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.
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=a257d928-02ae-4a37-8912-778b146b56bf)
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.
Read Full Article
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.”
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.
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.
Russia, India Question Dollar Reliance Before Summit
Russia and India said the world economy is too reliant on the U.S. dollar and called for changes in how $6.5 trillion in currency reserves are managed, as Group of Eight leaders prepare to meet this week.
“The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said in an interview with Corriere della Sera, repeating his proposal for a new international reserve currency.
Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said in a July 3 interview that he is urging his nation to diversify its foreign holdings away from the dollar.
The challenge to the dollar, a linchpin of world finance and trade since 1945, underlines the shift in relative economic power toward emerging markets and away from the developed nations that spawned the global crisis.
China Calls To Replace Dollar With World Currency
China’s central bank has reiterated its call for a new reserve currency to replace the US dollar.
The report from the People’s Bank of China PBOC said a “super-sovereign” currency should take its place.
Central bank chief Zhou Xiaochuan has loudly led calls for the dollar to be replaced during the financial crisis.
The bank report called for more regulation of the countries that issue currencies that underpin the global financial system.
“An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis,” the Chinese central bank said.
The dollar fell after the report was released. The US currency dropped 1% against the euro to $1.4088, and declined 0.8% versus the British pound to $1.6848.
Russia – World Needs New Reserve Currency
Russian President Dmitry Medvedev said Tuesday the world needs new reserve currencies.
Medvedev told a regional summit that the creation of new reserve currencies in addition to the dollar is needed to stabilize global finances.
Medvedev has made the proposal before. It reflects both the Kremlin’s push for greater international clout and a concern shared by other countries that soaring U.S. budget deficits could spur inflation and weaken the dollar.
Airing it at a summit meeting underlined the challenge to U.S. clout.
Medvedev spoke at a summit of the Shanghai Cooperation Organization, which includes China and four Central Asian nations.
Later Tuesday he hosts a summit of the BRIC group of leading emerging economies — Brazil, Russia, India and China.
The Kremlin’s top economic adviser said Russia may put part of its currency reserves in bonds issued by Brazil, China and India.
Arkady Dvorkovich said Russia could make the move if the other three nations reciprocate. Brazil, Russia, India and China are the members of the BRIC group of leading emerging economies.
U.S. Inflation to Approach Zimbabwe Level
May 29, 2009 by admin
Filed under new world order
The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.
“There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.”
Day Of Reckoning Looms For The U.S. Dollar
The U.S. dollar’s day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks – debt and inflation – are brought under a harsher spotlight.
Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a “serious case of dollar damage” was underway.
“We long warned about the day of reckoning for the dollar emerging at the next economic recovery,” Mr. Laidi said in a note.
Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.
The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.
John Curran, the senior corporate dealer at Canadian Forex, said the U.S. dollar would likely fall further in the next week, with the Canadian dollar likely reaching about US88.35¢, at which point it could break higher to test the US92.35¢ level.
“The U.S. dollar is continuing to slide as investor appetite is gaining momentum,” Mr. Curran said. “People are getting comfortable about taking on a little more risk.”
Brazil and China Eye Plan To Axe The Dollar
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.
The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.
Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.
An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.
“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”
Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.
Where Are The $ Trillions Going?
Rep. Alan Grayson asks the Federal Reserve Inspector General about the trillions of dollars lent or spent by the Federal Reserve and where it went, and the trillions of off balance sheet obligations. Inspector General Elizabeth Coleman responds that the IG does not know and is not tracking where this money is.
If You Think the Dollar Is Doomed, Read This
Warren Buffett has been called a sage, an oracle, and a genius. So when he says something as startling as the following, your ears should perk up: “In the future, I would predict that the U.S. dollar will decline. … Force-feeding the rest of the world $2 billion a day is inconsistent with a stable dollar.”
This is scary stuff. Except one thing: Buffett made that statement at the beginning of 2008, before (1) the U.S. dollar went on to have a pretty good year versus most other currencies, (2) the U.S. government announced the $800 billion bailout and $789 billion stimulus that will force-feed the world billions of additional dollars of U.S. debt, and (3) China’s central government proposed replacing the U.S. dollar as the world’s reserve currency.
Passing on the buck
Now, we’re not policy wonks, Ph.D. economists, or long-winded talk-radio hosts, so we’ll leave the politics aside and focus on the implications for your bank account instead. By adding to our massive federal deficit, the TARP and the American Recovery and Reinvestment Act of 2009 could have a devastating effect on the
