October 29, 2008
Elaine Meinel Supkis
World stock markets are shooting up like a rocket based on the perception that the G7 central bankers and politicians will restart the destructive status quo that involves the US allowing the flood of exports to enter our country and devastate our industrial base. Great news, eh? All this will be fed by an orgy of 0% financing. Sounds like all those auto commercials. As we watch the entire concept of banking go into this moral collapse, it pays to look closely at the deals we are accepting here. Just like those auto loans at a fake 0% interest rate: read the fine print and see the truth.
The LIBOR rate is finally falling. Or so hope our foolish experts. If only they can get this low enough, all will be well! I recall, during the previous 20 years, everyone who pretends to be economic experts marveled at how cheap credit was and how low inflation was, that is, after the 1971-1982 waves of increasingly bad hyperinflation.
The comparable euro rate fell 2 basis points to 4.83 percent today, the 15th consecutive decline, BBA data showed.
I lived through this entire span of time as a working mother who had to cope with these waves of inflation as well as swimming in the real estate shark pool a lot of the time. So I always was hyper-aware of the interest rate fluxes. Also, we did business overseas so we were aware of currency valuation fluxes, too. Since this is personal and not something I read in a book, I have vivid memories of my problems during this time and how I coped with these sometimes, huge problems.
From 1971 onwards, as the US government and the private banking conspirators in the Federal Reserve struggled to keep the economy growing while piling up huge debts thanks to wars, the goal was always to have credit as cheap as humanly possible. The business about 'taking away the punchbowl when the party gets interesting' was just pure propaganda.
At no point has this ever happened. In the past, the Fed raised interest rates whenever anyone overseas came to knocking at the front gates of Fort Knox, demanding their new-minted dollars which often were created overseas via lending, be turned into physical gold. For example, when the Fed dropped interest rates to restart the US economy after the Great Crash of 1929, France merrily made loans in France based on their DEBT trade with the US and then they raided Fort Knox for gold! Even as the government was demanding the US bankroll Germany's reparations by lending to Germany so Germany could give these dollars to the US and then France would take these same dollars and trot back to the US to demand gold!
Now, we don't care about any of this since Europe tried this yet again in the 1960's and drained away 75% of the gold at Fort Knox. Now, we simply have no gold peg. Nations now live with this floating currency game which is making many people very rich and even more people, very poor.
The LIBOR rates are now dropping but are still hundreds of basis points above the fake rates set by the central bankers. The news that the LIBOR has dropped has to be offset with the news that the LIBOR drop hasn't even begun to catch up with the rate of artificial drops being engineered by the punch bowl boys in the central banks.
(Bloomberg) -- The Federal Reserve may lower its benchmark interest rate to 1 percent today and signal further reductions to levels unseen since Dwight Eisenhower was president.
Tumbling commodities prices and weaker consumer spending are slowing inflation, which officials described as a ``significant concern'' at their last scheduled meeting in September. Tomorrow, the Commerce Department will probably report that the economy shrank at a 0.5 percent annual rate in the third quarter, the most since the 2001 recession, economists predict.
The Fed ``will be very aggressive,'' said Mark Gertler, a New York University economist and research co-author with Fed Chairman Ben S. Bernanke. ``Inflation risks are off the table'' and ``the issue now is how bad the recession will be.''
World stock markets shot through the roof on wishful thinking that the US public will have access to 0% financing and thus, be able to buy, buy, buy more stuff. I shall disabuse everyone of this notion. It isn't going to happen.
But first, I have to address a philosophical issue today: the central bankers are destroying banking in their looney game of trying to control economies via interest rates! The role of bankers is rather simple: they have to balance the creation of credit with reserves and savings! They don't sit down and say, 'Should we make the economy hotter?' They shouldn't decide, unilaterally, 'We should cool the economy, it is growing too fast.'
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers. The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Major high-street retailers are targeting poor families with bad credit records to prop up their Christmas sales during the credit crisis.
Dozens of high street stores are taking part in a doorstep lending scheme which charges poor families extreme rates of interest. Woolworths, Comet, B&Q and Mothercare and 92 other retailers have been accepting vouchers that are repaid by borrowers at an annual percentage rate of 222 per cent – more than 10 times the rate of a credit card.
Nearly exactly a year ago, I wrote about oil, inflation, interest rates and international central bankers messing around with global trade. The entire article including the data I published is one of my more important stories. The entire efforts of the trade circle of the EU/US/UK and Japan, the G7 group, was aimed at stopping the banking collapse by pouring into the gaping maw, not savings but money created by the central bankers. I was totally against this. I correctly said, the important thing here is to reorganize global trade so it is balanced.
One of our readers sent this link. I was curious about it since it involves tidbits of data. Like a cat's paw marks on wet cement...ever pour cement? At night, all the animals come to walk on it. When I poured the cement floor to my basement, the dogs, cats, a deer and one horse hoof print appeared at night on it. I didn't fill them in, they amuse me. Anyway, in the banking system, things have to run 24/7 so the Federal Reserve is always open for special solicitations for funds. Generally speaking, banks prefer to make deals with each other and not share 'business' but when business involves working with stinky things like trashy tranches, the Fed is the bank of last resort.
The other time of mega-high rates was in 1980 due to the Iran oil boycott and hyperinflation at home. Unlike Greenspan, Volker raised rates to equal the real inflation rate. I genuinely believe that virtually no one remembers this time period. I remember because I had to do business via barter back then due to high rates. Certainly, I couldn't call a banker. And that was also when banks gave me trouble with money I deposited. They held onto it for as long as possible while I wanted it as fast as possible. Check clearing took forever.
Remembering all this, we look at that 15% deal in mid-October with a sens of foreboding. When there was this sudden hike in the overnight funds meaning that someone came slinking up to the Fed window with a bag of cow droppings, they couldn't get anyone to give them lending loot except at a very high rate indeed. Namely, someone thinks these guys who are probably attached to some pirate ship out at sea, are not long for this world. Too bad we can't tell who this person is. As I keep saying, despite the claims that we have an open system, it is very much 'insider trading' all the time. We get to know enough to think we know what is going on. But this is an illusion. Here it is: we are in trouble due to wild lending at super-low rates leading to the bidding up of various assets and things of every imaginable sort from the futures markets to stock markets, housing markets, etc. The entire problem came about due entirely to the Federal Reserve dropping interest rates lower and lower back in 2001 starting from January 6th of that year. Previous to the election, they tightened the screws, claiming there was inflation even though we were obviously in a recession. Looking at all the data 7 years later, one notices immediately that all the nations of the world went into recession starting in late 1999 and through all of 2000, a time when the Fed raised rates over and over again.
The minute Bush was declared the 'winner' of an election he lost, Greenspan began to loosen rates...right in the teeth of Bush and the GOP irresponibly granting many huge tax cuts to everyone! Then we had 9/11 and rates dropped from a super-low of 3% to a super-duper, mega-low rate of 1%. Right in the teeth of obvious energy inflation. Energy is always a driver of inflation. It doesn't matter what the interest rates are, if energy is rising, inflation rages. This is because energy is a powerful component of all economic systems. From manufacturing to transport, energy is consumed. And as it rises, either wages are cut or profits vanish or both which causes either inflation if both can be passed on or a depression if neither can be passed on and trade and manufacturing slow down.
One of the readers here sent me a link to iTulip.com where one of the members mentioned that the oil crisis of the stagnation years from 1972-1984 was 'fake'. This is typical of many people who were probably too young to remember what happened during those years or were too politically unaware of what was going on back then. My own father was sent to Saudi Arabia in 1974 to be a friendly envoy to persuade King Faisal to cooperate with the US and bring down oil prices.
From Bloomberg: Crude oil climbed above $93 a barrel for the first time, extending this month's gain to 16 percent, after Mexico shut a fifth of its production and the dollar fell to a record low.
State-owned Petroleos Mexicanos, the third-largest supplier of crude to the U.S., halted about 600,000 barrels a day of output as a storm barreled through the Gulf of Mexico, spokesman Carlos Ramirez said in Mexico City. The dollar dropped to $1.4426 per euro, the weakest since the introduction of the 13- nation common currency in 1999. End Bloomberg quote. There is now a lot of proof that dollars no longer are the basis for oil trading. Namely, every time oil is constricted in some way, the price shoots up more if paid in dollars than paid in euros. So inflation for anyone using or holding dollars is significantly higher than if they use euros. This dynamic is fairly recent. Ever since Greenspan dropped interest rates to 1%. The aftershocks of this stupid ploy to 'revive' the economy after the Dot Com collapse are still shaking world energy markets. The US itself is aggravating all this by dropping interest rates in the teeth of obvious inflation above 5% and threatening more wars in oil pumping regions.
Why are oil prices dropping this season? It is equally simple: the US and EU have ceased attacking Iran. The threat of war is rapidly fading there. The US is confining its attacks to Pakistan and Syria, non-oil nations. It is leaving the Persian pussy alone. The guys at the top know perfectly well, if they make oil expensive right now, the global economy will continue to collapse. So they are tweaking foreign policy statements and actions to create the illusion of peace.
China's markets are continuing to rise. Of course, they too will fall in the end as a global recession caused by the US overspending and excessive debts and too-small reserves will grip everyone by the throat. Only we won't sail out of this with our empire intact and our power greater. China's retraction will be painful but ours will be fatal. This is due to the logic of all imperial collapses. Just as England, no matter how she twisted and turned, could not shake the depression she caused, so it is with us. Both Germany and the US grew stronger from 1933-1939 while England weakened. When WWII finally began, it really was a confrontation of the new Great Powers: Germany, Japan, the US and Russia. England struggled in vain to hold onto its rotting empire. If the US didn't fight Japan, the Japanese would have finished off the last of the imperial holdings of Australia and India, for example. But the US propped up Britain across the planet and in the end, did most of the manufacturing of war materials.
So now, in this collapse, China will be the world power when all this unwinds. It is quite simple: China isn't up to its eyeballs in debts. And if the US discharges its debts like Russia did twice in the 20th Century, this will destroy us just like it destroyed Russia. And unlike Russia, the comeback won't be easy. Russia has energy to spare. We are on the down slope of the Hubbert Oil Peak and are very vulnerable since our entire transportation and living systems are set to a model that assumes cheap, easy oil.
All over the news are stories about how the G7 are rushing to the Dragon Throne to beg China to bail out everyone. When China's ruler, Hu, went to Africa and openly bailed out IMF victims there, the US and Europe's media and punditry went totally insane with fury and fear. They claimed that China wasn't rescuing Africa but enslaving Africa. HAHAHA. So look at today's news:
Prime Minister Gordon Brown of Britain called Tuesday for China and the Persian Gulf states to put up more money to help the International Monetary Fund deal with the fallout of the credit crisis.
Mr. Brown’s appeal grabbed the spotlight ahead of a meeting on Tuesday with President Nicolas Sarkozy of France, who called the proposal interesting and vowed to work “hand in hand” with the British leader — just as they had on a coordinated rescue plan for European banks. Mr. Sarkozy said he also believed that the fund needed “additional means” to help ailing economies.
Sarkozy thinks he will get his mitts on Chinese money and then use it to aggrandize French powers? HAHAHA. Mon Dieu! So, China and OPEC are going to bail out Europe? And these guys in France and Britain will back slap each other and imagine, these two devastators of the Chinese and Ottoman empires will be given more power? Are they this blind to history?
Unable to face reality, we play all sorts of occult and dark games hoping this will allow us to rule the earth without paying for anything, we hope the Chinese and Russians will fund our rule! The corporations which our government protects are nearly all now tax cheats for they want 0% taxes compared to the 35% they are charged with here. Since they are refusing to pay to the tune of nearly a trillion a year, this means our empire is running on lots of red ink instead. The conservative side of the blogsphere is running this futile campaign to present our rulers with a petition begging for them to be fiscally responsible. But this petition does not call for higher taxes, sending our navy to all those tax havens and taking them over and taxing all the corporations hiding there, no.
OK: they set their rates and then try to get reality to conform with their happy ideal. They use various means to do this trick. I will note here that the Fed stupidly...VERY, FATALLY STUPIDLY...thinks the game here is to hold as little reserves as possible. NO OTHER MAJOR NATION DOES IT THIS WAY. None. They are all accumulating heroic reserves, far greater than the Federal Reserve. Many times greater! This is the new game.
The Fed, accustomed to setting the rules of international finance for 100 years hasn't figured out that this game ended in 1996 when Japan discovered the felicitous new tool for weakening the yen and thus, gaining trade advantage by hoarding dollars in their FOREX reserves. Then China joined them and one-upped them. Now Russia is doing this along with all the oil pumping nations including Venezuela and Peru, for example. Everyone is doing this! Now, India has joined. Meanwhile, the pointy pencils in the Fed haven't figured this out. Instead, they decided that huge FOREX reserves are not only useless but endanger the holders of these FOREX reserves!
They forget: these reserves have ONE FUCTION: to enable trade on better terms for the holders. Not to make profits via interest rates. Due to the games played by everyone, inflation is woefully understated. No, their only function is to gain profits via trade. Now, Canada must play this same game, they didn't hoard FOREX dollars and now the loonie is on par with the dollar and it is hurting Canada's trade with the US.
So....last year, I correctly explained the thinking and predicted correctly, future actions. Just as I said then, the EU and US powers are rushing off to Asia and even Russia, begging them to save us from our own debt follies. I fear, I sound like a broken record sometimes. I am truly sorry about this. But facts are facts: until the US recognizes the truth, I have to keep yapping. This is so tiresome. Now, back to today's news:
(Bloomberg) -- The dollar fell for a second day against the euro on bets the Federal Reserve will lower interest rates by as much as three quarters of a percentage point today.
The U.S. currency also declined against the yen and the British pound on speculation the central bank will continue lowering borrowing costs as rising unemployment and sliding home values cause the world's largest economy to contract. The yen rebounded from a record loss against the euro on concern slowing global economic growth will limit demand for higher-yielding currencies.
``When the dust settles, the dollar's fundamentals will pressure it to go lower,'' said Masahiro Sato, joint general manager of the treasury division in Tokyo at Mizuho Trust & Banking Co., a unit of Japan's second-largest publicly listed lender. ``Traders will focus more on falling rates and the rising costs of fixing the U.S. economy.''
The dollar weakened to $1.2730 per euro at 11:29 a.m. in Tokyo from $1.2683 late yesterday in New York. It fell to 97.50 yen from 98.03. The yen rose to 124.11 per euro from 124.32, after a 6.8 percent drop yesterday. The dollar may drop to 90 yen by year-end, Sato said.
Ah, the goddess Libra is still at work. She is trying to reset her scales. Everyone is resisting this. She will, in the bitter end, win. She is a death goddess, after all. Japan is terrifically worried that the yen will be 90 to the dollar. This will kill a lot of their export profits. The ability to drop interest rates is nearly gone in Japan. The central bankers, playing traders, not bankers, has kept rates insanely low, even in the teeth of obvious inflation in Japan, so that exports would flourish no matter what. This was very wrong and Japan should have been punished by trade partners.
(Bloomberg) -- Speculation the Bank of Japan will cut interest rates for the first time in seven years jumped after the Nikkei newspaper reported that the central bank may halve its target rate this week.
The chance that the central bank will lower the benchmark lending rate to 0.25 percent from 0.5 percent on Oct. 31 rose to 62 percent from 8 percent yesterday, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.
Japan's stocks surged a second day as speculation for a rate cut spurred the steepest drop in the yen in three decades, boosting earnings prospects for makers of cars and electronics.
Miz Japan slits her yen's wrists! And the yen weakens! But the Japanese are furious that all its trade victims are doing the same, rapidly dropping to Japanese banking levels. When everyone reaches 0% financing, Japan will opt for -1% financing. And the death of international banking will continue!
Economic and Fiscal Policy Minister Kaoru Yosano said yesterday that a rate cut would have a ``symbolic'' effect if done in conjunction with other central banks, showing that Japan is taking part in global efforts to counter the financial crisis.
Yosano's comment ``suggested he hopes the Bank of Japan will lower rates to join its counterparts in the U.S. and Europe,'' said Ueno at Mizuho Securities. ``The government is signaling it wants the central bank to take action too.''
Prime Minister Taro Aso and Finance Minister Nakagawa were circumspect in their comments today on what the Bank of Japan should do.
``How can we tell the BOJ to lower rates? It's a matter for the BOJ, not us,'' Aso told reporters in Tokyo. Nakagawa said deciding whether to lower interest rates is ``up to the Bank of Japan, which is completely independent.''
HAHAHA. Aso is lying through his teeth, of course. The Bank of Japan is joined to the LDP by the hip. The Japanese people accept this deal. They have little experience in opposition politics so the country has basically been ruled by the samurai elites for hundreds of years and still is a closed, one party state.
(Bloomberg) -- Honda Motor Co., Japan's second- largest carmaker, jumped the most in 34 years, leading gains by automakers after the yen declined against the dollar and euro, boosting earnings from exports.
Honda rose as much as 19 percent, or 400 yen, its daily trading limit to 2,465 yen and traded at 2,365 yen as of 9:55 a.m. in Tokyo. Mazda Motor Corp., a third owned by Ford Motor Co., rose as much as 30 yen, or 17 percent, to 206 yen, and traded at 196 yen.
The yen was at 125.17 per euro from 124.32 after dropping 7.3 percent yesterday, its biggest decrease since the 15-nation euro's 1999 debut. A weaker yen inflates the value repatriated earnings from Europe and the U.S.
``The yen weakening helps the carmakers,'' said Hideyuki Suzuki, a market analyst at Morningstar Japan K.K. in Tokyo. ``The market is rebounding from its earlier losses.''
I read in the British news that the former imperialist power is terrified that Honda might lay off English auto factory wage slaves! HAHAHA. The US is in the same fix: bit by bit, we are destroying our own industrial base and it is being sold or rebuilt by Asian powers. Honda desperately wants 0% financing. From JAPAN, not the US. Years ago, people got mad at me when I patiently explained that there was no such thing as '0% financing' for autos. This is ridiculously simple: if you pay cash for a car, the price dropped by around $2,000. If you got a 0% loan, you paid $2,000 more for the car! The differential was the interest payments that were set at about 7% per annum. Yet this game fools lots of people. What a shock that is. Heh.
(Bloomberg) -- China cut interest rates for the third time in two months to stimulate growth in the world's fourth-largest economy after the global financial crisis curbed exports and production.
The key one-year lending rate will drop to 6.66 percent from 6.93 percent, the People's Bank of China said on its Web site today. The deposit rate will fall to 3.60 percent from 3.87 percent. The changes are effective tomorrow.
China's expansion dwindled to 9 percent in the third quarter from 11.9 percent in 2007 and industrial production grew at the slowest pace in six years in September as export markets dried up. The Federal Reserve may reduce its benchmark rate today and the European Central Bank has signaled that it's poised for a similar move.
China's 10%+ growth rate is tremendous. And of course, destabilizes global trade, commodity markets and monetary systems. As China swells and grows rapidly, someone else can't. And that someone else is the G7. Including Japan. Japan's colonization of the US and Europe is a desperate move to save themselves from Chinese growth. The Japanese workers get 0% benefits from all this. Quite the opposite. The Chinese workers depress Japanese worker's wages just as certainly as it depresses American worker's wages.
(Bloomberg) -- The U.S. government should enact an economic stimulus package of between $400 billion and $500 billion before the end of the Bush administration in January, New York University professor Nouriel Roubini said.
Roubini, who predicted the current financial crisis in 2006, said the economy risks falling into “a self-fulfilling animal spirit recession that is more severe than otherwise” because of the collapse of credit markets and weak consumer and corporate spending.
“The only way to increase aggregate demand is going to be through” government spending on roads, bridges and other infrastructure, Roubini said at a Bloomberg conference in New York. “We need a huge plan, $300 billion is not going to be enough. I think we’re going to need a plan of $400 billion to $500 billion.”
We saw a huge banking collapse last August. It is continuing. Anyone reading the timeline of the Great Depression knows that the collapse of the banking system took over 4 years to complete and the recovery took 15 years before things began to seriously improve. All the gurantors of the system are now in danger because the entire system is in danger and NOT in nations with huge FOREX reserves. I like to put in a lot of seemingly disparate stories to see what comes into focus and today, it is obviously the hidden hand of the FOREX reserves we must look at to see what will happen next.
My prediction: the US will still refuse to understand how FOREX reseserves operate in the New World Order they, themselves, foolishly created. So, unlike China, the biggest reserves holder, we will continue with our super-low reserves regime and thus, will collapse into infamy and destruction. And killing the dollar won't make us richer if the Chinese have all the export manufacturing bases anyway. It just means we get raging inflation at home. Which the Fed will deal with by lowering our reserves even more! We will continue to follow the wrong magic formula while the Chinese follow a totally different formula and the Japanese will lie to us about their magic formula (the carry trade machine).