The Coming Financial Collapse

[downsideup]

Here's a couple of competing opinions... and, of course, they are both right, but both missing the point, which the letter from Ron Paul got right.

The debt IS a lot larger than we are told, as any real scheme of accounting would show, but the same fools creating the problem, are in charge of reporting the problem to you...

http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=88851

The debt is huge, but debt alone isn't the problem. The debt at the end of WWII was also huge, and we grew out of it... but, THEN, we had policies that enabled growth rather than seek to prevent it.

http://haroldchorneypoliticaleconomist.piczo.com/usgovernmentbudgethistoricaltables?cr=2&linkvar=000044

The problem is error, failure to correct error, and compounding error with greater error, as Ron Paul pointed out.

The things we are being told to worry about... the deficit, the debt, the printing of money and the inflation that WILL result (if we are lucky), are not the problem... they are in fact, wrongly, being offered and accepted as the solution.

The banking laws were changed... and the new laws both enable and require that the banks do what they have...

The fundamental issue is that the law we have now enables more and faster profits from destructive behaviors than from doing the things that enable building wealth or successful businesses. As long as destruction and passing the buck are more profitable than encouraging success and responsibility, we will not succeed more in the future than we have in the past.

EOM

[downsideup]

That is more or less the heart of the issue in the current crisis, but that insurance doesn't do what many might think.

http://en.wikipedia.org/wiki/Private_Mortgage_Insurance

After the repo and sale, the insurance supposedly makes the bank whole for the difference between cost and the repo.

The problems began when Congress changed the lending standards to require banks to make bad loans. When banks complained, Congress let them package those bad risks into securities so they could pass the risks along. The insurers failed to get the risks right, so they are all basically belly up now, and none of those mortgage backed securities are worth much. Of course, you still have to pay for the insurance on your mortgage...

The insurers, for their part, say that the problem was that the banks misrepresented the risks in packaging the securities, and they are right, too.

The whole mess is Congress' fault, because they let the bankers buy them off with campaign contributions as bribes to pass stupid laws... which the banks were stupid enough to want... thinking they'd leave the other guys as bag holders, and that is what we've got even MORE of now... the worst Congress $$$ can buy... STILL doing exactly what the banks want.

Have a nice weekend, though...

[stock2windaily]

Very interesting article!


Everything I post - is my opinon - do your own due diligence before investing.

[sumisu]

Crash & Collapse: This is more than a depression.

by R. A. Louis

October 9, 2008 at 02:14:11

http://www.opednews.com/articles/Crash--Collapse-This-is-by-R-A-Louis-081008-648.html

[sumisu]

With Bubbles Popping Worldwide, No Wonder the Economy's Gone Flat

By Steven Pearlstein

Tuesday, October 7, 2008



http://www.washingtonpost.com/wp-dyn/content/article/2008/10/06/AR2008100603184.html?wpisrc=newsletter

Up to now, it's been a financial crisis. This is a meltdown -- an uncontrolled and largely uncontrollable financial chain reaction that threatens serious harm to the broader economy.

The immediate problem is that the institutions that have most of the world's free cash -- banks, money-market funds, hedge funds, pension funds and major corporations -- are hoarding it and won't do the normal thing of lending to one another.

One reason is that many have taken on too much debt, lost too much money and are under pressure to use any spare cash to pay down debt and rebuild their reserves.

The other reason is that they feel unsure about what they know about the financial health of other institutions and are afraid that some of them will fail.

So what we've got is a liquidity crisis that is bigger than anyone has ever seen, on top of an insolvency crisis that is bigger than anyone has ever seen. And thanks to the explosion of cross-border trade and investment, the crisis has not only gone global but now threatens to take most of the global economy into recession.

"World on the edge," is how the Economist magazine summed things up on its cover this week. And that is certainly how things felt during yesterday's wild ride on stock and money markets.

What we now have is a set of economic and financial bubbles bursting at roughly the same time.

Here in the United States, the bursting of the residential real estate bubble punctured the first hole in the credit bubble, which in time brought an end to the corporate takeover bubble, the commercial real estate bubble and the commodities bubble. Because of those bubbles, Americans became convinced that they were wealthier than they really were, leading to a consumption binge that created mini-bubbles in autos, vacation travel and retail sales. Now those have burst as well.

The symbiotic twin of the giant consumption bubble in the United States was the giant export bubble in China and the rest of Asia. That export bubble, in turn, created stock market and real estate bubbles all across Asia and fed a global commodities bubble as well. Now that the air is coming out of the export bubble, shares on the Chinese stock market have declined 60 percent, while real estate prices in key Indian cities are in free-fall.

Similarly, you could draw a line of causality from the global commodities bubble to real estate and stock market bubbles in Russia and much of the Middle East. In Russia, stock prices are down nearly 50 percent for the year, including a 20 percent plunge yesterday before trading was halted. Unfortunately, much of that stock was bought by corporate oligarchs and their friends using loans from Russian banks, with the now-depressed stock as the only collateral. Three of the biggest banks have already required a $44 billion cash infusion from the Finance Ministry, and some analysts warn that much more will be required once sky-high real estate prices come crashing down.

Some of the froth from the Wall Street bubble made its way across the Atlantic to Ireland, which became a back-office for the U.S. and British financial service industries, attracting tens of thousands of new workers from all over Europe. Those workers, in turn, helped to create an impressive real estate bubble that has now weakened banks to the point that customers began withdrawing funds and the government had to step in to guarantee all deposits.

Other bubbles were created by complex trading and investment strategies meant to arbitrage large differences in interest rates in different economies. For years, this "carry trade" greatly distorted the value of currencies in places like Iceland, New Zealand and Australia, flooding those economies with more capital than they needed or could productively use. Now those investment bubbles have burst, the trades are being reversed and the currencies and financial systems are under extreme stress.

Because these bubbles are all related to one another, it should be no surprise that they are all popping at once. The timing, however, has created a dangerous dynamic in which selling begets more selling and failures beget more failures. No country, and no industry, can escape the effects of this process. History shows that the only way to break the vicious cycle is for governments to step in with massive amounts of money.

The immediate problem is to relieve the credit crunch by acting as a banker of last resort. Although money-market funds, for example, may be unwilling to lend to banks and other financial institutions, they are still eager to lend to the Treasury by buying its short-term bills and bonds.

So in recent weeks the Treasury and the Federal Reserve have come up with aggressive new schemes for taking large amounts of that borrowed money and lending it out on a short-term basis to banks, other financial institutions and perhaps even to corporations.

But even when the cash crunch has eased, most analysts believe the government will still have to provide the seed money to recapitalize a banking and financial system that is likely to have suffered a trillion dollars or more in credit losses. Congress last week provided the Treasury with the authority to borrow and spend $700 billion to begin that effort, while European governments have been forced to take over some of the biggest banks over there. Whether bigger and more coordinated efforts are needed will be topic A this weekend when central bankers and finance ministers arrive in Washington for the annual meetings of the World Bank and International Monetary Fund.

[sumisu]

America's century: is the sun setting on an epoch?


Illustration: Remi Bianchi

Peter Hartcher

October 4, 2008

The Sydney Morning Herald

http://www.smh.com.au/news/world/uncle-sam-is-down-on-his-knees-/2008/10/03/1223013791575.html?page=fullpage#contentSwap2

In the same week that the US Treasury Secretary sank to one knee to implore a congressional leader to vote for the $US700 billion ($890 billion) package to save the American economy, Colonel Zhai Zhigang became the first Chinese astronaut to walk in space. It was a striking juxtaposition of American vulnerability with Chinese success, of US crisis with Middle Kingdom might. It was heavy with the symbolism of an empire in decline in contrast with one on the rise.

Eavesdrop on the two scenes for a moment.

In Washington, George Bush and his top economic officer had spent hours in the White House persuading and cajoling the congressional leaders of both American political parties to endorse his rescue plan. With the burning smell of some of the biggest financial institutions in the world still fresh in their nostrils as their ruins smouldered in New York, Bush grew increasingly frustrated.

"If money isn't loosened up, this sucker could go down," he said of the US economy, marshalling the inimitable eloquence of the President who has given rise to a minor industry of books and wall calendars featuring the manglings known as Bushisms. All efforts failed.

"In the Roosevelt Room after the session, the Treasury Secretary, Henry M. Paulson Jr, literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to blow it up by withdrawing her party's support for the package," The New York Times reported.

Pelosi leads the Democrats in the House of Representatives. Bush and Paulson are Republicans. Pelosi jibed: "I didn't know you were Catholic." And then, on the business at hand: "It's not me blowing this up; it's the Republicans." It was Bush's own party blocking the plan. Paulson reportedly sighed, "I know, I know."

It was on the same day, September 25, that China launched the Shenzhou 7 space mission, sending aloft three astronauts or, as the Chinese call them, taikonauts. Two days later, Colonel Zhai floated out of his module and "walked" in space for 20 minutes.

Zhai radioed back to his President and the chairman of the Chinese Communist Party, Hu Jintao: "The space-walk mission has been accomplished smoothly. Please set your mind at ease, Chairman Hu and the people of China. In the vastness of space, I felt proud of our motherland."

Hours after the Chinese module returned to Earth safely, the US House of Representatives rejected the Bush Administration's rescue plan to allow the Treasury to buy distressed debt so that US credit markets could start to function again. US stocks fell by 7 per cent and more than $US1 trillion in value was destroyed as investors despaired. It was one of the biggest one-day falls on Wall Street.

Does this moment of Paulson's distress and Hu's elation symbolise the transfer of global leadership from a shattered superpower to a rising one?

The British political philosopher John Gray thinks so: "Ever since the end of the Cold War, successive American administrations have lectured other countries on the necessity of sound finance," he wrote this week. "China in particular was hectored relentlessly on the weakness of its banking system. But China's success has been based on its contempt for Western advice and it is not Chinese banks that are currently going bust."

He identified it as a profound moment: "The era of American global leadership, reaching back to the Second World War, is over."

The conservative American commentator, one-time adviser to Ronald Reagan and former presidential candidate Pat Buchanan agreed. Comparing the crisis to a devastating hurricane, he said it was "a Katrina-like failure of government, of our political class, and of democracy itself. The party's over. What we are witnessing today is how empires end."

For anyone who cared to look, the historical resonances were powerful. China became the first Asian power, and only the third nation, to conduct a manned space mission. The other members of the club? The US and the Soviet Union, both superpowers.

And the room where Paulson knelt was named after the US president Theodore Roosevelt, the leader remembered for his "Big Stick" foreign policy. He was the first American president to think of the US as a truly global power and the first to travel outside the US while in office.

He was also the president who built the Great White Fleet, the 16 battleships that sailed around the world in 1907-09 in a demonstration of America's emergence as a global military power and launched a century of American supremacy. Does the humiliation in the Roosevelt room mark its end?

Some respected US scholars and commentators argued that the American era was already drawing to a close even before the latest round of financial collapses and political mishandlings. Fareed Zakaria, the editor of Newsweek International and an expert on US foreign policy, this year published a book, The Post-American World. He identified three "tectonic power shifts" in the past 500 years. First was the rise of the West. Next came the rise of the US. And we are now living through the third: "It could be called the rise of the rest." He points out that economic growth in the past five years has been more widely shared among the nations of the world than at any time in history. In 2006 and 2007, 124 countries grew by more than 4 per cent.

"Look around," Zakaria writes. The world's tallest building is in Taipei, the richest man is a Mexican, and the biggest listed corporation is Chinese. The world's biggest casino no longer is in Las Vegas but Macau, and the biggest movie industry is no longer Hollywood but Bollywood. Even shopping, America's greatest sporting activity, has gone global - of the top 10 malls in the world, only one is in the US; the world's biggest is in Beijing."

In the politico-military realm, Zakaria claims, the world remains a single-superpower place. "But in every other dimension - industrial, financial, educational, social, cultural - the distribution of power is shifting, moving away from American dominance."

Another prominent commentator believes that American politico-military dominance, too, is in question, even though the Pentagon's budget is as big as that of the defence budgets of the other nations of the world combined. Andrew Bacevich, professor of international relations at Boston University and a retired colonel in the US Army, argues that the US has developed what he calls "the new militarism", a normalisation of a permanent state of war and an over-reliance on armed force.

One of the problems with this, he argues in The Limits of Power: The End of American Exceptionalism, is that US presidents set missions for the US military that it is not capable of performing. Bacevich takes issue with the claim by the prominent military commentator Max Boot that America was successfully prosecuting "the Doctrine of the Big Enchilada".

Which is what, exactly? That the US enjoys a military excellence "that far surpasses the capabilities of such previous would-be hegemons as Rome, Britain, and Napoleonic France" and "unparalleled strength in every facet of warfare" so that allies had become a burden: "We just don't need anyone's help very much."

Bacevich points out that seven years after the invasion of Afghanistan and five years after the invasion of Iraq, the American military is still struggling to achieve its missions. "To anyone with eyes to see, the events of the last seven years have demolished the Doctrine of the Big Enchilada." He has paid a personal price in the course of this discovery. His son, a US soldier, died on duty in Iraq.

Bacevich cites the historian Corelli Barnett: "War is the great auditor of institutions." And Bacevich concludes: "Since [September 11, 2001], the US has undergone such an audit and been found wanting … Between what President Bush called upon America's soldiers to do and what they were capable of doing loomed a huge gap that defines the military crisis besetting the US today. For a nation accustomed to seeing military power as its trump card, the implications of that gap are monumental."

But this week's escalation in the US financial crisis has drawn fresh attention to the financial footing of the US Government itself. It has dramatically expanded its responsibilities. Its loan of $US85 billion to the insurance giant AIG pales by comparison to its decision to assume explicit liability for two enormous lending institutions, Freddie Mac and Fannie Mae, with a staggering $US6.5 trillion in obligations.

And Uncle Sam was not in tip-top shape to begin with. The Federal Government deficit, this year projected to be $US407 billion, is a big number but modest as a 2.1 per cent share of the total economy. The full picture, however, is much more troubling. And for the past 11 years, the nonpartisan US Government Accountability Office has refused to accept the Government's explanation of the full picture: it has declined to sign off on the accounts of the Federal Government.

So Jim Grant, publisher of Grant's Interest Rate Monitor and a perpetual pessimist on the US economy, performs this function for his clients. "No goose was ever so golden as the US economy, but that doesn't mean it's immortal," he says. "Generations of politicians have had their knives out for it."

He points out that while the nominal US economy has been growing at a compound annual rate of 5 per cent for seven years, the liabilities of the US Government have been expanding at a compound rate of 13 per cent.

Grant wrote to clients: "In 2000, the Government was on the hook for $US29 trillion of guarantees, insurance obligations and projected future payments to Medicare and Social Security recipients. Seven years later, the grand total of such projected future obligations and payments was $US67 trillion." Even in America, this is big money, equivalent to about five times the nation's total economic output.

Grant continues: "Insofar as the promises continue to pile up faster than the domestic resources with which to redeem them, the Treasury's creditors must be at some elevated level of risk. Needing money it can't easily get through taxation, the Government must borrow it. Who will lend it, and at what cost?"

This question, casually set aside in sunnier times, is suddenly in very sharp focus. The long-term creditworthiness of Uncle Sam has been coming under daily scrutiny in recent weeks, and the risk, as priced in financial markets, has risen to record levels. The cost of insuring against the risk that the US might fail to repay holders of its 10-year Treasury bonds has risen to 20, 30, and now 37 basis points in recent days. Thirty-seven basis points is 0.37 of a per cent. The comparable cost on French government debt is 20; on German it is 13.

The perceived riskiness of lending money to Uncle Sam has been heightened by the behaviour of its legislators. The congressional vote to defeat the rescue plan shocked many. The Congress is now having a second crack at it.

The US Senate has passed a revised version of the plan, which is set to go before the House of Representatives today. In a disgraceful reflection on the Congress, the bill had to be loaded with $US150 billion in inducements to win the support of the Senate. This included tax credits that the pharmaceutical industry and the high-tech sector had been demanding.

In other words, it was not enough for senators to vote for a bill that would save the US economy from what an industry newsletter, the Bank Credit Analyst, calls "a black hole". They had to be able to satisfy the special demands of lobbyists and donors.

This lack of national interest, and the assertion of sheer venality, has raised the risk of lending to the US because these legislators are the same people who make the spending and taxing decisions that will determine the national fiscal future.

Still, the wise analyst would hesitate before declaring the end of the American era. Certainly, its relative power has peaked. Immediately after World War II the US accounted for fully half the world economy; today it's about a quarter.

But that still makes it three times the size of Japan's, the next biggest economy, and five times the size of China's. And even though it is in the throes of a very serious crisis, the Harvard historian Niall Ferguson pointed out recently that the US has been through disastrous financial trauma before and emerged in an even better relative position.

"Such crises," said Ferguson, "bad as they are at home, always have worse effects on America's rivals." We know from experience that the US can survive major financial crises. Can China? In its post-Mao history, it has yet to be racked by one, yet one day it must be.

And the Chinese space walk may demonstrate China's progress, but also its technological lag. The US conducted its first space walk in 1965. That dates China's technology as being 43 years behind America's.

Moreover, the blunders that have put the US into diabolical difficulty are not predestined by history. They are the result of political and policy error. That means they can be solved by political and policy wisdom. America is being tested, and we will see the wisdom of its choices. The Congress has its next opportunity today. And the American people will have theirs soon enough - election day, November 4.

[stock2windaily]

Something nobody is really talking about - most everyone that doesn't put 20% down pays a big monthly payment towards PMI - private mortgage insurance - where is all that money and why are they not cutting a fat check?

[stock2windaily]

The party is over for the United States as well - do to poor representation of the people.

[sumisu]

Will we be the next Iceland?

The party's over for Iceland, the island that tried to buy the world


Lie back and think of an economic upturn...bathers take to the Blue Lagoon, near Reykjavik. Photograph: Bruno Morandi/Getty

http://www.guardian.co.uk/world/2008/oct/05/iceland.creditcrunch

[stock2windaily]

email from Ron Paul

Dear Friends:
The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.
The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
In liberty,


Ron Paul

[stock2windaily]

You and me both - and Ben Franklin as well!

[sumisu]

>I had missed this post by Nouriel Roubini, who I consider to be brilliant. Thanks for your post.

I twice saw Roubini recently on Charlie Rose and when he speaks everyone listens with complete respect.

i'm very unhappy with this week's developments.

sumisu

[stock2windaily]

Guess nobody realized that with one swift move to Socialism - this would all be avoided!

With the nationalisation of Fannie and Freddie, comrades Bush, Paulson and Bernanke started transforming the US into the USSRA (United Socialist State Republic of America).

This transformation of the US into a country where there is socialism for the rich, the well-connected and Wall Street (ie, where profits are privatised and losses are socialised) continues today with the nationalisation of AIG.

This latest action on AIG follows a variety of many other policy actions that imply a massive – and often flawed – government intervention in the financial markets and the economy: the bail-out of the Bear Stearns creditors; the bail-out of Fannie and Freddie; the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk, toxic, illiquid private securities); the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of "liquidity" to distressed, illiquid and insolvent mortgage lenders; the use of the SEC to manipulate the stock market (through restrictions on short sales).

Then there's the use of the US Treasury to manipulate the mortgage market, the creation of a whole host of new bail-out facilities to prop and rescue banks and, for the first time since the Great Depression, to bail out non-bank financial institutions.

This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt-holders who made a fortune yesterday as those claims were also made whole).

Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or found to be perverts, these Bush hypocrites who spewed for years the glory of unfettered Wild West laissez-faire jungle capitalism allowed the biggest debt bubble ever to fester without any control, and have caused the biggest financial crisis since the Great Depression.

They are are now forced to perform the biggest government intervention and nationalisations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA.

Zealots of any religion are always pests that cause havoc with their inflexible fanaticism – but they usually don't run the biggest economy in the world. These laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades.

This article first appeared on Nouriel Roubini's blog and is edited and cross-posted here with the permission of the author. Nicknamed "Dr Doom", Professor Roubini is now widely acknowledged as having accurately predicted the present crises in financial markets.

http://www.guardian.co.uk/commentisfree/2008/sep/18/marketturmoil.creditcrunch?gusrc=rss&feed=uknews

[uranium-pinto-beans]

WOW dead on 2+ years later and it is dire

[bullcents]

When is the govt going to get a clue about not meddling in WallSt?? Its starting to piss me off. That is all.

[sumisu]

>All of your points are totally valid and yes, you could go on and on and on.

To keep from going nuts and thinking about all of this stuff, I spend seven months of the year in the garden. I'm experimenting with different vegetables to grow for the future. Planting the right plants to form a perfect ecosystem. Sustainability and survival will be the name of the game for the future.

good luck,

sumi

[stock2windaily]

I happen to agree with your thoughts on this issue.

It goes much deeper than oil - it is a total economic problem -

1.) the US no longer produces products (not much - anyhow) only services.
2.) the baby boomers began retiring in January 2008 - and will continue to do so - drawing pensions, benefits, medicare & social security.
3.) The younger generation has used their home as their second job for years - running up credit card debt for food, clothing, vacations, etc... and then refinancing and paying down their card debt -(Year after Year). With the housing crisis - they all lost their second jobs at the same time - their credit cards are nearing their limits - and soon they will not be able to purchase the services that are holding up this economy.
4.) The housing crisis will cause large home deflation - which will reduce most peoples largest assets - substantially. While their liabilities continue to increase.
5.) Companies that provide services - will become less profitable due to inflation and desperation, will have less customers - and will have to reduce overhead - which means unemployment will be rising. Which means foreclosures will continue.
6.) US deficit will continue to grow. Taxes will have to go up.
7.) Oil will continue to rise - and $4.00/gallon gas will not be going away soon.

I could continue - but that is enough.

Let me just say - keep your head up, do the best you can and as much as you can to stay afloat. Begin saving and be frugal - times are going to tough - before they get better.

We will survive - but its going to be a decade of learning how to squeeze every penny to make ends meet.

[sumisu]

>I forgot all about this board but my sentiment has not changed a bit.

Right now the cost of oil is choking our society. [ see #board-6609 ] and things will never be the same again in our society and in the world. We are at the door of Peak Oil and it will forever control our lives, imo.

good luck and keep the faith,

sumisu

[stock2windaily]

Wow - 2 years and a few months later and all the Dire Predictions are now coming to life!

[findit]

George Bush senior.

[futrcash]

Shades of "voodoo economics"! 5 points to anyone who remembers the presidential candidate who coined that phrase in the 1980 republican primary.

futrcash

hint King ?????? the 1st

[sumisu]

No Way Out: A Fifty Percent Dollar Devaluation

by Robert McHugh

January 13, 2007

Artificial Economics, the brainchild of the Master Planners, has focused on building an economy where debt -- not income -- pays for goods and services. The emphasis upon debt instead of income via hyper-inflating the money supply in stealth fashion, has destroyed the dreams of millions of Americans. Artificial Economics is a silent economic disease. A coming significant devaluation of the dollar is a likely and necessary consequence.

The use of hyper-inflated money supply to postpone a recession over recent years has served to create an imbalance between income and assets. Debt covered the gap for a while, but now debt is extreme, with a limited useful life. With high paying jobs being exported, and a limit to what is essentially slave labor from illegal immigrants, future productivity gains which translate into income are almost entirely technology dependent. If technology fails us, then the debt-to-income imbalance, then the asset-to-income imbalance must be reckoned with. Undoubtedly, that reckoning will either be a nasty recession/ depression -- where asset values drop below debt levels, leaving us with an imbalance between both assets and debt, and income and debt -- or a significant and sudden devaluation of the dollar.

What is accomplished by a significant and sudden dollar devaluation? It is a way to pay off debt with suddenly-more-available dollars; cheaper dollars. We have been witnessing a slow meticulous devaluation of the dollar over the past two decades, with an acceleration over the past decade. This has come from an increase in the money supply via the credit creation route -- debt. But that has served to replace income, and postpone a recession, at the great cost of hyperinflation of real estate, related taxes, and just about everything you buy. The result is debt. Once the debt creation train stops, then there will be no way to pay for things; no way to pay off that debt. There will soon be a point of no return, with an inevitable sudden and significant dollar devaluation as the only solution. It would require the Treasury printing an amount of money equal to the current entire money supply, more than 11 trillion dollars, and literally handing it out to each household so that the broadest spectrum of people have the ability to payoff their debt. Debt does not rise in value as the dollar devalues. It is a contracted amount in former-dollar-value, notional terms. Thus, if we suddenly hand several hundred thousand dollars to each and every household, a dollar will become worth 50 cents in real terms, but in debt terms, it will still be worth a dollar, and folks will have more of them.



Dollar devaluation would require mandated cost-of-living wage increases, but also would require issuance of a brand new currency. Call it the liberty instead of the dollar. If you tied the liberty to gold, the U.S. currency could keep its world reserve status and survive the dollar devaluation tsunami. It would require a liberty to be worth the equivalent of two dollars, where there was only one dollar in circulation before the fifty percent devaluation event. A gold-backed liberty would stabilize inflation, and bring monetary stabilization back, but in a new economic order where debt is substantially reduced, both private and government. Government debt would be reduced as folks are required to pay taxes on the dollar-devaluing household-handout. Of course, this means Gold would have a bright future. I don't see any other way out. Thank Artificial Economics for this -- the economics practiced for the past decade in this nation that wasn't mentioned in your child's college economics textbook.

The Fed is sending out hints that it isn't planning to drop interest rates any time soon. Chicago Fed chief Michael Moskow stated this week that inflation risks were his major worry. He oughtta know, the Fed is causing inflation, which is why it hid M-3. Fed Vice Chair Donald Kohn said, "There is no guarantee that core inflation will continue to ease." Chairman Bernanke felt the need this week to address the Fed's role in crises, citing the benefits of the Fed's regulatory supervisory role. They know the problem, are likely in denial, but inevitably, the "buck stops here" decision must be made -- devalue the dollar in half. We believe that decision, if it hasn't been made already, will be.

M-3 remains hidden by the Fed, so that We the People can't know what the Federal Reserve is up to. Where's the transparency Ben? Check out this monster in the chart above -- It tells you all you need to know about what the Fed has been doing with M-3.

First of all, let's examine the pattern. It is a Head and Shoulders top. These patterns are highly reliable. It is not yet a "confirmed" pattern, meaning until prices drop below the neckline decisively, say below 80.00 to 77.00 or so, the probability of the minimum target of 40.00ish being hit is not as great. However, should we see the Dollar drop down to 77.00ish, we are in a high risk situation of a devaluation of the dollar all the way down to 40.00. Not all at once, but over the course of several years. Perhaps all at once, should the government elect to flat-out issue an edict that a dollar is now worth 50 cents. Would they? Maybe. Why? Again, it is a way to repudiate half of all the debt in the United States. Why would they want to do that? Perhaps if a recession became a depression, or the risk thereof. Perhaps if housing was to absolutely dive into the tank. It would be a way to relieve mortgage holders of a huge chunk of their obligations in lieu of mass foreclosures.

The pattern is ominous as far as its size, its timeframe, and as far as its downside implications. This pattern is textbook. No flaws. In fact it carries a rare added textbook feature of a weaker right shoulder than left. That is not good. This is right in line with the Fed's decision to hide M-3, enabling them to hyper-inflate the economy with too much money for secret purposes (The Working Group's minutes are secret, their market buying intervention activities are secret, the quantity of M-3 being created is secret). Any auditor worth his salt will tell you that secrecy breeds mischief, often with dire consequences. The founding fathers established accountability in our constitution, and the Federal Reserve and the Working Group (a.k.a. Plunge Protection Team) are managing M-3 in violation of that spirit.


http://www.safehaven.com/article-6696.htm

[NYBob]

To 'sumisu' on 'The Coming Financial Collapse' -

OWG - China official admits to torture -




Chinese police - archive picture

A senior Chinese official has made a rare admission -
about the extent of the use of torture in getting -
convictions in China's 666 courts.

Wang Zhenchuan, Deputy Procurator General -
said at least 30 wrong verdicts were handed -
down each year because torture had been used -

Mr Wang said the real number could be higher -
666 , 666 , 666 . 00 maybee close ? -
according to state media -

Confidence in China's justice system -
has been seriously undermined by recent -
high-profile wrongful convictions -

A butcher executed for murder in 1989
was proved innocent when his alleged victim
was found alive -

while a man was freed after 11 years in jail
when his wife,
whom he was accused of killing,
was also found alive -

The banksterz OWG -

want China to rule US -

Ex. all car mfg. going to China -
that is US defends ind. goes to China -

The anti-Christian 666 -

try to poison US with any -

circumcized method -


Ex. Woman loses Christian's Right to Wear a Cross -



Nadia Eweida -


Ms Eweida said she was standing up for her faith

The evils 666 satanistic court judges -
try to 100% to destroy the Christian Societies -

Ms Eweida interview -
A British Airways (BA) employee has lost her -
(Freedom Liberty Rights) fight to openly wear -
a cross necklace at work at Heathrow -

Nadia Eweida, 55, of Twickenham,
has been on unpaid leave since her (666 -
satanistic) bosses told her -
she could not visibly wear her cross -
at the check-in counter -

She found out she had lost her appeal -
against the decision by BA when she met -
with the airline bosses on Monday -

BA denied it had banned the wearing -
of crosses and said Ms Eweida had a right -
to a second appeal -

http://news.bbc.co.uk/2/hi/uk_news/england/london/6165368.stm


To All Christian People -



Let's raise the Golden Southern Cross -

let's raise the Golden Northern Cross -

let's pray and do all we can for our -
Sisters & Brothers in our Christian Society -
don't let the 666 evilz make -
no more circumcised destructionz -
to Our Christian Societies -
Amen

http://www.888c.com/
In God We Trust

[NYBob]

Any connection ? -

[sumisu]

Speculation on Chinese Reserve Diversification Just Keeps Building

By Stephen Clayson

16 Nov 2006 at 12:55 PM EST

LONDON (ResourceInvestor.com) -- An increasing number of people within China and in the wider world are suggesting that the People’s Bank of China (PBOC) will soon look to diversify its foreign exchange reserves, which at the equivalent of over $1 trillion now exceed those of any other central bank, away from the U.S. dollar. Such a move does indeed look like a very strong possibility at some point, and would likely have huge consequences for currency markets, as well as for the gold price.

I flagged this issue for Resource Investor readers months ago in this article, but now the idea seems to have really taken hold elsewhere.

It must cause the People’s Bank of China, and just as importantly its political masters, quite some pain to know that immense losses will be sustained on its dollar holdings as the value of the dollar falls, and that these losses can never be recouped. The desire to shift into something safer is understandable, even though one of the reasons that the PBOC’s dollar holdings have piled up so high is that the Chinese government has seen fit to prop up the value of the dollar so as to sustain U.S. demand for Chinese exports.

It is not generally part of the mission of a central bank to make profits or even to avoid making losses; rather, the needs of the economy as a whole are the overriding priority. But when currency losses are being contemplated on such a scale as in this instance, the avoidance of said losses may well become a powerful consideration for those with decision making power.

Something that gold investors will be hoping for is a shift of some of the PBOC’s reserves into the yellow metal, thereby creating a significant source of new investment demand. However, a meaningful move by the PBOC into gold may not be all that likely. For one thing, the process of acquiring sufficient gold could drive up the metal’s price substantially, which is an obvious discouraging factor.

But even if sufficient gold could be acquired with acceptable effects on its price, by acquiring such a large amount of gold, the PBOC puts itself in a similar situation to that which it is now in with regard to its dollar holdings. That is, being unable to divest any sizable portion of its stash of dollars without triggering a significant decline in their value, turning the exercise of accumulating dollars, or in the analogous case, gold, into a loss making venture.

Furthermore, by the time the PBOC had amassed a potentially worthwhile amount of gold, the bull market for the metal might well have passed. After all, a very good case can be made that the current strength in the gold price is primarily a function of a major currency market adjustment, long in gestation, that is centred on a redefinition of the dollar’s role in the world economy.

It follows that this period of high gold prices is temporary and will end once the currency market adjustment is complete, albeit that this could take 10 or more years yet, and that breaching the gold price highs of earlier this year along the way is in no way precluded. Therefore the PBOC, which has to plan for the very long term, would be ill advised to shift its reserves out of dollars and into gold.

But the news is still good for gold investors, as any major diversification by the PBOC into other currencies, the euro being a prime candidate, will undermine the value of the dollar and that, more than anything else, has positive implications for the gold price.

[sumisu]

A Lower Trade Deficit Unlikely to Save the Dollar

By Axel Merk

14 Nov 2006 at 11:38 AM EST

http://www.resourceinvestor.com/pebble.asp?relid=26145

[sumisu]

Russia Shifts Part of Its Forex Reserves from Dollars to Euros

June 9, 2006 - MosNews

http://www.mosnews.com/money/2006/06/09/dollarshift.shtml

On Thursday, June 8, Russia became the latest in the list of countries that shifted a part of its Central Bank reserves from the dollar. Sergei Ignatyev, chairman of the Central Bank, said that only 50 percent of its reserves are now held in dollars, with 40 percent in euros and the rest in pounds sterling. Earlier it was believed that just 25-30 percent of Russia’s reserves were held in euros, with virtually all the rest held in dollars.

Russia’s gold and foreign currency reserves have grown rapidly over the last few years in tandem with high oil and gas prices. As MosNews has reported earlier, Russia currently has the world’s fourth-largest reserves, after China, Japan and Taiwan, and it looks to overcome Taiwan by the end of the year, with reserves growing by $5-6 billion monthly.

The Russian Central Bank’s move ties in with increasing signs that Middle Eastern oil exporters are also looking to diversify their reserves out of the dollar. “This is a bearish development for the dollar,” Chris Turner, head of currency research at ING Financial Markets, told the British Financial Times. “It reminds us that global surpluses are accumulating to the oil exporters,and Russia is telling us that an increasingly lower proportion of these reserves will be held in dollars. This suggests there is a trend shift away from the dollar.”

Clyde Wardle, senior Emerging Market Currency strategist at HSBC, told the paper: “We have heard talk that Middle Eastern countries are doing a similar thing and even some Asian countries have indicated their desire to do so.”

Moscow’s move was unsurprising. Russia’s $71.5billion Stabilization fund, which accumulates windfall oil revenues, is due to be converted from rubles to 45 percent dollars, 45 percent euros and 10 percent sterling. The day-to-day movements of the ruble are monitored against a basket of 0.6 dollars and 0.4 euros. About 39 percent of Russia’s goods imports came from the eurozone in 2005, against just 4 percent from the US.

The statement plays into a perception that central banks, which together hold $4.25 trillion of reserves, are increasingly channeling fresh reserves away from the dollar to reduce potential losses if the dollar was to fall sharply.

[sumisu]

Chapman: Train Wreck Of The Week

Robert Chapman

July 8, 2006

We have been looking for something positive from the elitists and we may have found it. The US, Singapore and Switzerland have proposed to the WTO that countries eliminate taxes on medicines. Presently India charges 100% and Morocco 12%. India taxes to protect its generic drug industry.

Globalization moves in a dialectical manner. Two steps forward, one step back. Three steps forward, two steps back.

The Doha round of talks are finished and were a complete failure we are happy to report. The development round pitted the third world against the first world. Well, the rich had no intention of exposing their farmers to the chill winds of foreign competition. Kamal Nath, India’s Commerce & Industry Minister, voiced incredulity that he was being asked for bigger percentage cuts in his country’s tariffs than rich countries were willing to make in their own. They said to him we’ll cut 20%, you cut 70%.

Those countries chief antagonist was the US, and when asked why their contentious position the US representative, Susan Schwab said, “Isn’t that what leadership is about.” What a stupid answer. The US and Europe refuse to budge on agriculture. The US subsidy program alone with Europe’s, especially France’s, is widely blamed for leading to over production of crops that depress prices on world markets, destroying farming in the developing world. Just look at what it has done in Mexico; free trade and globalization has been in decent since Cancun in 2003 and continues to deteriorate. Hopefully WTO is staring over the precipice and falls in.

Sales for the big 3 automakers in June were not good. GM fell 26%, Ford fell 7% and Daimler Chrysler 13%. Toyota gained 14% and sold more cars than Ford and Chrysler combined. In June, Toyota had 15% of the US market, up from 12% y-o-y. Detroit-based companies’ market share sagged to 56% from 62%. Sales of SUV’s and light trucks fell 11%. In the first half of 2006 Toyota’s sales rose 10%.

Toyota had only a 9-day inventory of the Yaris, and a 4-day inventory of its hybrid Prius, making both sellout hits. The Ford Explorer’s sales fell 36% in June and the expedition was off 46%.

Kirk Kerkorian, a major buyer of GM shares at $32, is looking to broker a GM-Nissan-Renault alliance. Nissan has been under pressure this year with sales off 19%.

Yes, the economy is slowing. The question in America and across the world is how much, and how bad will it be? America is again collectively in denial. It should be disturbing to anyone of sound mind that the Fed is raising interest rates as the economy slows. Wall Street and government say they do not know where the end is, which is more denial and lies. Each interest increase is supposed to slow the economy, but no one writes about money and credit creation’s massive increase each and every day. This is what is known as a Ponzi scheme. The Fed can’t allow deflation because if it does, once it starts it is unstoppable and they are well aware of it. The economy is slowing on its own because people are buried in debt. Yes, interest rates hurt, but copious credit is still available.

The bogus CPI for the second quarter was up 5.7% versus 4.2% y-o-y. You readers know CPI is double that. The Fed sees raising wages as the problem, which is absurd. It’s debt, inflation, energy costs that are not going to go away and a sinking dollar. These idiots can’t call a spade a spade. They’ll give the game away and goodness forbid the public will get the truth and they won’t like it.

Rising wages are not the cause of inflation – fiat money creation is. Inflation can only be caused by monetary debauchery. That’s why the dollar is falling. To show you how absurd the rising wage argument is wages, adjusted for inflation, are less than they were four years ago. This is how the fed has screwed the workers of America. Worse yet, the Joe six-pack release, the home piggy bank, is about to stop supplying cash to stave off bankruptcy. The housing bubble has burst and prices can only go lower. You are about to see $8 trillion lost in housing values over the next few years. This is what was lost when the dotcom Fed engineered bubble burst. Americans will be lucky if they only have a deep recession. Americans have a minus 1.6% savings rate and the average family is three paychecks away from bankruptcy and they have no one to blame but themselves for not listening and seeking out the truth. A 5-1/2% to 6% Fed funds rate will put the 30-year fixed rate mortgage at 7-1/2%. That puts the real estate market dead-on-arrival. Even if housing prices didn’t go down we’d still have a recession. Falling house prices just exacerbates the situation.

A 5-1/2% to 6% Fed rate is plenty, but people don’t realize that foreigners are demanding higher interest rates and yields for the Treasury paper they are buying from the Fed to keep the US economy from collapsing. Look at the jobs picture. The BLS figures are all lies. The unemployment rate is over 13% not 4-3/4%. The BLS added 176,000 jobs in June for phantom companies they believe via pipe dreams had just come into business and started hiring. They also added 206,000 in May and 191,000 in April and Wall Street and Washington go right on with the fabrications. Wait until July 7 numbers are released. They should be downright nasty. The capper will be July’s numbers to be released on Friday August 4th. They should be terrible. Thus we have ongoing stagflation. Lower employment, wages, real estate, stock and bond prices and higher interest rates, the antithesis of what is needed and continued massive money and credit creation. The worst of all worlds. We are not negative, we are just reporting the truthful facts and you know how right we have been for 16 years.

Scandal ridden insurance giant AIG, American International Group, says it has lost personal identifying information on about 970,000 consumers through a burglary. Now get this, the burglary was on March 31st, the police have been told, but not one of the consumers have been informed of their possible vulnerability to identify thieves. This is a 2-½-month delay, which is preposterous. There have been 40 data breaches just since March 31st when AIG had their robbery.

We have had a number of people ask what happens when the Fed stops raising interest rates. First of all they can’t return to lowering rates because they’ll be a run on the dollar and no one will want to buy Treasury securities. That could bankrupt the country.

That said, erosion in bond, stocks and real estate will take place and they’ll be a major gold and silver rally.

http://www.theinternationalforecaster.com/trainwreck.php?Id=130

[sumisu]

MEXICO

Mexico oil output to decline, analysts sayOil production in Mexico may have peaked in 2004, according to Raymond James & Associates.

BY AMY STRAHAN
Bloomberg News

Oil output has peaked; major field in decline.

Mexico's oil output will probably decline in the next two years if the country doesn't allow foreign investment to boost drilling, according to Raymond James & Associates.

Production in Mexico may have peaked in 2004, analysts J. Marshall Adkins and Pavel Molchanov wrote in a July 10 report, because the 30-year-old Cantarell field, the world's second-largest, has reached maximum output, they said. Petróleos Mexicanos, the state oil company, said Aug. 2 that Cantarell production will decline 8 percent this year.

'The country's oil production looks like it already might have peaked -- quite possibly for good,' they said in the report. ``At the very least, production appears stagnant. Following a decline in 2005, we project that Mexican production will again show modest year-over-year declines in 2006 and 2007.'

Foreign investment to boost production in Mexico is unlikely because of prohibitions in place since Petróleos Mexicanos, the government oil company, was formed in 1938. Felipe Calderón, who won a narrow victory as president of Mexico last month, said he does not favor privatization, although he supports allowing Pemex to form joint ventures with foreign operators, Molchanov said.

Pemex is so heavily taxed it has no capital for re-investment in exploration and production, Molchanov said in an interview. ``After paying its operating and labor costs, Pemex may have to borrow to fund its capital spending, despite record oil prices.'

Crude oil output at Cantarell fell faster than expected in June to a four-year low, according to data from Mexico's energy ministry. The decline signals the government will miss production targets.

The field, which accounts for about half of Mexico's crude production, yielded 1.74 million barrels a day in June, the most recent month for which information is available. That's 13 percent less than a year ago and the least since November 2001, according the ministry.

The drop worsens the outlook for Mexico's crude exports, about 80 percent of which go to the United States. The decline comes as BP Plc announced Sunday it is temporarily closing its Prudhoe Bay oil field because of pipeline corrosion. Prudhoe Bay is the largest field in the United States. About 400,000 barrels a day of production is being shut, possibly for months.

Crude oil prices have increased 23 percent this year on concern that supplies won't be able to meet increases in global demand. Violence in Nigeria cut output by 20 percent this year, and efforts to curtail Iran's nuclear program have increased the risk of a reduction in shipments from the Islamic republic.

Oil futures in New York rose to a record $78.40 a barrel on July 14.

Mexico, the third-largest oil producer outside of the 11-member Organization of Petroleum Exporting Countries, pumps 4 percent of the world's oil. Estimates from the Mexican government have suggested that the Cantarell field won't begin declining until 2008, Molchanov, Adkins and Wayne Andrews wrote in the note to investors.

In 2004, Mexico's production rose less than 0.4 percent, and by 2005 it fell 1.4 percent, according to the analysts. Mexico currently produces 3.78 million barrels a day, Molchanov said.

The current stagnant production figures suggest oil prices could continue to rise, according to the report.

[sumisu]

Warning! Fiscal Hurricane Approaching! Is Your Portfolio Secure? Part 2

By Dudley Baker and Lorimer Wilson
28 Mar 2006 at 08:50 AM EST

SAN ANTONIO (PreciousMetalsWarrants.com) -- In a previous article entitled “The Ominous Warnings and Dire Predictions of World’s Financial Experts” - Part 1 and Part 2, we learned what was probably in store for us short-term and in the next few years. These experts used words like ‘Economic Armageddon’, ‘Financial Apocalypse’, ‘Financial Disaster’, ‘Financial Train Wreck’, ‘Deep Funk’, ‘Great Disruption’, ‘Category 6 Fiscal Storm’, ‘Economic Earthquake’, ‘Serious Collapse’, ‘God-Awful Fiscal Storm’, ‘Debt-Driven Meltdown’, ‘Major Upheaval’, ‘Demographic Tsunami’, ‘Rude Awakening’, ‘Economic Pain’, ‘ Systemic Banking Crisis’, ‘An Accident Waiting to Happen’, etc. to describe what we are in for.

It begs the question “How should we position our assets given the dire predictions of these imminent economists and analysts who are all much of the same mind as to what may well be in store for the U.S and, indeed, the global economy very soon?” Again, we have compiled a detailed and comprehensive summary of what many of these very same individuals, and others, have to say (click here to see Part 1). It is so extensive and informative we have taken the liberty to divide it into 4 parts.

Is Your Portfolio Secure?

Charles Carlson, CEO of Horizon Investment Services and author of a number of books including ‘Eight Steps to Seven Figures,’ ‘Buying Stocks Without a Broker’ and ‘No-Load Stocks’ offers hands-on advice on how to survive – and thrive – in a wildly fluctuating market in his latest book ‘The Smart Investor’s Survival Guide.’ As he says “The storm’s eye is an excellent metaphor for what investors must do during stormy market periods. Find the eye. Get to the calm. Play in the space where you won’t get hurt.”

What Kind of Investments?

Liquid investments: During uncertain market times investors usually migrate toward the most liquid investments because liquidity provides flexibility; the flexibility to respond quickly to changes in opinions about certain investments; the flexibility to raise cash quickly if need be. Such liquid investments include large cap stocks, larger corporate bond issuers and also cash which always works well in volatile markets.

Dividends and Interest: During volatile markets, when certainty of returns is an especially prized commodity, investors will migrate to those investments offering at least some modicum of income via dividends and interest. Stocks with high dividend yields, and particularly considerable dividend growth, generally hold up better during down markets than stocks with low yields.

Consistent earnings: Certain industry sectors are more conducive than others for weathering volatile markets. At the top of the list is the health care sector, followed by the consumer staples sector. These groups, especially health care, have steady product demand regardless of economic conditions. That consistent demand usually leads to consistent earnings.

Low-Volatility investments: In the eye of the storm, less volatile issues will generally weather the fury better than volatile investments. Stocks and stock mutual funds have the most volatility. Cash, bonds and treasury securities have the least expected volatility. Within fixed-income investments short-term bonds are less volatile than long-term bonds and U.S. corporate bonds are less volatile than foreign bonds.

Diversified portfolio: Diversification makes perfect sense especially during turbulent market conditions. When you diversify, you buy a bit of insurance for your portfolio against catastrophes. By definition, diversification reduces risk. You don’t know with complete certainty what groups will be leading and lagging the market at any point of time. Since you don’t know where the next leaders will come from, a prudent approach is to own a bunch of investments a) within a variety of asset classes (i.e. investments with different risk/reward profiles), b) of a variety of different asset classes (i.e. investments that don’t correlate with one another), and c) that are appropriately weighted one to the other and rebalanced in relationship to each other every 12-18 months should one or more get out of whack by 5 to 10 percentage points. In that way, you’re sure to avoid owning all the groups getting killed and increase your chances of owning groups and investments that are doing well.

Proper Allocation: You need to determine the percentage weighting of assets in the total portfolio. The two biggest determinants of asset allocation are risk tolerance and investment time horizon. The more risk-adverse you are as an investor, the greater the portion of bonds/cash versus stocks you should have in your portfolio. Also, the shorter the time horizon the larger the percentage of the portfolio should be devoted to bonds/cash. A good rule of thumb for setting an allocation is to subtract your age from 100 or 110 (depending on how aggressive you are) and invest that number in stocks and split the remainder between bonds and cash. However, if you have an extremely limited investment time horizon, an extremely low tolerance for risk, or a limited need for growth given your financial position, obligations, etc., then consider allocating 15%-25% to stocks, 40%-50% to bonds (40%-45% in a short-term bond fund, 40%-45% in a total market bond fund and 10%-20% in a high-yield bond fund) and 25%-35% to cash.

You need to spread the stock component of your portfolio across various industry groups and among 25 to 35 individual stocks or a broad based mutual fund. I think an investor with a 20-or 30-year time horizon would be OK with a single stock making up 20% of a portfolio. Conversely, an investor in his or her sixties should keep individual stock weightings to 2% to 15% of the portfolio.

Timing: Smart investors take advantage of volatile markets in a number of important ways:

Smart investors step up to the plate to buy, even if everyone is shouting ‘sell.’ Even if you get nervous and move some of your cash or bonds, make sure that you are putting at least something into stocks or stock mutual funds during the rough patches and

Smart investors use volatile markets to upgrade portfolios.
Smart investors don’t miss the future by looking at the past. They take their lumps, learn their lessons, and do what they can to position their portfolios for the market’s inevitable upturn. That means smart investors use volatile markets to trim their deadwood and buy those stocks that they always wanted to own if they got cheap enough.”

Ibbotson Associates, a Chicago research firm, suggests that “adding precious metals to a portfolio of U.S. equities, bonds, and Treasury bills would modestly improve long-term returns without adding risk to a portfolio. An asset allocation of 7.1% to metals would increase the expected return on a conservative portfolio by 0.2%. A 12.5% allocation in a moderate portfolio would add 0.4% to the expected return. Indeed, the performance of an equally-weighted gold/silver/platinum portfolio is actually closer to fixed-income assets than to equities over the period from 1972 to 2004.”

James Shepherd, President of JAS MTS Inc. and editor of the Shepherd Investment Strategist, has stated that “my investment philosophy is based on one simple premise: we must be invested in areas that provide the best returns, with safety, of our core capital. Then, when other opportunities arise that give us the ability to use speculative leverage to propel our overall portfolio higher, we should avail ourselves of the opportunity with a small percentage of our capital in order to take advantage of this potential. Unfortunately for many investors, they never seem to be flexible enough to be in the right things at the right time. I recommend putting 33% of ones portfolio in 30 year U.S. Treasury bonds due to the deflationary pressures that are very much in evidence, although currently just under the surface, which will drive long-term interest rates even lower and 67% in short-term government securities or, for the more aggressive investors, placing 33% in URSA and the balance in short-term government securities..” In addition, when it is evident that a stock market crash is imminent, he intends to “utilize more aggressive means of playing the anticipated decline in long-term rates by using instruments or funds comprised of zero-coupon bonds which move higher in price relatively much faster than regular Treasuries, to take substantial positions in funds that move inversely to the major indices and perhaps even leveraged versions of these derivatives that move inversely in multiples to the underlying index. We will also be utilizing some leverage instruments such as put options. These can increase dramatically in the event of a collapsing stock market. Regarding gold I am of the opinion that if we get rampant inflation at some time in the future, we could confidently expect gold to rise very sharply to well above the $2,000/ounce level. That said, however, the most likely outcome is a deflationary environment. In that scenario gold would not do well, nor would many other ‘hard’ assets.”

Richard Benson, President of Specialty Finance Group, LLC, is of the opinion that “the financial markets are leveraged for a crash. The capital markets have become one massive casino. Very few people believe they are gambling with their own money because borrowing with other people’s money to place the bets has become so easy. Money is being made in the leveraged carry trade or in speculating on margin. Even the patriotic homeowner with a variable rate mortgage is borrowing short-term to buy stocks, and to pay bills. What happens when investors want to reduce their risk and need to sell but can’t find a buyer? They would be trapped because the markets are just not that liquid, especially when everyone wants to sell! That’s why it is important to be in cash before the crash! Short-term Treasuries, bank CD’s (but only up to $100,000 per institution), TIPS (Treasury Inflation-Protected Security), I-bonds, and gold coins are all wonderful places to sit out any potential storm. For the average investor who is risk adverse and for any investor who considers losing a dollar worse than making a dollar our advice is to get into cash and be prepared to wait. Good hunters know how to wait and good things happen to those who are patient, like buying what they like at half price!”

It is recommend investors strategically position themselves in a wide variety of assets including precious metals, mining shares and long-term warrants. Nothing like taking what the experts say to heart and investing accordingly.

© Copyright Precious Metals Warrants 2006

[sumisu]

Ominous Warnings and Dire Predictions of Financial Experts, Part 1

By Dudley Baker and Lorimer Wilson

02 Mar 2006 at 06:29 PM EST

SAN ANTONIO (Precious Metals Warrants) -- We have assembled some interesting comments from some of the leading economists, financial analysts, economic research firms and financial commentators and what they are saying about our current economic situation and what is most likely to unfold in the months and years ahead. This is a summary of the ominous warnings, dire predictions and perceived devastating consequences as they see it.

We trust you will find this a must read to more clearly understand and appreciate the financial state of the union, the impact it will likely have on various investments, and how better to allocate ones assets. Nobody has a crystal ball, but to just ignore the following warning signs and hope that everything will turn out okay would simply be foolish. Below is Part 1 of our 6 part series of articles.

Ominous Warnings and Dire Predictions

Alan Greenspan, an ‘original gold bug’ and former Chairman of the Federal Reserve, is going to say “I told you so!” as soon as he feels at liberty to comment further on what he already warned us might/will happen to the economy. He will no doubt expand on what he saw as the:

Potential for a derivative crisis: “I would suspect there are potential disasters running into … the hundreds.”
Potential drop in asset prices: “This vast increase in the market value of asset claims [stocks, bonds, houses] is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. But what they perceive as newly abundant liquidity can readily disappear … history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”

Housing bubble: “Nearer term, the housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease. As a consequence, home equity extraction will ease and with it some of the strength in personal consumption expenditures.”

Coming crisis in Social Security: “The imbalance in the federal budgetary situation, unless addressed soon, will pose serious long-term fiscal difficulties. Our demographics – especially the retirement of the baby-boom generation beginning in just a few years – mean that the ratio of workers to retirees will fall substantially. Without corrective action, this development will put substantial pressure on our ability in coming years to provide even minimal government services while maintaining entitlement benefits at their current level, without debilitating increases in tax rates. The longer we wait before addressing these imbalances, the more wrenching the fiscal adjustment ultimately will be.” “When you do the arithmetic of what the rising debt level implied by the deficits tells you and add interest costs to that ever-rising debt at ever-higher interest rates, the system becomes fiscally destabilizing. What you will end up with is a stagnant economic system.”

Oil supply risk: “The current situation reflects an increasing fear that existing reserves and productive crude oil capacity have become subject to potential geopolitical adversity. These anxieties are not frivolous given the stark realities evident in many areas of the world.”

Rising budget deficit: “Large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years. Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse.” “Monetary policy, for example, cannot ignore the potential inflationary pressures inherent in our current fiscal outlook, especially those that could rise in meeting commitments to future retirees. However, I assume that these imbalances will be resolved before stark choices again confront us and that, if they are not, the Fed would resist any temptation to monetize future fiscal deficits. We had too much experience with the dangers of inflation in the 1970s to tolerate going through another bout of dispiriting stagflation. The consequences for both future workers and retirees could be daunting.”

Rising long-term interest rates: “The fiscal issues that we face pose long-term challenges, but federal budget deficits could cause difficulties even in the near term. Rising interest rates have been advertised for so long and in so many places that anyone who hasn’t appropriately hedged his position by now is desirous of losing money.”

Record-high current account deficit: “Given the already substantial accumulation of dollar-dominated debt, foreign investors, both private and official, may become less willing to absorb ever-growing claims on U.S. residents….Net claims against residents of the United States cannot continue to increase forever in international portfolios at their recent pace…Given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point. The trade deficit cannot continue to increase forever at the recent pace.

Excessive household debt: Debt in modest quantities does enhance the rate of growth of an economy and does create higher standards of living, but in excess, creates very serious problems.

Falling U.S. dollar: Although I doubt that the U.S. dollar will lose its status as the world’s reserve currency any time soon, there are in my judgment lessons to be learned from the experience of sterling as it faded as the world’s dominant currency.”

It is interesting to note that at one time Greenspan was an ardent gold bug and a true believer in the gold standard as his following words attest: “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of the insidious process.”

Deep Funk

Richard Fisher, President of the Dallas Federal Reserve, noted on Feb.6, 2006 that “U.S. consumer spending could suffer if the property market cools too fast but that is unlikely because of the high number of home owners with fixed rate mortgages acting as a buffer against the small fraction of those with variable rate mortgages. It is not unreasonable to think the situation is manageable, albeit worth watching closely.”

Regarding the record U.S. current account deficit he said “those urging the United States to rein in its spending should be equally full-throated in prodding countries with excess savings and trade surpluses to create conditions for growing their domestic demand. If they fail to do so, and the U.S. suddenly becomes more virtuous on its own, the global economy could sink into a deep funk.”

Financial Disaster

Paul Volcker, a former Federal Reserve Board Chairman, is on record as saying “I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. Indeed, there is a 75% chance of a major financial disaster within the next few years.”

Great Disruption

David Dodge, Governor of the Bank of Canada, earlier this month said “global imbalances, such as the record U.S. current account deficit and the ballooning surpluses in some Asian countries, are persisting and if not resolved in an orderly way, we face the threat of great disruption with periods of outright recession.”

Economic Armageddon

Stephen Roach, Managing Director, Chief Economist, and Director of Global Economic Analysis of Morgan Stanley, has stated that “America’s record trade deficit means the dollar will keep falling, interest rates will rise further and U.S. consumers, in debt up to their eyeballs, will get pounded with no better than a 10% chance of avoiding economic Armageddon.”

Financial Apocalypse

Kurt Richebacher, former Chief Economist of the Dresdner Bank, has stated that “the bubble-driven consumer-spending boom we are currently in represents artificial, unsustainable demand and further rate hikes by the Fed will prick both the carry trade bubble in bonds and the bubble in housing. A financial Apocalypse will follow. The U.S. economy will lose its chief liquidity source with disastrous effects on a wide range of asset prices.

The U.S. has such serious structural problems they preclude any possibility of a sustained economic recovery. These structural problems include a corporate profits decline, a record savings shortfall, a capital spending collapse, an unprecedented consumer borrowing and spending binge, a massive current account deficit, ravaged balance sheets and record high debt levels. Tops among them are the depression of profits and capital spending which will propel each other downward in a vicious spiral.

In addition, U.S. stocks are still overvalued. The worst part of the bear markets is still to come and it will result in the wholesale destruction of the financial wealth derived from the bubble economy.

The U.S. financial system today is a house of cards built on nothing but financial leverage, credit excess, speculation and derivatives. A recession is coming and it will prove unusually severe and long. The length and severity of recessions or depressions depend critically on the magnitude of the dislocations and imbalances that have accumulated in the economy during the preceding boom and, as such, the U.S. economy is in for a very hard landing. The excessive monetary looseness has only postponed and magnified the coming inevitable crisis.

Growing disillusionment with the U.S. economy is the trigger. The huge capital inflows have become the U.S. financial markets’ single most important pillar. Take this pillar away, and those markets will instantly collapse with devastating effects for the U.S. economy, turning quickly into a savage credit crunch. The exposure of the U.S. financial markets to foreign investors and lenders has grown to such preposterous magnitude during recent years that a controlled gradual dollar devaluation no longer appears feasible. The dangers that loom on the currency front are immense. The grossly over-leveraged U.S. financial system is hostage to a strong dollar and permanent, huge capital inflows. The U.S. trade deficit and the accumulated foreign indebtedness have reached a scale that defies any possible action by central banks. The fate of the dollar is beyond any control.”

Financial Train Wreck

Nouriel Roubini is Professor of Economics and International Business at New York University’s Stern School of Business; Chairman of Roubini Global Economics; Research Fellow at the National Bureau of Economic Research; Research Fellow of the Centre for Economic Policy Research; Member of the Bretton Woods Committee, the Council on Foreign Relation’s Roundtable on the International Economy and the Academic Advisory Committee, Fiscal Affairs Department of the International Monetary Fund; former Senior Economist for International Affairs on the Staff of the United States President’s Council of Economic Advisors; and co-author of several books on the economy.

Roubini has stated that “if the U.S. does not take policy steps to reduce its need for external financing, before it exhausts the world’s central banks willingness to keep adding to their dollar reserves then the large, growing and unsustainable fiscal deficit and U.S. current account deficit will become twin financial train wrecks for the U.S. economy and will lead to a sharp hard landing of the dollar, a sharp increase in long term interest rates, a significant increase in the inflation rate and a sharp slowdown of the U.S. and global economy.

A dollar crash/hard landing would be associated with a bond market rout and would have serious consequences on all other risky and overvalued assets (equities, housing, high-yield debt, emerging market debt).

The effects in the U.S. of higher short and long rates on the housing market, both flows of new housing and new home demand on the value of existing housing, would likely be severe.

Oil prices will skyrocket above $100 per barrel. Then we will get a U.S. and global recession that will pale compared to the one in 1980-82.

I am not being alarmist or unrealistic when you consider our reckless fiscal and public debt policies, the absence of adult policy supervision in Washington and the mediocre or nonexistent U.S. economic leadership.”

Demographic Tsunami

David Walker, Director of the U.S. General Accounting Office and Comptroller general of the United States, has stated that “our projected budget deficits are not manageable without significant changes in status quo programs, policies, processes and operations and were such action implemented it would most likely adversely affect the quality of life of every American now and in the foreseeable future. The U.S. faces a demographic tsunami that will never recede.”

We would recommend investors strategically position themselves in a wide variety of assets including precious metals, mining shares and long-term warrants. Nothing like taking what the experts say to heart and investing accordingly.

© Copyright Precious Metals Warrants 2006

Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U.S. and Canadian Exchanges Visit us soon.