitably bankruptcy of the U.S. government and the downfall of the U.S. economy. There's nothing like a sobering economic wake-up call to force nations to either reform their ways or face extinction.
From there, lots of possibilities exist. The centralized U.S. government might become so weak that regions of the country would declare their independence and begin self-rule. (Happens all the time: See the history of the Balkans, the former Soviet Union, post-Spanish rule in South America, etc.). Each region might then invent its own currency to replace the disastrous dollar. Tip: Only those currencies backed by gold reserves will ever work in the long term. Paper money simply doesn't hold value (as we're all seeing quite clearly right now...)
U.S. Spending Top Three List: War, Disease and Debt
I see 2008 - 2012 as being very tumultuous years for the United States of America. This nation is technically bankrupt right now. And do you know where the spending is going? Check this out: The top three things that the U.S. government spends money on are: (figures from 2006)
1) WAR: Department of Defense + Veterans' benefits ($580.5 billion)
2) DISEASE: Medicare + Medicaid ($614.1 billion)
3) DEBT: Debt to the people (Social Security + Welfare) and to debt holders (interest on national debt) ($1,115.4 billion)
What's fascinating about all this is that these three things take up 85% of the federal budget! (Total 2006 federal budget was $2.7 trillion.)
Yes: 85% of the federal budget goes to pay for war, disease and debt. Need I say more? That fact right there should tell you all you need to know about the future of this nation: The U.S. is about to become history. In the history of the world, no nation that spends 85% of its budget on war, disease and debt has ever survived for more than a few years. (Rome spent far less on war and still couldn't keep its republic together...)
For all those readers who agree with me on my anti-war stance, don't worry: We'll all get our wish soon! The U.S. is so bankrupt that waging war will soon no longer be an option. President Bush has done what the terrorists could have only dreamed of doing: destroying the future of an entire nation and watching it implode under the weight of its own debt. (If you thought the collapse if the Twin Towers was something, just wait until you see the fall of Wall Street...)
Sobering Economic News Wins You No Friends in a Delusional Nation
I tend to be a little early in taking precautions against financial disasters. I warned the public about the dot-com crash several years before 2001, and my warning about the housing crash was, as you can see, two years early as well. I've learned several things about making public predictions based on economic reality:
1. Nobody wants to believe your prediction when the bubble is hot and people are operating under the illusion that "We're all getting rich!" In offering sobering predictions of economic fallout stemming from the blatantly obvious financial disasters being pursued in this country, I've been called a doomsayer, a pessimist and someone who fails to understand the "new economics" (a fictitious branch of economics that's used to hype every new market boom to a gullible public).
2. The public isn't interested in financial reality. The public wants to believe whatever fictions support their current investments. If they're invested in houses, they will dismiss any news (no matter how factual) that goes against the decision they've made to hold those investments. It's a common type of investing myopia: Once an investor places his (or her) faith in a stock, an option or a house, they will selectively filter out all information that runs counter to their currently-held position. (It's sort of like the way doctors see the world of conventional medicine vs. natural medicine...)
3. Few Americans can even imagine the collapse of America. (Most Romans couldn't imagine the fall of Rome, either.) They think America is so strong and dominant on the world stage that it can weather any storm. Do you know why these people hold such myopic views? Because they watch the U.S. media, of course! There is no nation with a mainstream media capable of reporting the truth about that nation's own political or economic policies. In truth, America is just one experiment in a history of failed debtor nations spanning millennia. The number of empires in world history that have risen and fallen due to uncontrolled spending or war mongering is truly staggering (something like 100+). Like any other nation, the U.S. is not immune to the effects of stupid management (although it has achieved numerous historical milestones such as being the nation with the largest national debt in the history of the world...)
4. Being ahead of the masses in your observations of economic trends is no way to win a popularity contest. If you're 30 days ahead of the masses, you're considered a genius; but if you're two years ahead, you're considered insane. It makes me wonder about the experiences of historical geniuses like Nikola Tesla, since they were at least a hundred years ahead in their understanding of science.
5. The mainstream never agrees with you until it's all over, and then they blame you for causing it by "scaring everybody." Hilarious.
Final predictions: This financial situation won't head straight down. The Plunge Protection Team in Washington (and at the Fed) will do their best to keep propping up this economy like a Weekend At Bernie's. So you'll see short-term recoveries and stock prices jumping up and down probably all year. The markets may even reach new highs as the Fed hyperinflates the currency by injecting easy money into the system. As usual, it's all a scam. The unavoidable trend is the ultimate downfall of the debt-ridden U.S. economy and a massive recalibration of this nation's economic behavior, which may or may not include the dissolution of the nation itself. American may somehow survive this unprecedented debt crisis. Then again, it may not.
"Is the credit crisis contained? Yes. The credit crisis is contained…to Planet Earth.” - Market Analyst Jim Grant
"It's called the American Dream because you have to be asleep to believe it." George Carlin
I would add a strong knowing of Yahshua also. The older I get, the more I think this is the basis. I have always seen survivalism as a matter of economics, with economics being the management of scarcity. With Yahshua at the center, you will have a firm grasp of what to consider is worth valuing as scarce in the first place.
Don't Panic!
“Finally, brothers, whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable—if anything is excellent or praiseworthy—think about such things.”
[link to freewordofgod.yuku.com] |
| FHL(C)
User ID: 366066
2/1/2008 11:33 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
I have decided to change the title from
"Watch the stock markets it cant be long now for the long awaited/expected correction/s."
for obvious and plain reasons.
[link to freewordofgod.yuku.com] |
| Anonymous Coward
User ID: 366066
2/1/2008 12:59 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
America’s middle classes are no longer coping
By Robert Reich
Published: January 29 2008 19:10 | Last updated: January 29 2008 19:10
It is an election year and the US economy is in peril of falling into recession or worse. Not surprisingly, Washington is abuzz with plans to prevent it. President George W. Bush has proposed a $150bn stimulus package and all the main presidential candidates are offering similar measures, including middle-class tax cuts and increased spending on infrastructure.
Ben Bernanke and the Federal Reserve have reduced interest rates another three-quarters of a point. But none of these fixes will help much because they do not deal with the underlying anxieties now gripping American voters. The problem lies deeper than the current slowdown and transcends the business cycle.
The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences.
The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 – from 38 per cent to close to 70 per cent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. These families are known as Dins: double income, no sex.
But we reached the limit to how many mothers could maintain paying jobs. What to do? We turned to a second coping mechanism. When families could not paddle any harder, they started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared with any other advanced nation we are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.
But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. That is nearly 10 per cent of disposable income. With credit cards raining down like manna, we bought plasma television sets, new appliances, vacations.
With dollars artificially high because foreigners continued to hold them even as the nation sank deeper into debt, we summoned inexpensive goods and services from the rest of the world.
But this final coping mechanism can no longer keep us going, either. The era of easy money is over. With the bursting of the housing bubble, home equity is drying up. As Moody’s reported recently, defaults on home equity loans have surged to the highest level this decade. Car and credit card debt is next. Personal bankruptcies rose 48 per cent in first half of 2007, probably even more in the second half, which means a wave of defaults on consumer loans. Meanwhile, as foreigners begin shifting out of dollars, we will no longer have access to cheap foreign goods and services.
In short, the anxiety gripping the middle class is not simply a product of the current economic slowdown. The underlying problem began around 1970. Any presidential candidate seeking to address it will have to think bigger than bailing out lenders and borrowers, or stimulating the economy with tax cuts and spending increases.
Most Americans are still not prospering in the high-technology, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a small number of people at the very top.
The candidate who acknowledges this and comes up with ways not just to stimulate the economy but also to boost wages – through, say, a more progressive tax, stronger unions and, over the longer term, better schools for children from lower-income families and better access to higher education – will have a good chance of winning over America’s large, and increasingly anxious, voters.
The writer is professor of public policy at the University of California at Berkeley. He is former US secretary of labour and author of Supercapitalism |
| Anonymous Coward
User ID: 366066
2/1/2008 9:24 PM | | Re: Watch, Its happening ,the global economic change. | Quote |
FU&FW
ECONOMIC STIMULUS PACKAGE: MACABRE WALTZ INTO THE ABYSS
By: Devvy
January 31, 2008
© 2008 - NewsWithViews.com
"If the American people ever allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property, until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from banks and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions having the issuing power of money, are more dangerous to liberty than standing armies." ~ Thomas Jefferson
Despite clever word smithing coming out of the mouths of polished politicians and high paid illusion artists for networks like FOX (in for a very rough 2008) News, only someone in extreme denial can ignore the true state of America's economy. I've written about it for years, warning people that while Congress continues to write hot checks, kissed, blessed and signed off by whatever banking cartel water boy is sitting in the White House, the powder keg was just waiting to blow. BOOM.
With two or three exceptions (Dr. Ron Paul being the stand out), the U.S. House of Representatives, comprised of useful fools, the functionally illiterate and stinking buzzards, has just passed another monumental piece of lunacy called an "economic stimulus package." This $1.5 BILLION dollar shell game will stimulate nothing and let me tell you why.
One: There is no money in the U.S. Treasury. As I write this column, the people's purse is overdrawn $9,203,187,681,379.26. Every one of those "economic stimulus package" checks sent out to the American people will be a hot check written against an account that's over drawn $9.2 TRILLION DOLLARS. How can Congress do this? They do it by borrowing from the unconstitutional central bank called the "Federal" Reserve. By the time the interest is paid on this grotesque "stimulus package," the tab will be $3 BILLION dollars.
Two: There will be no economic stimulus because this is just another Band Aid being applied in an attempt to stop the patient on the operating table from hemorrhaging to death. Whatever the amount, at this time it appears to be a $600.00 hot check to individuals and a $1200.00 hot check to couples, it will get spent right away. Because tens of millions of Americans are living paycheck to paycheck, it's doubtful these 'hot bux' will go into a savings account. Off the struggling middle class will go to Wal Mart to buy needed products made in commie China, which increases the trade deficit that most Americans neither understand nor have any interest in because daily survival is all consuming.
Third: Now that this quick fix called 'hot bux' is spent, what did it accomplish? Like a heroin junkie, flash bang, but then right back to reality and looking for the next fix. Let's not forget that these hot checks might be in the mail sometime in May - almost four months down the road. Yesterday's rate drop by the privately owned "FED" will not be felt for six-eight months down the road, long after many more Americans will have already drowned and small businesses had their 'final liquidation - going out of business' sales.
Fourth: Here's the part that proves these miscreants in Congress are not only unfit for office, but border on the brink of mental illness - ILLEGAL aliens will also get these "tax rebates." No, you're not reading that wrong. Comrade Pelosi and her gang of nitwits passed this bill which contains a provision to give criminals (illegals who smuggle themselves across our borders) who "earn" $3,000 per year by stealing jobs they have no legal right to have, a $300.00 hot check and your children and grand babies will be the ones to inherit the debt. Yesterday, the counterfeit senate scared for their political future this November, killed that provision in their version of this grotesque "stimulus" package; who knows what the final carrot will look like.
Fifth: The massive "entitlement" programs already gasping for some sort of life line, are now like full grown hippos looking to mother government to bail them out for another month, then another month, then another month. If you missed Carolyn Lochhead's bombshell column back in 2004, she gave the numbers that shocked a whole lot of people - except Congress who remained in their delusional states of self-importance as the cancer continued to fester. BOOM.
Isn't that a great solution to our "ailing economy"? There's no money in the treasury, but Congress, signed off by Bush, will run up another $3 BILLION borrowed dollars in debt. Cuckoo! Cuckoo! If Democrats think Pelosi's House is going to do anything to stop what's coming, just think of this past year under her "leadership": chaos and fluff and puff while our soldiers continue to die in Iraq and Afghanistan.
[Correction: I made a typo. The economic stimulus package at this time is $150 billion, not $1.5 billion. I left off the zero. By the time the interest is paid to the privately owned FED, it will be roughly $300 billion borrowed dollars.]
While the FBI is now investigating sub prime mortgage fraud, Marxist Hillary Clinton and Barack Obama continue to jawjack how they have the magic fix to help the masses. Establishment lackeys, Flip Romney and notoriously hot tempered, John McCain talk the worn out "tax cuts." Folksy, Brother Huckabee's ignorant promotion of a "fair tax" shows his lack of qualification on the subject. Of course, all of this is just a continuation of the dance into the abyss because it means nothing in real time.
On January 23, 2008, I went in search of a tent city located in Ontario, California, about a 45-minute drive (depending on traffic) East of LA. While I had an approximate idea of the location, West end of the Ontario Airport, I knew I would have to do a little bit of searching. It didn't take long. The stench of human waste and garbage was so over powering, I picked it up a half mile away.
This tent city is shocking to see up close. It is reminiscent of photos from the artificially engineered Great Depression, only in living color. The city is doing their best to help these folks, but that cost gets passed on to the productive in Ontario and the county itself in higher taxes.
One young man I interviewed asked me not to take his photo because he's looking for work. While the majority of Americans living at this tent city are simply those left with no place to go for various reasons, this 30-ish, educated American lost his home through foreclosure several months ago. As he sat, stroking his cat, a sad story emerged. Caught up in the hype about the glorious state of the economy, he and his wife bought a house with an ARM (adjustable rate mortgage) in a high ticket market. When it came time to face the reality of a bigger payment, credit card debt to the max and little savings, the first loss was the house, then the marriage due to stress and then his job.
If you think this tent city is just a bunch of bums, not true. The city has stepped in with out houses and getting children transported to local schools. The adults milling around were dressed middle class, some cooking over open fires, others in groups talking. I asked one lady who came near the curb to dump some water if she wouldn't mind speaking with me? She said yes, but was defensive because a lot of media have been around and apparently some of the coverage has been less than kind. Single mother with two children; husband skipped out so there's no help there. Evicted because she couldn't pay her rent with the taxes eating both of her paychecks - Mr. Bush's idea of the American dream: multiple, low paying jobs while our good jobs are destroyed through trade treaties signed by him, his father and Bill Clinton. The conversation moved to the high cost of everything and despair. This in a land rich in human and natural resources. I left this tent city knowing it's not going to be the last one on the American landscape.
Are Americans now burning their homes to the ground to collect the insurance instead of facing foreclosure? Others are just walking away from their loans. What happens to the local economy when foreclosures in one county (Lee, Florida) numbered 1,441 in December and 7,324 for the year? When you add the financial time bomb Jeb Bush built and lit before he left office now ready to go off, the citizens of Florida face a frightful future. According to one real estate tracking service, the number of U.S. homes that slipped into some stage of foreclosure in 2007 was a stunning 79 percent higher than in the previous year. Recession is the word being used for a "soft" market, but look out as 2008 progresses because it's going to get far, far worse than most Americans can envision.
Advertisement
In their effort to shore up disaster, Congress and the thieves at the FED have been bailing out Wall Street, the bankers and their own backsides. After all, it's not the little guy out there filling their campaign coffers with ill gotten gains, it's the corporations that own them right along with their magical money machine, the "Federal" Reserve. As the carnage begins to spread deeper into American households, Americans will demand more and more from mother government to bail out their bacon. Of course, it never seems to sink in that it's the American people themselves who reelect (with the help of high tech rigging) the same crooks who continue to spend recklessly on unconstitutional expenditures; just read this one. Bring home the bacon? Nothing like getting fat off the hog and then dropping dead from all that pork.
So few Americans understand the relationship between the FED and their wallet. They have little or no understanding of the money trail between the IRS and the FED. Those who do have been buying gold as a hedge against what IS already underway. I'm not a gold dealer, but if you're considering protecting what you have left, I always recommend El Dorado Gold. Professional like Harvey (Phoenix) 602.228.8203 and Eric (Florida) 623.643.8786, are highly knowledgeable and can get you on the right path to financial security. I get sick just thinking about the real time jeopardy to the trillion dollars in pension funds at risk right along with 401K savings; here's just one example. How many times have I encouraged Americans to listen to David Walker, Comptroller General of these united States of America trying to warn the American people about the financial tsunami that is now building speed? Too many to count along with hundreds of other writers.
Ron Paul has a bill lingering in Congress since July 15, 2007, to abolish the unconstitutional Federal Reserve. There are no sponsors. Why? Because without the central bank to borrow from on a daily basis, Congress would be unable to write hot checks to the tune of more than NINE TRILLION BORROWED DOLLARS. Because without the central bank to borrow from, Bush would not be able to steal from the American people to fund his nebulous and endless "war on terror," his unconstitutional nation building or endless "wars of liberation" to the tune of almost ONE TRILLION BORROWED DOLLARS.
Yes, the numbers are staggering and there isn't going to be any quick fix. Financial analysts whose reputations will soon be in tatters and craven elitists like George Bush and his minions, are hoping that the massive consumer dollars generated by the American people will save the day, but it's not going to happen. This is why so many Americans support Dr. RON Paul for president. They know he's the only candidate from either party who truly understands our monetary system and limited, constitutional government. One must remember that the next president won't be seated in the Oval Office for another year and by that time, between hyper inflation and more heavy taxation eating what little the American people have, the picture is indeed grim.
If Ron Paul were to win the presidency and Dr. Edwin Vieira as Secretary of the Treasury in his administration, we would begin the recovery process towards a true and honest monetary policy and an elimination of the unnecessary federal income tax. If that doesn't happen, we will see more tragedy for our nation. As Dr. Vieira said almost a year ago: "Rest assured that what you decide today you will be required to live with tomorrow. For the fiscal gap is a national trap that is inexorably closing. Once the financial swallows come home to the Disgrace of Columbia, there will be no going back—only “forward,” into the New World Disorder of economic dislocation and deprivation enforced by a thoroughgoing police state."
You've heard the expression, "It's not over until the fat lady sings." Can you hear the cacophony of sound from millions of Americans yet? You will, but it won't sound like singing.
Reality links:
1 - Transportation bill: More financial bondage
2 - Credit loss could hit $ US 1 trillion
3 - Cleveland Sues 21 Banks Over Mortgage Foreclosures
4 - Billions still at risk (Call Congress for a bail out!)
5 - Banks May Write Down $70 Billion, Oppenheimer Says
6 - Will the coming monetary crisis provide opportunity for reform? (2005)
7 - Keynesian Chickens Coming Home
8 - Beware alternative taxing schemes
9 - Banks 'May Write Down $70 Billion'...
10 - America's "robust economy"
11 - Unpaid Credit Cards Bedevil Americans
12 - Chrysler CEO: We're 'operationally' bankrupt |
| Anonymous Coward
User ID: 367653
2/4/2008 8:48 AM | | Re: Watch, Its happening ,the global economic change. | Quote |
'It's going to be much worse'
Famed investor Jim Rogers sees hard times ahead for the United States - and a big opportunity looming in China.
By Brian O'Keefe, senior editor
jim_rogers.la.03.jpg
Jim Rogers says the Fed, and Fed Chairman Ben Bernanke, are out of control.
Video
More video
Bernanke goes too far
The central bank's second interest rate cut in a week raises the risk of inflation and bails out the banks.
Play video
Hog wild for China
Legendary investor Jim Rogers made a bundle by anticipating a boom in commodities. Now he's focusing on the People's Republic. (more)
More from Fortune
Fighting the new evil empire - Google
Some of the pieces won't fit
Time running out for AOL
FORTUNE 500
Current Issue
Subscribe to Fortune
NEW YORK (Fortune) -- You might expect Jim Rogers to be gloating a little bit. After all, the famed investor has been predicting a recession in the U.S. economy for months and shorting the shares of now-tanking Wall Street investment banks for even longer. And with fears of a recession sparking both a worldwide market sell-off and emergency action from Federal Reserve chairman Ben Bernanke, Rogers again looks prescient - just as he has over the past few years as the China-driven commodities boom he predicted almost a decade ago began kicked into high gear. But when I reached him by phone in Singapore the other day there was little hint of celebration in his voice. Instead, he took a serious tone.
"I'm extremely worried," he says. "I have been for a while, but I just see things getting much worse this time around than I expected." To Rogers, a longtime Fed critic, Bernanke's decision to ride to the market's rescue with a 75-basis-point cut in the Fed's benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn't willing to provide the fiscal discipline that he thinks the economy desperately needs.
"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."
Rogers looks at the Fed's willingness to add liquidity to an already inflationary environment and sees the history of the 1970s repeating itself. Does that mean stagflation? "It is a real danger and, in fact, a probability."
Where the opportunities are
The 1970s, of course, was when Rogers first made his reputation - and a lot of money - as George Soros's original partner in the Quantum Fund. And despite his gloomy outlook for the U.S., he still sees opportunities in today's world. In fact, he sees the recent correction as a potential gift for investors who know where to head in global markets: China.
Rogers has been fascinated with China ever since he rode his motorcycle across the country two decades ago, and he's been a full-fledged China bull for several years. In December he published his latest book, an investor-friendly tome titled "A Bull in China: How to Invest Profitably in the World's Greatest Market." And that same month he sold his beloved Manhattan townhouse for $15.75 million to a daughter of oil tycoon H. L. Hunt and moved his family full-time to Singapore - the better to be closer to the action in Beijing and Shanghai. (He bought the New York mansion 30 years ago for just over $100,000; not a bad return on his investment.)
But in a November interview I conducted with Rogers, he admitted that he was rooting for a serious correction in China to cool off an overheating market and bring back prices to a reasonable level. With the bourses in Shanghai and Hong Kong both some 20% off their recent highs as of late January, Rogers says he's starting to consider new investments.
"I'm delighted to see what's happening in Shanghai and Hong Kong," he says. "As I've said, if things hadn't cooled off, the Chinese market was in danger of turning into a bubble. I find this most encouraging. The government's been doing its best to try and cool things off. Mainly they've been trying to deal with real estate but it's having an effect on stocks, too. I would suspect the correction isn't quite over in China. But I'm gearing up. I didn't put in any orders for tomorrow but I'm starting to prepare my list of things to buy in China. Whether I buy this week or this month or this quarter, who knows. But I'm starting to think about buying new shares in China for the first time in a while. And I'm not thinking about buying in America."
Ultimately, Rogers doesn't think that the troubles in the United States will be much of a drag on the prospects for the People's Republic. "Anybody who sells to Sears (SHLD, Fortune 500) or Wal-Mart (WMT, Fortune 500) is going to be affected, without question," he says. "Some parts of the Chinese economy are going to be untouched, however. They won't even know America's in recession. They won't care if America falls off the face of the earth."
“We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene.”
Jim Rogers
What's on his China buying list? Rogers says it will depend in large part on which stocks come down to the right level, but he's keeping his eye on certain high-growth sectors including tourism, agriculture, power generation and airlines.
The pullback in commodity prices on recession fears hasn't dampened his enthusiasm for resources investments, either. More like a cyclical correction in the middle of a long-term bull market. "Certainly some commodities are going to be affected," says Rogers. "But it's not as if the markets haven't figured this out. Remember the old expression: 'Dr. Copper is the best economist in the world.' Well, Dr. Nickel and Dr. Zinc figured out a few months ago what I thought I had figured out, that we were going to have a recession. Nickel is already down 50%. Other commodities may fall more. But I don't see the economics of agriculture being much affected at all. Maybe there will be a few less cotton shirts bought. Maybe there will be a few less tires bought. But the supply is under more duress than the demand."
Once again Rogers draws on the 1970s in his analysis. "Think about the story of gold in the '70s," he says. "Gold went up 600%, and then it started correcting. It went down nearly every month for two years, nearly 50% from the high point. And everybody said, 'Well, that's the end of the gold market. It was just a fluke. It's over.' It scared everybody out. And then gold turned around and went up 850% from that level. This is what happens in markets. But the fundamentals of the secular bull market in commodities are not over any more now than they were for gold in the '70s."
Where he expects the pain to be most intense is on Wall Street. He says he hasn't covered his short positions on the investment banks or Citigroup (C, Fortune 500) and won't for a while. "Those things are going to go way, way, way down," says Rogers. "The investment banks are down now because of the problems in the credit market. Wait until the effects of the bear market come along. If you just go back and look at other bear markets, investment bank stocks have gone down enormously. We haven't gotten to that stage yet. It's going to bring their balance sheets under duress. This is going to get much worse. But that's where there have been excesses for the past decade or so. And whenever you have a bear market come along the great excesses of the previous period are the ones that get cleaned out the most."
He'll be watching - from Singapore. To top of page |
| | 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 | |
|
