November 5, 2007
Elaine Meinel Supkis
The world is in chaos as everyone tries to deal with the obvious: the banking system of the free-spending, debt-accumlating G7 nations is now collapsing and this is due to the direction money is now flowing: to China and the oil nations. The lies about inflation are now biting very hard. Pretending there is no inflation is no longer working so hot. And winter is coming and people in the North are wondering how they can pay for all this.
Citigroup Inc., the profit engine built by Sanford ``Sandy'' Weill, has seized up.
The biggest U.S. bank by assets said yesterday that subprime mortgages and related securities lost as much as $11 billion of their value in the past month, a decline that may wipe out half of the company's profit so far this year. The New York-based company also said in a statement that Charles O. ``Chuck'' Prince III, Weill's hand-picked successor, stepped down. Former Treasury Secretary Robert Rubin will become chairman, and Citigroup's most senior executive in Europe, Win Bischoff, will be interim CEO.
Starting in 2000 with the super-duper cheap Fed Reserve loans via Greenspan, the big financial houses like Goldman Sachs and Merrill Lynch and Citigroup all rushed into the Alt-A, etc mortgage/CDO markets. This chart clearly shows they put all their eggs into these mortgage baskets and they enjoyed record profits during this time span. This isn't a situation where a leader made a 'mistake'. This is a classic case of someone at the Central Bank opening the vault and letting looters inside. Now the vault is empty and all the former geniuses who were toasted as great financial wizards are stuck there with money stuffed in their pockets but no exit.
So the ritual slaughter of these bulls commences. We will see all the heads of all the great financial houses roll. But the next step must be to arrest them for fraud and other crimes and put them in prison. But if we step even further back to look a the global financial picture, we see clearly who should be arrested: the heads of the governments doing all this, the heads of the international banks, the very people at the very apex of this massive pyramid scheme that was set up to loot the world by imposing an amazing amount of unpayable debts on top of the economic system.
These wizards running the giant investment/banking consortiums earned their profits by collecting lots and lots of goodies while processing paperwork based on loans at higher interest rates than the rates offered in Japan. The news will talk about the surface of things but all these things increasingly hinged on one thing above all others: the Japanese super-long-at-super-low interest rates, the lowest ever seen in banking history. If a banking system offers insanely low interest loans that are tremendously below the real rate of global inflation we will see an increase in global inflation. This regime set up by Japan due to the popping of their real estate and spending bubble which was launched by the yen suddenly rising agains the dollar after the Plaza Accords, it at the root of the boom in global financing.
Up until the mid-1990's, global traders had to content themselves with running off to tax havens to make a huge profit. They agitated for tax cuts all over the place because they couldn't get rich in other ways that were equally lazy. Two things happened that fuelled this present global expansion: China turned relentlessly capitalist and mondernized their industrial system and Japan launched a novel banking system that has never existed before and usually collapses if anyone were so stupid as to create such a system.
The near-zero interest rates are quite amazing to me and I stuns me that no other G7 nation dares talk about this with Japan. Indeed, the entire global banking system has been fatally reset to this new system and utterly depends on this system, this is how money has been appearing magically at a madcap rate.
The Chinese sopped up a lot of this excess money. We shall see in the news below how this works and how dangerous it is. Meanwhile, the US financiers are no longer seeing this flood of cheap-loan Japanese money flowing towards them, it is obvious to me and anyone that this money is flowing like crazy to the oil pumping nations and China.
This is a graph I made last winter based on raw data I got from the Federal Reserve. I was frankly shocked when I saw the US had dropped the overnight loans to banks to virtual zero in the same time frame that the Mexican and then Asian Currency Crisis happened. 1997 was a significant year for us. If we look backwards in time, nearly always, the current INCOME from the Federal Reserve tracks closely the INTEREST on bank notes. This one event is like an earthquake deep below that signals a greater earthquake in the future.
Note also that from 1980 to 2007, the income on Fed notes has risen from $12,000,000,000 to over $40,000,000,000. A climb of nearly $30 billion in 27 years. This is a strong upwards trajectory that reflects a lot of inflation that has been pretty steady unlike the actual inflation figures put out by the US government of Japan, for that matter, over the years.
Year*USA CD Rate*Bank of Japan's Rates
1970.....7-8%......5-6% (Note that they are high but close)
1997.....5%.........0% (Note: The Asian Banking Crisis began)
1999.....4-6%......0% (Asian Banking Crisis Ends)
2001.....5-1%......0% (Note: 9/11)
For the first 8 years, the US and Japanese rates were similar. Then the US decided to save our economy that was in trouble due to losing the Vietnam war by devaluing the dollar all the way while printing money like mad. This created hyperinflation in the world's premier currency. This destabilized the entire planet. To fix the inflation our government caused by foolish imperial ventures and wild domestic spending to keep everyone happy while losing wars, the Federal Reserve had to raise Certificate of Deposit rates very high to get people at home and across the planet to put money in our banks here in America.
Note how from 1978-1984, the US has this huge bout of inflation that the Federal Reserve finally fixed via high interest rates. Japan had relatively lower rates during this time and this gave Japanese industrialists a big trade advantage. They used to track our own numbers but after that, there was this gleam in their eyes as they decided this was El Dorado for themselves. During the Japanese Bubble, rates were 'high' at 5% but as the bubble popped, Japan's central bank went into super-aggressive rate dropping that is ongoing to this very day.
Fearing a stock market crash worse than 1929, Charles Merrill (http://www.merrillcharles.com) of Palm Springs, cousin to the founder of the Merrill/Lynch dynasty, is quickly converting to gold coins.
"Merrill Lynch is crashing, due to the ineptness of the CEO. No matter who is running Merrill Lynch & Co., it's going to need a regimen of restraint and recuperation after getting badly bruised by the global credit market shakeout. I predict a house of dominos, and the whole stock market is going to crash," stated Merrill.
The family of Merrill no longer runs the place. It is amusing that this member of the ruling elites is openly advocating buying gold and parking it under the bed! The members of the old ruling elites have a long family memory and of course, this won't be the first crash they have seen. All crashes depend on people with no memory of the past making the exact same mistakes that created previous bubbles/crashes. This is why we have history books, etc. So people don't forget things. But of course, people then either ignore this or misread it deliberately. This is why, at the top of the latest bubble, they cheerfully announced that we were in a new system that would never, ever crash, all was brand new, there is no bubble but a brave new world of eternal wealth flowing from magic sources that seems to never fail!
But they always fail. Especially if the new order is based on some people lying about things. The Bank of Japan lies about inflation. The NYT ran an article this week about the astonishing news that many of the criminals in Japan going to prison are the elderly who are now openly stealing in a desperate attempt to stay alive. This is due to the neo-fascist system set up by the LDP of Japan to crush savings ruthlessly by making in totally worthless to save and to also lie about inflation so as the price of all essential things rise, the elderly fall further and further behind.
Indeed, the global liquidity flood has been entirely based on Japan lying about inflation while killing the Japanese people slowly. Like in all depressions, Japan's birth rate has collapsed. There are too many elderly so they are being starved out. The profits of the export companies are soaring while the lives of the Japanese are degrading. This miserable system maintains the .5% interest carry trade loan system. The wizards at the collapsing banking houses in America made their profits off of all this.
Analysts Foresee 2.463% Yield On 1st-Ever 40-Year JGBs
TOKYO (Nikkei)--The yield on 40-year Japanese government bonds will likely range from 2.43% to 2.50%, or 0.05-0.12 percentage point lower than that on 30-year JGBs, according to forecasts by five bond market specialists surveyed by The Nikkei Financial Daily.
Ozawa Declines To Respond Immediately To Request To Stay As DPJ Head
TOKYO (Kyodo)--Democratic Party of Japan leader Ichiro Ozawa, who expressed his intention Sunday to resign from his post, declined Monday to respond immediately to a request by DPJ Secretary General Yukio Hatoyama to remain as head of the main opposition party.
BOJ's Fukui Warns Of Negative Side Effects From Easy-Money Policy
OSAKA (Kyodo)-- Bank of Japan Governor Toshihiko Fukui on Monday warned of adverse effects from keeping the bank's key short-term interest rate low, saying that maintaining accommodative monetary conditions too long could invite ''larger economic swings.''
Stocks: Nikkei Falls To 7-Week Low Amid Worries Of Political Tumult
TOKYO (Kyodo)--Tokyo stocks fell sharply Monday as political uncertainty stemming from an offer by Japan's top opposition party chief to step down put a cloud over investor sentiment, sending the benchmark Nikkei to its lowest close in seven weeks.
Note how the Bank of Japan won't raise rates and the government allows this and enables this by the simple mechanism of crushing the Japanese consumer under heavy sales taxes and other burdens. Meanwhile, as this wretched monetary machine rolls onwards, they worry about economic swings? Well! They are the ones doing this to the world! And note how the feeble Japanese experiment in democracy is collapsing just like in Pakistan or the USA due to lack of any sensible opposition party. This is, like here, due to political corruption from within as money is used to buy off politicians or the mega-financial houses and corporations control the government more and more and use it for their own ends.
The world's trade and financial systems are definitely breaking down, we have watched this all year long as all the birds come home to roost. Today, it is as if they are all giving up hope. For the yen isn't dropping anymore against the dollar. As it rises, the carry trade is ground to bits for all the advantages of cheap Japanese loans vanish if the dollar gets weaker against the yen.
As I have explained since February, China has been raising the value of the yuan but for a while, Japan was given permission by the other G7 nations to drop the value of the yen vis a vis the dollar even more even when the dollar was dropping against the euro and yuan. The Chinese protested this quite loudly. They stopped talking about this after issuing a series of threats last July and now we are seeing the yen rise in value as the yuan rises and this is due 100% to the Chinese forcing it up, Japan has no interest at all in a strong yen.
So here we are: all the systems set up by our trade partners are now falling apart and 'liquidity' is vanishing from Japan and the USA. Let's look at more headlines to see where this money is going and the disruptions this is causing globally:
China's Securities Regulatory Commission (CSRC) issued a notice on Sunday, urging fund companies to avoid blind expansion and forbidding them to mislead consumers in marketing or engage in speculative investment.
This second notice tailor-made to fund companies this year required domestic funds to strengthen risks controls in liquidity management and to bear in mind the concept of value investment.
All I can say is this: HAHAHA. Sigh. For the last year, the Chinese communists have been imposing controls on their system even as Japan and the US try to evade controls. The out of control West and Japan are creating huge problems, aren't they? But we blame China for our problems when the affliction of the Chinese is, they are hard working and dynamic! We use them, we take their labor and turn it into inflation via our lies about inflation and our need to ring up huge debts so we can buy Chinese labor-intensive goods!
Qatar dropped its 10.5 billion-pound ($21.9 billion) bid for J Sainsbury Plc after ``deterioration'' in the credit markets and demands by the U.K. supermarket chain's pension fund made the deal too expensive.
The oil pumping nations are changing gears. We can see them complaining at home about all this. The main owners of Citibank are oil producers in the Middle East. They are beginning to redirect their money flow to places we don't want them to go. For example, they continue to buy up Western bourses. But the buy-ups of corporations will vanish since they see little profits there now.
PetroChina Co. almost tripled on its first day of trading in Shanghai, becoming the world's first company to be valued at $1 trillion, larger than the entire Russian stock market.*snip*
The rally makes PetroChina shares four times more expensive than those of Exxon, even though China's biggest oil producer has a quarter of the revenue. China's stock market was valued at less than $1.1 trillion before tripling this year and giving the communist nation five of the world's 10 biggest companies.
The oil producer's Shanghai listing pushes China's stock market beyond the U.K. as the world's third-largest. PetroChina trades at 55 times earnings, four times Exxon's ratio of 13 times earnings and near the 58 times for Google Inc., the world's most-used Internet search engine.
OK: a trillion dollars just magically attached itself to China! This is a huge flow of money, this is money that used to flow here but is now flowing to China. Japan recently boasted that they control world financial money flows and they were going to teach China a lesson by flooding China with money from their magic sub-1% interest rate money machine. Perhaps this is a sign of what they are talking about. So now China's stock market is the third biggest in the world? This is attracting a lot of money that is fleeing the sinking US ship! And China pays much better interest rates than Japan.
It is obvious that the economic swings the Bank of Japan is warning about are forming right next door to Japan itself. This has some interesting consequences, of course. If the wave crashes in China, what will happen to Japan which is dependent on foreign markets while strangling the domestic markets?
The Chinese State Council has officially approved a plan to expand the country's installed capacity of nuclear generating units by 23 million kilowatts from 2005 to 2020, according to the National Development and Reform Commission (NDRC).
Building the newly installed generating units with a combined capacity of 23 million kilowatts will cost total investment of 450 billion yuan (about 60 billion U.S. dollars).
China is investing in its own dynamic systems. It is building not in Mexico or India but in China, itself. It is growing stronger. As other economic systems hollow themselves out and opt out for currency and interest rate manipulations for wealth generation or piling on debts, China is actually using money to build systems that will produce wealth in the future, this is pure capitalism only it is very much state-directed. The US has an energy system that is pure chaos and which has some serious developing problems. The discussion about what to do has bogged down in the government which is run by Goldman Sachs and the oil and coal kings in the West and it has made no moves to prepare for the future.
Many Americans don't want to change, either. I notice that wind energy has been stalled by people who are used to power lines littering the landscape but can't bear the thought of some windmills appearing, too. Well, we can live with candles like the Palestinians!
China's first lunar probe, Chang'e-1, will reach the moon's orbit Monday morning and currently, it was traveling on the expected trajectory, scientists said Sunday.
China's quest to go to the moon is progressing quite nicely. The US is trying to fix the EU/US/Russian space station that seems to have virtually no purpose at all so far. The race to the moon is resuming and the US is behind everyone in this due to us wanting to rule the planet instead. But I use this news to show that the world is rushing ahead even as we try to make money by ringing up huge debts here on this planet.
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About eighteen months ago, one dirham bought 12.5 rupees. Since then, the dollar has weakened against the rupee, and therefore so has the dirham. Now the dirham is worth 10.7 rupees. "If it goes to eight rupees, we go [back] to India," Mr. Singh said.
But workers' frustrations are rising. Over the weekend, workers walked off the job and rioted at several sites in and around Dubai. A police spokesman declined to give specific numbers of workers involved, but said 4,000 workers were detained temporarily, and about two dozen face possible prosecution for alleged violence.