10/12/2008
Elaine Meinel Supkis
All the headlines this weekend are about how all the top international trade/commodity/manufacturing nations will coordinate a rescue of the impossible status quo of the last 35 years of the Floating Currency exchange system. This system allows the US to run perpetual trade deficits with the entire planet. In return, we solemnly promise to repay everyone via interest. Only we can't. This is why the last ditch effort here is to artificially drop interest rates to 0% so the US can afford to overspend forever. This forlorn hope of our trade partners will not work. Eventually, the bills will be so overwhelming, the return on lending so pathetic, no one will save money, all profits from 0% lending to the US will fuel inflation in ever-rising waves.
Europe's Leaders Race to Find Financial Solution
(Bloomberg) -- European leaders meet today to forge a new set of measures to combat the credit freeze after their failure to act a week ago contributed to the worst sell-off in the region's stocks in two decades.French Finance Minister Christine Lagarde said leaders will aim to put ``meat and muscles'' on a commitment to safeguard key banks. German Chancellor Angela Merkel, whose government earlier this month rejected French suggestions to form a joint bank- rescue fund, said yesterday the euro region will implement ``the same toolbox of instruments.''
*snip*
Luxembourg's Jean-Claude Juncker, who heads the Eurogroup of euro-region finance ministers, said in a statement today that ``no financial institution of systemic importance'' can be allowed to fail. Juncker, who will take part in today's meeting in Paris, said that access to liquidity will be assured, efforts to unblock financial markets will be intensified and individuals' savings accounts will be protected.
Luxemburg is a pirate cove. England has lots of pirate cove islands used to undermine the entire banking/taxation system of the West. The sense of unity is impossible when so many nations are actually pirates. It is like trying to protect a fleet carrying gold from the New World to Spain by hiring a bunch of pirates. It won't work. A large percentage of the fleet will be looted. This is also why going to the pirates in the banking community to fix the mess these same pirates caused is dumb.
Nay, impossible. How did these pirates come into being, anyway? This is a pertinent question! Back at the end of WWII, there was a complete collapse of all empires except for two: Russia and America won WWII, hands down. All imperial rivals were either completely, physically destroyed or were utterly drained by the finances of the war. Russia, unlike America, also sustained very significant destruction and therefore, was starting off on a much weaker industrial and financial base.
The US was barely touched by any of the WWII damage. Not one city was bombed into oblivion. Not one factory was fried. So, by default, the only major currency on earth was the dollar. At the end of WWII, the US went into a recession. One of the biggest falls in the stock market came on the heels of victory. But this was due to two things: the huge overhang of war debts had to be digested and war spending inflation needed to be killed. Once this process finished, the US economy took off like a rocket.
All went well until the hopeless Vietnam War. At the end of it, we were so bankrupt, Nixon had to unilaterally, on a weekend, kill the gold peg. Then the Floating Currency regime was launched. This was at first, viewed with suspicion by Europe. They have a long memory of what floating currencies do: they sink.
But then they saw the ADVANTAGES of this new regime: they could flood the US with exports! From 1776 to 1976, the US sought with all its might to prevent others from unbalancing trade. The flow of US goods to Europe, South America, Asia and Africa had to always balance out or the government would raise tariffs and barriers. But with the launch of the new Floating Currency, the need to import oil meant the US had to drop this historic habit and engage in a new one: constant trade deficits.
Eventually, in order to stop inflation, the US engineered 'free trade.' This meant exporting all our industries to cheaper labor pools so we could bring the finished goods back in at cheap prices. If the government taxed this trade, prices would go up and we would have inflation. So, instead of taxing anything, the government began another historic new program: perpetual budget deficits.
At first, this troubled our government. To show concern, the Congress decided to pass a law that would trigger automatic budget cuts if the debt ceiling is reached. Then they put in a back door amendment: they could raise the ceiling in an emergency!
We then entered a perpetual emergency. At no time has anyone tried to cut anything. There is always an emergency! The threat of Russia was the Long Emergency of the Cold War. Then, when Russia went bankrupt, the new emergency was Muslim Threats. We did everything in our power to irritate the Muslims and drive them to despair and anger. Voila! An emergency!
So every year, like a clock, Congress raises the ceiling. At first, this caused lots of debate and raised some ire. But once people became accustomed to this, they accepted this fact and now it is a mere ritual. No one even bothers to notice, not the media nor the voters. Government overspending shot through the roof.
Cost of U.S. Crisis Action Grows, Along With Debt
(Bloomberg) -- The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion.Bailouts of American International Group, Fannie Mae and Freddie Mac likely will be more expensive than expected. States are turning to Washington for fiscal help. The Federal Reserve said this week it will begin buying commercial paper, the short- term loans companies used to conduct day-to-day business, further increasing costs. And analysts now say the $700 billion bank- rescue plan passed by Congress last week may have to be significantly larger.
``I always assumed they would be asking for more money along the way if it was necessary, and it looks like it's going to be necessary,'' said Stan Collender, a former analyst for the House and Senate budget committees, now at Qorvis Communications in Washington. ``At the moment, there's nothing happening here that's positive for the budget. Nothing.''
The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983, according to David Greenlaw, Morgan Stanley's chief economist. Two weeks ago, budget analysts said the measures might push deficit to as much as $1.5 trillion.
The numbers are frightful! We are now in a paradoxical situation where the overspending is the emergency that triggers overspending as we try to overspend our way out of our overspending! This sounds insane and it IS insane. Utterly and totally mad. Yet virtually no one wants to stop this madness. The simple ideas of the past are ignored. We are not in a lending emergency, we are in a DEBT emergency. Which requires the exact opposite approach, the opposite medicine of a lending emergency.
G-20 Nations Agree on Need for More Cooperation, Mantega Says
(Bloomberg) -- Finance officials from the Group of 20 countries agreed on the need for a more coordinated response to the biggest global financial crisis in 80 years, Brazilian Finance Minister Guido Mantega said.``The G-20 needs to be more agile, and transform itself rapidly so it can resolve the crisis,'' Mantega, chairman of the G-20, said at a press conference in Washington. The comments came a day after the Group of Seven finance chiefs pledged joint action to alleviate the credit crisis and prevent major banks from collapsing.
In a statement, the G-20 countries ``committed to using all the economic and financial tools to assure the stability and well functioning of financial markets.'' Officials will next meet on Nov. 8 and 9 in Sao Paulo, the statement said.
The financial markets cannot be 'well functioning' if the world's biggest economy is running in the red. This impossible situation has to be addressed. The natural forces which I call 'goddesses' because it is fun to think of them as this, these natural forces are wrenching the status quo very hard as these forces move things to equilibrium. In Nature, all things must reach a 'steady state' or they blow up. That is, nothing ever grows forever except perhaps the Universe itself.
The only place for Infinity is outside the Universe. Since the Universe has a definite beginning and most likely, end, the only place where Infinity can reside is outside the Universe. I call this 'The Outer Darkness' for there is no light since light travels, light creates time and space. So where there is no light, ie: outside of this Universe we inhabit, there is Darkness.
The G20 and especially, the US, wants to experiment with financial infinity. The US sucks up infinite debt and the world has infinite trade growth and wealth accumulation. But of course, this is pure insanity. So what they all talk about is where to place limits. Of course, everyone wants the limit, in their own case, to be infinity. But they all know this is impossible. So they place an artificial ceiling at some point only, like Congress, they raise this ceiling again and again.
So the limit becomes the point at which the world's biggest economy goes totally bankrupt! This is easily fixed by the US putting up trade barriers. Like Japan. But we want cheap goods and above all, lots of energy from Mexico, Canada and OPEC nations. Just like Europe wants a free energy ride from Russia and OPEC.
THERE IS NO UNITY POSSIBLE HERE. We have to be realistic: all the G20 nations are at odds with each other. And it is life and death for the US to fight off the 19 other nations in order to set ourselves on a new course which cuts imports by over 50%. This would change world trade significantly. And cause a huge recession. But if we balance our own trade, we will see a better future for everyone. But we won't live like kings nor will anyone, instead, we get to LIVE. Which is better than the alternative: WWIII and we all die.
Once again, the Seven Dwarves attack the Chinese Dragon. Now we are supposed to be worried about inflation in China and China's stock market making records the same week the US stock market is making records while inflation rages here. Hmmmm.....glass houses, meet boulders falling from heaven! The New York Times discovers the not-so-secret LDP plans to starve the Japanese people to death. I have been talking about this for a long time, by the way. And Europe is screaming about the rising value of the euro but is totally unable to stop this because they aren't a nation with one leadership or someone like Hu or Wen or Putin running things.
From Bloomberg:China's next central-bank governor may fare no better than incumbent Zhou Xiaochuan in cooling the world's fastest-growing major economy.
Zhou, who has been in office five years, is likely to be given a new job after next week's Communist Party congress, economists predict. Whenever he leaves, his successor will inherit a monetary policy blunted by an undervalued currency, a jump in foreign investment and surging stocks. The People's Bank of China is also constrained by a lack of independence.
HAHAHA. Poor, poor China has a booming stock market! Whaaaa! Unlike Japan which has an anemic stock market, China is up and up! And America: the market fell a tiny bit, around 8% and Cramer was shrieking, 'There is BLOOD in the streets! My friends are losing their JOBS!' So Bernanke dropped interest rates well below the real rate of inflation. The stock market shot up to new highs instantly. All the shrieking, bleeding speculators were pig-happy. So of course, the news media must talk about how stupid the Chinese are for letting their stock market hit new highs?
From Euro 2 Day:The euro rallied against the dollar, sterling and the yen on Thursday, and mixed messages from eurozone politicians and policymakers did little to slow its progress.
The European Central Bank was busy trying to talk the currency down. In a press conference, Jean-Claude Trichet, the bank's president, said disorderly moves were undesirable for growth and that markets should be aware of the risks of one-way currency bets - hinting of the dangers of the carry trade.
No one talks money up or down. We all know that there are two forces at work: interest rates and FOREX HOLDINGS. The West absolutely refuses to understand the 'FOREX' part of the equation. Yet this is obvious: the countries that control huge FOREX reserves have 'sovereign wealth' and can also control the value of currencies. Countries exporting oil all want strong currencies and manufacturing countries seeking trade advantage want weak currencies and together, the biggest players in this game are using their FOREX reserves to set the trade value of currencies all over the planet.
As usual, the entire article is a good read for it shows, in real time, how all the people in the news today, talked about the banking collapse. This all started in July, 2007. By October, it was painfully obvious, the system needed reforming. And that the center of it all was the US. The US was generating too much red ink and had triggered alarms which caused interest rates to rise.
We know that anyone running too much red ink will see higher and higher interest rates because the risk of bankruptcy rises rapidly! A lot of borrowers hate this. They want CHEAPER lending as they overspend like mad! But bankers know from history, that this is bad and so they protect themselves by charging more so they get their principal back, sooner.
I know bankrupts who would rush around, getting loans so they can continue spending on goofy things and then instantly, within a month of getting more loans, go belly up! This is a common human impulse. The US wants 0% loans from the G20 nations so we can go on a stupid Xmas spending spree! Yippee! And isn't this the stupidest thing on earth? We want more military spending and more Xmas frenzies at the same time. We don't want to pay up, either. Nor do we want to bother saving.
World lending is frozen because bank are charging us more interest. But the CENTRAL bankers are desperate to get interest rates to 0%! So the violent reaction between these two forces has caused lending to stall out. All the central banks have to do is surrender to reality and keep rates at appropriate levels TO ATTRACT SAVINGS.
Instead, they whine about 'hoarding' and demand that savers bankroll 0% lending. This is childish and dangerous. If savings were properly protected in the past, there would be no need to have governments bankroll banking by artificially putting in 'savings' which are really IOUs, into banks. Above the doors of all banks should be this sign: 'ZERO PERCENT LENDING IS FATAL TO SAVINGS!'
Contracts on Europe's benchmark Markit iTraxx Crossover index, a measure of the cost to insure corporate bonds, soared more than 2 percentage points in the past month to 756.60 two days ago, according to JPMorgan Chase & Co.
*snip*
A German program may allot up to 100 billion euros ($134 billion) to recapitalize private banks, state banks and insurance companies, Handelsblatt reported, citing unidentified officials. Merkel said the plan would involve ``providing banks with sufficient capital so that they are able to operate on their own -- and I don't rule out that there could be capital support.''
7.6% sounds like the proper rate to me. This takes in account the possibility of bankruptcy. This is the NATURAL rates we would expect after the planet's financial systems just saw huge wave of bubble/inflation moments in all systems from equities to commodities of every sort.
Inflation isn't an even process: it comes in waves and ripples through all systems, one at a time, not all at once. When I go shopping for plywood, for example, I see waves of inflation. It rises and falls. But overall, rises. Plywood that cost $4 a sheet years ago have shot up to over $35 a sheet and now have declined slightly but still will vacillate in price by over $2 every week. I never know what it will cost. Try writing a contract to build something with this level of instability!
I just saw that hot water heaters all now cost double what they did just 5 years ago. They are not dropping much in price, at all. Inflation from this last year certainly is still deep inside the system. We are eating it on a daily basis. Food prices are still high. But food futures have fallen. Just like all speculations, they all had a peak during the last year. They all hit major historic highs and all futures are dropping. But the attempts at resuming the status quo of the US spending like mad while going into debt means we can expect a major inflation surge in just three years. The Seventies were like this: the Floating Currency launch was a mess. Three major waves of inflation swamped the global economies. The only way this was fixed was punishingly high interest rates. Which were twice as high as the ones we are seeing today!
Commentary: Why there's a crisis -- and how to stop it By David Smick
CNN) -- At this point in the credit crisis, at least one thing is certain: most policymakers lack a clue of what is really at stake. Those with some knowledge are driving policy looking through the rearview mirror.Begin with the U.S. Treasury's $700 billion bailout package. This was presented as some magic pill which, if gulped down, would quickly restore financial stability.
The "shock and awe" of the sheer size of the taxpayer-funded bailout would somehow restore confidence. Instead, stock markets collapsed and credit markets remained frozen.
This is because the credit crisis reflects something more fundamental than a serious problem of mortgage defaults. Global investors, now on the sidelines, have declared a buyers' strike against the sophisticated paper assets of securitization that financial institutions use to measure and offload risk.
*snip*
Apart from the economic pain resulting from shrinking credit markets, we are about to see an earthquake in the relationship between government and financial markets. The great uncertainty is whether government has the power to rescue the financial system in times of crisis. It seems doubtful.In the United Kingdom, for example, the collected assets of the major banks are four times the nation's gross domestic product (GDP). A similar situation exists in many Euro zone countries. This means government cannot bail out the system even if it wanted to. Given such massive exposure, government guarantees in a time of crisis become meaningless.
Yet because of the interconnected web of global financial relationships, we are all vulnerable to the threat. The collapse of, say, a major European bank would hardly leave American workers immune.
Our policy leaders in Washington are thinking domestically when the solution to the credit crisis will be global. It is not that the world lacks money; it is that the world's money is sitting on the sidelines -- more than $6 trillion in idle global money markets alone.
Iceland is bankrupt. England is next. And behind them both is the colossus, the US. England is grossly undercapitalized. 100 years of deindustrialization coupled with the collapse of the North Sea oil production has shoved this once-mighty empire's rump economy off the cliff. Word of warning to the US. We are next!
Iceland’s financial system collapsed Thursday, and analysts said it was probably only a matter of time before the country would have to turn to the International Monetary Fund for help.
*snip*
Such a move, which would make this small island nation the first sovereign state to fall victim to the credit squeeze that began last year, would require it to accept harsh measures to restore fiscal and monetary stability.Iceland has tried desperately to avoid such a step. But the odds against it grew worse on Thursday when the government took over the last of three major banks and shut down the stock exchange.
Trading in the Icelandic krona ceased, with foreign banks no longer willing to take the currency — even at what seemed like bargain rates.
Adding to Iceland’s sense of isolation, a diplomatic dispute with Britain over money stranded in the failed banks deepened as the British government invoked antiterrorism laws in an effort to get the money.
“Iceland is bankrupt,” said Arsaell Valfells, a professor at the University of Iceland. “The Icelandic krona is history. The only sensible option is for the I.M.F. to come and rescue us.”
Iceland is a pirate cove like Luxembourg. But unlike the Cayman Islands, it has industries and economic activity. The true pirate coves have NOTHING of ANY worth and thus, can host pirates with impunity. Iceland has economic capital to be seized by angry creditors! Like the US, Iceland's attempt at piracy will backfire because people will want to collect. Only worthless places can become true pirates. And sneer when they go under. This simply means, they close the local post office and the pirates change their PO address stickers.
Morgan Stanley and Goldman tumble on downgrade fears
Shares in Morgan Stanley and Goldman Sachs, the brokerages that recently turned themselves into bank holding companies, dived after the Moody’s ratings agency said that it might cut their credit ratings.Morgan Stanley’s shares tumbled by 41.45 per cent at one stage, before closing 22 per cent down at $9.68, and Goldman’s ended the day 12 per cent down at $88.80 as Moody’s said that the worsening financial crisis threatened to cut their profits, reduce investor confidence and send their stock down even further.
Doubts about whether Mitsubishi UFJ, the Japanese bank, would follow through on its planned $9 billion (£5.3 billion) capital injection in Morgan Stanley also hit the group’s shares. Even if Mitsubishi does complete the cash infusion, as both parties have insisted will happen next Tuesday, investors are nervous that $9 billion might not be enough to help Morgan Stanley ride out the crisis.
Egan Jones Ratings estimated that Morgan Stanley probably needs to raise as much as $60 billion to restore confidence among investors and customers.
Morgan Stanley won't be with us much longer. Once a business falls below $10 a share, if they don't shake this decline off, they fall rapidly into the fatal penny share range and die. The bears rip it apart. Losing 20% a day involves smaller and smaller sums but leads to sudden annihilation. A stock can lose 100% value in one day.
When people yap about how strong stocks are and how, over time, they pay well, I keep reminding them that this is because dead stocks that lose all principal and all investment value are KILLED. So statistically, things look a lot rosier than they actually are. Stocks don't decline in unison anymore than inflation rages equally. Instead, some go up and some go down. And the overall effect is noticed. But the annihilation of things is forgotten. Things that don't exist are ignored. Who talks about Enron except some of us economic fanatics?
World Bank Under Cyber Siege in 'Unprecedented Crisis'
The World Bank Group's computer network — one of the largest repositories of sensitive data about the economies of every nation — has been raided repeatedly by outsiders for more than a year, FOX News has learned.It is still not known how much information was stolen. But sources inside the bank confirm that servers in the institution's highly-restricted treasury unit were deeply penetrated with spy software last April. Invaders also had full access to the rest of the bank's network for nearly a month in June and July.
In total, at least six major intrusions — two of them using the same group of IP addresses originating from China — have been detected at the World Bank since the summer of 2007, with the most recent breach occurring just last month.
All I can say is, HAHAHA. China is huge. Has very smart people who are very well educated there. They are proud and growing strong. And they have all sorts of mischief makers just like in the West: young people who can hack. The hacker community is global. They are in a competition to see who can penetrate the deepest vaults, the tightest security.
Gold Price Manipulation- Bear Stearns Murdered at the Golden Gates
What folks need to realize is that a 12 billion injection [long or short] into the ‘relatively illiquid' medium-term gold futures complex [1 – 5 yrs.] – has much more market influence than 9 billion notional [or a like amount] in < than 1 yr. - as occurred in March 08. Cumulatively, the shorts added by J.P. Morgan over a very short period of time, like days or a couple of weeks, is utterly mind numbing – akin to having an elephant jumping through a key-hole. That the gold market was able to absorb this almost unthinkable, intentional, premeditated “criminal shellacking” at the hands of J.P. Morgan Chase is a testament to how enormous global investment demand really is for GOLD .That J.P. Morgan Chase – an institution with historic and deep links to the Federal Reserve – acted in a criminal fashion is beyond-a-shadow-of-a-doubt. They are and have unquestionably engaged in “ INSIDER TRADING ” and completely desecrated the COMMODITIES TRADING LAW BOOK.
Not surprisingly, the financial world is now waking-up to the fact that high-stakes games are being played in the “paper” [futures] gold arena. This is why the fraudulent futures prices of gold and silver have become bifurcated from the physical markets.
Gold is a commodity. It was part of the commodity bubble which is when money sought safe havens from inflation and since we want cheap lending, this meant flowing elsewhere. Bear Stearns played the commodity markets and was hammered. Tough titties. Anyone who thinks that gold markets are for gentlemen who want to only see it go up....HAHAHA. No! It is NOT. It is part of the same gambling casino as all commodities and even all stocks.
Much of gold trade value is in paper, not metal. Gold BUYERS who buy the metal all know there is a global shortage of physical gold. The price of real gold is outstripping the price of paper gold. And paper gold has the potential to be valued at a very small minimum. I have very old gold certificates that lost all value. They are reminders of reality. Anyone who wishes can waste time wondering why gold acts like oil futures or wheat futures but this is a waste of time.
Accept the fact that this is yet another commodity market and one can make money off of the vacillations and waves of buying/selling and perhaps even make a profit. But gold is not money. Nothing is money.
Except debt. And that is out of control. Totally out of control.
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