Be Prepared, The Worst Is Yet To Come
The large-scale government intervention in the economy is going to end badly. Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.
A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.
via Be Prepared for the Worst – Forbes.com.
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America Moving from Kingdom of Cash to Socialism – Pravda
I don’t know what amazes me more… This story or the fact that the story comes from Pravda. The last turning point similar to the current one happened approximately 400 years ago. The Western European society discovered a new hierarchy of values. Feudalism that valued service and chivalry was replaced with capitalism. Wealth became the measure of success, and everyone was to care about his own pocket only. The cult of money replaced all other values, including religious.
Capitalism turned everything upside down and made people more excited about stuffing their bank accounts than anything else. This system turned out to be extremely efficient in terms of production of goods, services, and comfort. America benefited from the system the most, and decided that the rest of the world has to adopt it as well. If some underdeveloped countries are unable to appreciate the benefits of capitalism, they should be forced to do it.
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The End of Money and the Future of Civilization
It’s too late for anyone to pretend that the U.S. government, whether under President Barack Obama or anyone else, can divert our nation from long-term economic decline. The U.S. is increasingly in a state of political, economic, and moral paralysis, caught as it were between the “rock” of protracted recession and the “hard place” of terminal government debt.
Even if the stock market can be shored up by more government borrowing for “stimulus” spending, it’s a temporary reprieve, because nothing can bring back the consumer purchasing power that was lost when the banks stopped pumping money into the economy through out-of-control mortgage lending. We simply no longer have the job base for people to earn the income they need to live.
The underlying cause of the crisis is in fact the debt-based monetary system, whereby the U.S. ruling class long ago sold out our nation and its people to the international banking cartel of which the Rockefeller and Morgan interests have been the chief representatives for over a century. It was lending on a previously unheard of scale for overpriced assets to people and businesses unable to repay that created the bubbles that burst in 2008, not only in the housing market but also in such areas as commercial real estate, equities, commodities, and derivatives. It was an explosion that reverberated throughout the world.
UN Calls For New Global Reserve Currency
The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the “privilege” of building a huge trade deficit.
“Important progress in managing imbalances can be made by reducing the reserve currency country?s ‘privilege’ to run external deficits in order to provide international liquidity,” UN undersecretary-general for economic and social affairs, Sha Zukang, said.
Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he said: “It is timely to emphasise that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity.”
The Demise of The Dollar
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs.
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Call For Global Currency Expected At G20 Conference
The embattled US dollar is expected to come under scrutiny at a summit of developing and industrialized nations following China-led calls to review its role as a reserve currency.
The dollar issue is bound to surface at the two-day meeting in Pittsburgh as US President Barack Obama and other leaders of the Group of 20 economies debate a new framework for tackling the so called global “economic imbalances” blamed for fuelling the latest financial crisis.
“Though not clear how the plan would be enforced, it would involve measures such as the US cutting its deficits and saving more, China reducing its reliance on exports and Europe making structural changes to boost business investment,” analysts at French bank Societe Generale said in a report.
Some argue that the financial crisis resulted from imbalances between savings and investment in major economies, which have led to large current deficits, as evident in the United States, and surpluses, as enjoyed by China.
US May Face Armageddon If China, Japan Don’t Buy Debt
The US is too dependent on Japan and China buying up the country’s debt and could face severe economic problems if that stops, Tiger Management founder and chairman Julian Robertson told CNBC.
“It’s almost Armageddon if the Japanese and Chinese don’t buy our debt,” Robertson said in an interview. “I don’t know where we could get the money. I think we’ve let ourselves get in a terrible situation and I think we ought to try and get out of it.”
Robertson said inflation is a big risk if foreign countries were to stop buying bonds.
“If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent,” he said. “It’s not a question of the economy. It’s a question of who will lend us the money if they don’t. Imagine us getting ourselves in a situation where we’re totally dependent on those two countries. It’s crazy.”
U.S. Pushes For New Economic World Order at G20
The United States will urge world leaders this week to launch a new push in November to rebalance the world economy, but there are doubts national governments will bow to external advice.
A document outlining the U.S. position ahead of the September 24-25 Group of 20 summit in Pittsburgh said exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings.
“The world will face anemic growth if adjustments in one part of the global economy are not matched by offsetting adjustments in other parts,” said the document, which was obtained by Reuters on Monday.
The framework drafted by U.S. policy makers foresaw analysis of G20 members’ economic policies by the International Monetary Fund to figure out if they were consistent with better balanced growth.
“We call on our finance ministers to launch the new framework by November,” the document said, signaling a determined effort to maintain momentum for change created by last year’s global financial crisis.
Economic Crisis Makes Europe Richest Region In the World – Report
Europe has emerged as the richest region in the world, pushing North America, where wealth has declined by more than 20 percent due to the economic crisis, off the top spot, a study has shown.
The world’s richest also feel the recession biting, especially in North America, where the financial crisis first unfolded a year ago, reveals a survey on global wealth carried out by the Boston Consulting Group, a global management consulting firm.
North America’s wealth, measured in assets under management, plummeted by 21.8 percent, the steepest decline in the world. A lesser fall was registered in Europe, where assets shrunk by 5.8 percent compared to last year, down to €22.2 trillion – a quarter of the globe’s total wealth.
Expert Says Banking Problems Are Now Bigger Than Pre-Lehman
Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview today in Paris. “The problems are worse than they were in 2007 before the crisis.”Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.
via Stiglitz Says Banking Problems Are Now Bigger Than Pre-Lehman – Bloomberg.com.
China Alarmed by US Money Printing
Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.
“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.
“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.
China’s reserves are more than – $2 trillion, the world’s largest.
“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.
FDIC Could Use A Financial Lifeline of It’s Own
The government agency that guarantees you won’t lose your money in a bank failure may need a lifeline of its own. The Federal Deposit Insurance Corp. coffers have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could go red by the end of this year.
That has happened only once before — during the savings-and-loan crisis of the early 1990s, when the FDIC was forced to borrow $15 billion from the Treasury and repay it later with interest.
The agency reveals today how much is left in its reserves. FDIC Chairman Sheila Bair may also use the quarterly briefing to say how the agency plans to shore up its accounts.
Small and midsize banks across the country have been hurt by rising loan defaults in the recession. When they fail, the FDIC is responsible for making sure depositors don’t lose a cent.
It has two options to replenish its insurance fund in the short run: It can charge banks higher fees or it can take the more radical step of borrowing from the U.S. Treasury.
None of this means bank customers have anything to worry about. The FDIC is fully backed by the government, which means depositors’ accounts are guaranteed up to $250,000 per account. And it still has billions in loss reserves apart from the insurance fund.
Bair today will also update the number of banks on the FDIC’s list of troubled institutions. That number shot up to 305 in the first quarter — the highest since 1994 and up from 252 late last year.
Because of the surging bank failures, the FDIC’s board voted Wednesday to make it easier for private investors to buy failed financial institutions.
Private equity funds have been criticized for taking too many risks and paying managers too much. But these days fewer healthy banks are willing to buy ailing banks, and the depth of the banking crisis appears to have softened the FDIC’s resistance to private buyers.
1,000 Banks to Fail In Next Two Years
The US banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May. “We’ve already lost 81 this year,” Kanas told CNBC. “The numbers are climbing every day. Many of these institutions nobody’s ever heard of. They’re smaller companies.” (See the accompanying video for the complete interview.)
Failed banks tend to be smaller and private, which exacerbates the problem for small business borrowers, said Kanas, who became CEO of BankUnited when his firm bought the bank and is the former chairman and CEO of North Fork bank.
“Government money has propped up the very large institutions as a result of the stimulus package,” he said. “There’s really very little lifeline available for the small institutions that are suffering.”
Dollar to Fall as It Loses Reserve Status
Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar will probably fall as it loses its status as a reserve currency. The dollar will especially drop against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. Investors should consider cutting their holdings of the U.S. currency, he said.
“While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Mewbourne wrote.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, fell about 3 percent this year.
Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE.
via Pimco Says Dollar to Fall as It Loses Reserve Status (Update1) – Bloomberg.com.
