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Author Topic: Global Economic Meltdown Watch
Uncle John
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posted 19 March 2008 06:50 PM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
A couple of months ago I was hearing that some economic numbers were the worst in 4 or 5 years. Last week I was hearing some that were the worst in 20 years.

Today I heard two numbers which were the worst since John Diefenbaker was Prime Minister. The interest rate on the 3-month US Treasury was the lowest since May 1958 (0.56%). The Canadian dollar fell the most since about the same time (2.19 cents). I remember my mom told me there was a mini-depression in the late 1950s.

If we are moving into a depression, we should see more statistics like this. Time will only tell if we see some things as bad as they were in the 1930s.


From: Toronto | Registered: Feb 2008  |  IP: Logged
Doug
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posted 19 March 2008 07:55 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Yep, everybody panic:

Households face the unthinkable: budgeting

Noooooooo!

And the true horror is being felt in Beverly Hills:

quote:
"Some clients would have bought (both) a Rolls-Royce and a Bentley every 12 months but now they've cut it down to buying two cars in an 18-month period," he said.

http://news.yahoo.com/s/nm/20080319/us_nm/usa_economy_rich_dc_3


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Frustrated Mess
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posted 19 March 2008 08:07 PM      Profile for Frustrated Mess   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
There is a reasonably large human cost in all this.
From: doom without the gloom | Registered: Feb 2005  |  IP: Logged
Fidel
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posted 19 March 2008 08:28 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Uncle John:
If we are moving into a depression, we should see more statistics like this. Time will only tell if we see some things as bad as they were in the 1930s.

I think that several areas of our hard fought-for social democracy have been eroded since the 1980's. But a redo of the collapse of laissez-faire capitalism in the U.S. and Canada would be near impossible. The feds would have to be trying really hard to be as impotent as their predecessors were under R.B. Bennett's conservatives from 1930-35. We have much more socialism in our economies today to act as shock absorbers if and when deregulated banking and finance does a repeat swan dive of 1929.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Uncle John
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posted 19 March 2008 08:45 PM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
It is kind of ironic that the last Canadian government that called itself only 'Conservative' was the one headed by R.B. Bennett.

To recreate the depressionary environment, we need a certain pig-headedness in our policymakers. They can start by blaming Ontario for refusing to implement the Common Sense Revolution...


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Fidel
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posted 19 March 2008 09:12 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
I remember reading one American's account of what it was like in that decade. He said a dollar a day was the average wage. Farmers couldn't afford new farm equipment in either the U.S. or Canada. Ernest Manning promised Alberta farmers that his party would touch the banks up for financial aid as relief. Thousands of hard-working Americans and Canadians lost their farms and homes to the banks. Between 1929 and 1932, nearly 40% of American banks closed their doors due to insolvency. Some commentators are saying that some well-known New York and London-based banks are close to or are already insolvent today. Bank auditors in London are said to be risking malfeasance by rubberstamping the bank's books while not balanced according to the rules.
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Uncle John
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posted 21 March 2008 05:16 AM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
It looks like the US government is not playing accounting by the rules, either. If Washington used the same standards corporations are expected to (including unfunded liabilities), the debt would be $53 trillion instead of the $9 trillion their cash-based accounting tells us it is.

Compared to this, the $0.6 - 1 trillion or so of questionable mortgages pales in significance. If the number is closer to $0.6 trillion, it looks like the Fed has replaced that. It seems that Bernanke will print as much money as he needs to, unlike his predecessor in the Great Depression.

Ironically that has brought some confidence back to the US Dollar. I guess a working system with a more watered-down dollar is more valuable than a non-working system with a less-watered down dollar. That 3-month T-Bill interest rate went down to 0.34% at one point last week, making it the lowest since 1954.

The going thought seems to be that if the liquidationists - who say that the banks should be allowed to collapse - prevail, we will see catastrophe throughout the system.

So we wind up with a warped socialism for the banking system - send dividends to your shareholders when you profit, and we will bail you out when you lose. But if the people are going underwrite losses, the people should have a share in the profits. Hence, the Sovereign Wealth Fund (SWF).

I guess it is correct we are seeing socialism work to rescue capitalism, however it is being done on a globalized deal-by-deal basis, $10 billion at a time. Canada Pension Plan buys an airport in New Zealand. Middle Eastern SWFs bail out American Banks.


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martin dufresne
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posted 21 March 2008 08:31 AM      Profile for martin dufresne   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Paul Krugman: Partying like it's 1929
quote:
Partying like it's 1929

By PAUL KRUGMAN
If Ben Bernanke manages to save the financial system from collapse, he will - rightly - be praised for his heroic efforts.

But what we should be asking is: How did we get here?

Why does the financial system need salvation?

Why do mild-mannered economists have to become superheroes?

The answer, at a fundamental level, is that we're paying the price for willful amnesia. We chose to forget what happened in the 1930s - and having refused to learn from history, we're repeating it.

Contrary to popular belief, the stock market crash of 1929 wasn't the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931.

This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

As the decades passed, however, that lesson was forgotten - and now we're relearning it, the hard way.

To grasp the problem, you need to understand what banks do.

Banks exist because they help reconcile the conflicting desires of savers and borrowers. Savers want freedom - access to their money on short notice. Borrowers want commitment: they don't want to risk facing sudden demands for repayment.

Normally, banks satisfy both desires: depositors have access to their funds whenever they want, yet most of the money placed in a bank's care is used to make long-term loans. The reason this works is that withdrawals are usually more or less matched by new deposits, so that a bank only needs a modest cash reserve to make good on its promises.

But sometimes - often based on nothing more than a rumor - banks face runs, in which many people try to withdraw their money at the same time. And a bank that faces a run by depositors, lacking the cash to meet their demands, may go bust even if the rumor was false. (...)


[ 21 March 2008: Message edited by: martin dufresne ]


From: "Words Matter" (Mackinnon) | Registered: Dec 2005  |  IP: Logged
martin dufresne
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posted 21 March 2008 09:14 AM      Profile for martin dufresne   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Triple Shock Strikes the Global Economy
By Eric Le Boucher, Le Monde
March 20, 2008
You've entered the kingdom of uncertainties. Oil? How high will it go? The dollar? How far will it drop? The financial crisis? When will it end? Recession? In the United States? In France? From week to week, the prognosis for each of these questions eludes us. A dark crisis mechanism is at work that seems impossible to arrest.

We're suffering the blows of a great triple shock, the scope and the consequences of which are still difficult to measure, but which we know will profoundly refashion the global system.

The first shock is the world's shift from the West to the East. The unique American engine is exhausted, China, Asia are taking over. The second shock is a consequence of the first: Chinese thirst for raw materials has caused prices to explode and provoked a return of inflation -- dead for 30 years -- to the forefront of concern. The third shock is the financial crisis which persists, expands and leads to the end of (too-) easy credit.

There is no equivalent for the first shock unless it be the passage of supremacy from Europe to America during the First World War. The second is like the so-called "oil" shock of the 1970s. For the final shock, comparison oscillates among the Great Depression of the 1930s and the more limited crises of the 19th century and those more recent crises of the 1980s. The three shocks together have, in any case, an unprecedented scope (...)


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Geneva
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posted 21 March 2008 09:42 AM      Profile for Geneva     Send New Private Message      Edit/Delete Post  Reply With Quote 
well, anyone who lived through the 1970s knows these kind of global economic shocks are not "unprecedented";

we came out the other side in the 1980s, and these challenges today look no bigger, although still plenty dramatic


From: um, well | Registered: Feb 2003  |  IP: Logged
Brian White
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posted 21 March 2008 10:16 AM      Profile for Brian White   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
If you go to
http://www.goldcdm.net/Downloads.386.0.html?&L=http%3A%2F%2Fwww.intel.com%3F
and click on Oil, Wood Fuel and the Sun to download the pdf.
Then you can see who is paying for our high lifestyle. The people in Chad and other dirt poor countrys! Worth a read. We are riding on the sholders of the poorest people in the world and stealing their resources.
Brian

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Frustrated Mess
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posted 22 March 2008 10:21 AM      Profile for Frustrated Mess   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
The U.S. Federal Reserve and its European counterparts are talking about the practicality of using public money to buy large quantities of mortgage-backed assets to clean up the credit mess jeopardizing global economic growth, the Financial Times reported Saturday.

Socialism for capitalists 101

From: doom without the gloom | Registered: Feb 2005  |  IP: Logged
George Victor
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posted 22 March 2008 12:48 PM      Profile for George Victor        Edit/Delete Post  Reply With Quote 
Eric Janszen's piece on economic bubbles in the February Harper's mag. : with finance capitalism having replaced the manufacturing economy in the U.S., an "inflation machine" was born. Bubbles every few years, and increasing in frequency.

As for "socialism" bailing out the market, Janszen puts it this way (sounds a bit like Galbraith's "conventional wisdom" criticism of mainstream economics):
"Since the early 1980s, the free-market orthodoxy of the Chicago School has driven policy on the upward slope of the economic boom, but we're all Keynesian on the way down..."


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Doug
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posted 24 March 2008 04:05 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Frustrated Mess:

Socialism for capitalists 101

I'm surprised the peanut gallery isn't out in full force screaming about how governments are about to buy your house out from under you.


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Stephen Gordon
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posted 24 March 2008 04:08 PM      Profile for Stephen Gordon        Edit/Delete Post  Reply With Quote 
Actually, the motivation for thinking about these sorts of measures is to avoid a massive wave of foreclosures.
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jester
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posted 24 March 2008 06:23 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Stephen Gordon:
Actually, the motivation for thinking about these sorts of measures is to avoid a massive wave of foreclosures.

The motivation for thinking about these sorts of measures is to avoid a massive wave of investor redemptions. For every financial failure, Chairman Bernanke has a creative solution that gives an illusion of successful intervention.

The perception that the crisis is averted is eagerly grasped by markets - until the next crisis unfolds. This cycle will repeat itself as long as necessary and will doom the USD.

For two generations,investors have shunned stodgy real assets for the ever greater returns realised by structured investment vehicles. The slicers,dicers,securitzers and tranchers have responded with ever more complicated structured investment vehicles that offer even greater returns.

Bernanke deserves kudos for his creative interventions but the problems won't go away. Until the excesses of rampant liquidity are drained from the system - via very painful methods such as Bear Sterns's ignominious retreat from $170/share to $2 or perhaps $10 if the Street can BS the ever gullible- the problems will continue to surface for another year or three.

The USD, as a store of value will be lowered and accelerate the process of moving third world economies that do not have these sorts of financial excesses into global leadership.

The illusion that Central Banks can ameliorate the coming painful journey is laughable. The onlt result will be downloading the grief from the bankers to the taxpayer and having the average American doing the suffering.

At the present time,the European Union is "not helpful" to the American crusade to bail out financial markets in order to avert bank failures. One must realise that the European Union is cobbled together with disparate economies and that the profligate spenders in Spain,Italy and Greece,among others will be greatly at odds with more careful economies regarding the direction of the Euro.

The recent rally of the USD is based on a perception that it is "business as usual" on Wall St and the downfall,when it comes will be that much more severe. The only thing holding the dollar up is hot air and wishful thinking.

Because the world economy is a much different entity now that previously,these crises will not lead to depression but the flow of wealth from so-called first world fiat wealth economies to third world hard asset wealth economies will be long and painful.

George W. Bush has accomplished singlehandedly what legions of revolutionaries and grand thinkers (especially here) could not - a new world order.

The future USA will be much more diminished but no less dangerous to all other nations.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
Uncle John
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posted 24 March 2008 07:20 PM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
It is odd how the markets have been up these last couple of days.

Maybe they have figured Bernanke will keep bailing them out no matter what happens.

Ultimately that means the US dollar should keep falling and things will get more expensive.

At least now it seems like they don't need a bailout every day they want the markets to go up.


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Fidel
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posted 24 March 2008 08:28 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by jester:

The future USA will be much more diminished but no less dangerous to all other nations.


Good post, jester. We know Uncle Sam has pulled rabbits out before. I think all that's needed is political will as it was in the 1930's to 1960's. Socialism is a powerful tool in rebuilding economies, and America still has plenty of innovative socialist thinkers - too many, perhaps, for the U.S. to collapse completely. And I think failure is relative.

Britain ceased to be the vicious empire that it was for a long time. And then something strange happened in Britain in the first half-middle of the last century. Britain suddenly became a great social democracy, and all of Europe looked up to England as a great country(Yes, they've regressed since Maggie and John but still haven't declared war on France and Spain simultaneously and haven't tried to reclaim India).

This is a good article by Ellen Brown and located on globalresearch.ca. Here it is from her own web site: WebOfDebt.com

Another Way Around the Credit Crisis: Minnesota Bill Would Authorize
State Banks to "Monetize" Productivity

[ 24 March 2008: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
jester
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posted 24 March 2008 11:12 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
One point to remember about "good news", is that the numbers are massaged to present a positive spin.

Take housing sales. Media presents us with the fact that US housing sales have improved 2.9% in February but neglect to mention that any change in the deed is registered as a sale,including foreclosures.

Foreclosures rose to 493,000 units in January, up from 231,000 units the year before. Today,one in nine sales is a foreclosure, last year,one in fifteen.

In Detroit, average prices fell 54% to $22,000. Thats in inner city Detroit,not the burbs. So, there is now a movement afoot to use public funds to buy these homes by NPOs and civic authority to provide affordable housing to low income individuals and families.

While this is laudable,the fact is that it is the banks who will be assisted by tax dollars,not the needy. it will be possible to effect some limited positive change vis-a-vis socialist intervention in housing but the derivatives market is waaaay beyond interventionist help. The best to be hoped for is an orderly unwinding of the mess.

The derivatives "bubble" is well into the trillions and if it can be unwound in a more or less orderly fashion, it will be extremely painful. if it unwinds precipitously due to panic runs on banks,it will threaten economic well being for years to come.

What one perceives as markets being up is in reality an increase in volatility. Watch the market over a period of days and the gains disappear on news of one calamity and reappear when Helicopter Ben intervenes.

There is a certain amount of arrogance and hubris in the US market that since Bernanke has indicated the market will not be allowed to fail, it means business as usual. Nothing could be farthur from the truth - there will be hundreds of billions and possibly trillions of dollars of fiat wealth evaporating in the next year or two.

The financial entities are not yet very forthcoming regarding their exposure but quarterly financial announcements expected next month will tell the tale.

Hard assets will come to the fore as the realisation dawns that fiat wealth will not serve as a store of value. Bond prices will soar,lowering returns below inflation or even negative returns while stagflation will return to the US,simultaniously choking growth and raising prices.

Its going to be a lousy time for those on a fixed income.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
Uncle John
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posted 25 March 2008 07:39 AM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
Ellen Brown has written some good stuff explaining the shortcomings of the US monetary system.

Today we have the worst retail confidence in the US since 1973, the home price index is down over 10% in January, junk bond losses are topping $35 billion, and as of lunchtime, the DOW is only down about 50 points.

Canada is discovering that a stronger currency is not necessarily a bad thing...


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jester
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posted 25 March 2008 08:36 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
The problems in civic borrowing that Ms. Brown explains are compounded structurally by a US administration that is funding its war-fighting and financial bail-outs entirely by debt.

As Americans have squandered equity in search of rampant comsumerism, the fiscal capacity of the USA is now entirely at the mercy of foreign appetite for US dollar denominated debt.

Make no mistake! When foreign entities decide that they will no longer assume the risks of a falling dollar, whether for political or economic self-interest, the astronomical US debt will doom the average American to third world status.

Ms. Brown captures the concerns states have with fiscal capacity in an era of potential stagflation and falling revenues as well as increased competition for scarce debt funding.

This is one method of how average Americans will suffer-crumbling infrastructure in an era of less government spending and higher taxes.

The "socialism" of the new order will be entirely directed at the moneyed class. Even programs to direct the benefits of foreclosed housing to low income individuals will be a scam to get banks off the hook for foreclosures through intermediaries who will collect fees and contractors who charge large costs for shoddy workmanship, sticking the taxpayer with the bill.

Its the American way. look to the Katrina aftermath for a view of the future.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
Uncle John
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posted 25 March 2008 08:45 AM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
Goldman Sachs has estimated the total subprime losses will be $460 billion, about 3 times what has already been written off.

The highest previous estimate I had seen was $400 billion.


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Fidel
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posted 25 March 2008 08:56 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
I think the crumbling of infrastructure has been happening for a while in the U.S. and already resembles the state of the former Soviet Union after years of starvation diets for public works.

Certain Democrats have known all along that capitalism requires well-funded state infrastructure in order to function. Cheap electrical power and fossil fuels drove economic expansion in Canada and the U.S. throughout the cold war years. And hawks believed it was their duty to capitalism to go out and make the world's resources available for unrealistic expansion to continue. Like the Nazi invasion for living space and raw materials was stopped fifteen or so miles outside of Moscow - Pentagon capitalists' aspirations for empire have run into a similar roadblock with technological stagnation wrt available supplies of energy. The post-WWII cold war dream was just that, a dream. Hard work ahead, and I think socialism will be utilized in America, once again, to do the heavy lifting in rebuilding U.S. economy and infrastructure after a second attempt at laissez-faire has proven folly.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Fidel
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posted 25 March 2008 09:09 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Uncle John:
Goldman Sachs has estimated the total subprime losses will be $460 billion, about 3 times what has already been written off.

The highest previous estimate I had seen was $400 billion.


I think its time they put the whole financial system into bankruptcy proceedings. Political hawks and the new Liberal capitalism are going away. Liberal Democrats will either choose wisely
or go down with the ship. Americans face sweeping changes either way. Let's hope it's not too painful for their sake.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
jester
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posted 25 March 2008 02:19 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Uncle John:
Goldman Sachs has estimated the total subprime losses will be $460 billion, about 3 times what has already been written off.

The highest previous estimate I had seen was $400 billion.


Is that total losses or just the subprime losses reporting banks are exposed to?

With every reporting event,which must be met by law, the loss becomes greater. Since no reporting financial entity will fess up until forced to by law, why should any reasonable person not conclude that losses will continue to mount as reporting events occur?

Also, this is losses from sub-prime mortgage exposure. What about losses from frozen Asset-Backed Commercial Paper or the exposure faced by Credit-Default Swap insurers or the exposure the bond rating agencies like Moodys or Dominion face from lawsuits? The list of types of loss exposure is as endless as the list of types of creative structured investment vehicles.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
Uncle John
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posted 25 March 2008 03:11 PM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
Here's the article about the $460MMM, jester. Maybe you can make more sense out of it. There is talk about both residential and commerical mortgages.
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clandestiny
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posted 25 March 2008 03:22 PM      Profile for clandestiny     Send New Private Message      Edit/Delete Post  Reply With Quote 
can anyone explain the M3 thing, they way the bush gov stopped publishing the total value of money printed a few years ago? Surely if the Fed is having tens of billions printed in secrecy, everyone who depends on the dollar having a fixed value would not be able to know the value. How is it such a basic factor in a currency as the number of the bills printed just be cancelled on a whimsy (and the bush gov's proven criminal behavior would make everything they do suspicious, would it not?) Reading the following says everything is normal, but again, even from point of plain logic, something is fishy, and why didn't the financial press force the issue into the daily news? Aren't they, market and money watchers, as susceptable to economic meltdown as regular people?

snip>
M3 index is a report published by the United States Federal Reserve to keep track of the money supply.....

Unfortunately, on March 23, 2006 it was decided to stop publishing this report. The government stated that the report was costly to produce and was not providing useful data. Whether or not that is true remains a debate.
http://www.asknabloid.com/what-is-the-m3-index/


From: the canada's | Registered: Sep 2004  |  IP: Logged
Stephen Gordon
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posted 25 March 2008 04:01 PM      Profile for Stephen Gordon        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by clandestiny:
can anyone explain the M3 thing, they way the bush gov stopped publishing the total value of money printed a few years ago?

Jim Hamilton can.


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jester
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posted 25 March 2008 08:46 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Uncle John:
Here's the article about the $460MMM, jester. Maybe you can make more sense out of it. There is talk about both residential and commerical mortgages.

50% in residential mortgages,20% commercial mortgages and the rest in credit card loans,car loans etc. Its only the tip of the iceberg.

No mention of the exposure to derivatives but since Goldman Sachs is also up to their ass in financial alligators, their motives are always suspect.

It is very difficult to predict with any certainty how the whole fiasco will play out but consider that while the fed has guaranteed the markets not to fail by providing limitless liquidity to the bankers, do not expect to see the fed discount rate translate into cheaper money for the average guy who goes looking for a loan at his bank.

Its all smoke and mirrors with an announcement a day orchestrated to keep the consumer and investor off balance. its all about perception, not substance.

The Fed makes a big deal out of the discount rate but if one is so inclined, watch the real return bond rates. As bond prices are driven up by refuge seekers,driving yeilds down, the projected inflation rate of 4.6% will create negative returns. Thats the rate to watch,not the discount rate sleight of hand.

For every crisis, Ben Bernanke has a creative solution. He isn't "lending" overnight funds or 28 day auction funds,he is quite simply providing a limitless guarantee to bankrupt banks and financial houses to be paid for by the next generation of Americans.

As collateral for this guarantee,the Federal Reserve is accepting the banks' worthless paper that caused the fiasco in the first place.

The Federal Reserve is also lowering bank capital reserves to allow them to leverage even more. The "leveraging" the banks are doing is with their depositors' money.

The American people have not yet paid for any of the Iraq war costs as the costs are totally financed by debt. When the Bush administration's hidden costs are added to the budget deficit and the realisation sinks in that this debt is held in the foreign reserves of some rather unsympathetic chaps ranging from non-committal to downright unfriendly, the true magnitude of George Bush's stupidity will come to light.

Never underestimate the capacity of the American economy or the creative genius of individuals like Ben Bernanke but the road to recovery will be long and painful for the Americans.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
KenS
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posted 25 March 2008 09:46 PM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
To the degree that I understand what is going on, I think there is far less idea of how deep the problems with and exposure to losses from the declining value of the commercial paper [ABCP].

Goldmann says this is 20% of that total. More so than with the subrime sector- where there is a much better idea of the total losses- anybody is free to guess what they like. And Goldmann has a much bigger interest in the 'light at the tunnel' argument on top of the general interest all financial institutions have in it being beleived.

Jester pointed out that the US Fed isn't backing things like the Stearns bailout with assets. And each promise lowers the credibility in the total sum of promises. They are banking on that bottom being reached- the real [real as it gets anyway] 'light at the end of the tunnel'- before the credibility of those promises reaches the tipping point.

Nobody knows where that tipping point is of course. But the Fed hasn't a chance of underwriting massive failures of ABCP or of other financial instruments I've never heard of before that have yet to be tested in the cold shower of whether the market will touch them as they come due [for what was previously a routine rollover].


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jester
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posted 26 March 2008 07:18 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
Thats accurate, Ken. The issue is mind-boggling and very difficult to understand.

Asset Backed Commercial Paper is consumer debt packaged and bundled into tranches that entities put surplus cash into for short periods at which point the tranche is re-sold or, rolled over.

ABCPs are secured by the auto loan written by the credit union, or Canadian Tire credit card debt etc and is usually worth its face value. The problem is not its value but the fact that no0one wants to assume the debt when the roll-overis due and the debt is "frozen" with the present owner.

The funds that power ABCP are short-term "surplus" funds that an entity may need to commit in 30 or 60 days so the holders of frozen ABCP cannot utilise those funds. In Canada at least, this problem will sort itself out as the underlying security retains its value.

With regard to the lendings of the Federal Reserve, the problem is that the collateral they are accepting is NOT the actual financial instrument but worthless special performance contracts on financially disavowed mortgage instruments.

This is the same problem that started the fiasco in the first place. The holder cannot collect on the security because they cannot prove they lent the funds in the first place. Therefore, the actual value of the special performance contract is discounted (or worthless) BUT when the original beneficiary of the loan defaults, the loans is worth 100% of its value on the balance sheet of the holder.

The "losses" that financial houses are taking are basically write-downs on non-performing loans. They will have to keep taking write-downs for each successive reporting period until the loan becomes performing,they sell the underlying security or the loan is written down to 0 over its term, NOT over one reporting period.

That is why the markets are so volatile now and why Wall St in particular is enthralled with fed intervention- it gets a lot of that red ink off the balance sheet,sort of.

The perception is fed short term "loans" to inject liquidity into the market but the reality is a transfer of responsibility for non-performing securities from the corporate holders to the public purse over the long term.


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jester
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posted 26 March 2008 07:46 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
I notice today that the dollar rally is fizzling out. The USD Index is falling back down to its low. The EURO is still gaining and with the Canda falling against the USD, a Euro now costs $1.60 Canadian, up from $C1.38 when the loonie was $1.10 US.

The uncertainty for Canada, at present, is the concern that a US slowdown will impact commodity sales. That is driving traders out of the Cando and impacting both the loonie and the TSX which is weighted in financials and commodities.

In my humble opinion, strengthening prices and shortages in coking coal and iron ore for one example point to a resurging world economy, powered by those economies that do not have exposure to the excesses of the US financial bubble.

Petroleum demand is somewhat hidden by China's domestic subsidy of oil. The demand for enery is expanding exponentially in Asia and will support higher prices for oil.

As growing assurances of commodities demand create a more secure market, Canada's economy will take off again except for the Eastern manufacturing segment which will face continued problems with a surging Cando.

There is nothing to be done about the downslide of the USD. Canada's fundamentals are strong and the US mired in debt - a lot of it in hidden deficits and financial losses that have not yet been reported.


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KenS
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posted 26 March 2008 08:37 AM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
I agree that the higher probability is that there will not be excessively drawn out pain in Canada- in the end, more like what we've been through in the last couple decades.

The Canadian dollar going down and oil going down is just because speculators pushed them up in the first place. They have to trade something somewhere. But when they get spooked on the latest short term refuge [oil futures, canadian dollar for example] they go somewhere else or just hold because its better to make no money for a while than expose yourself to big losses when the bubble on one of your 'refuges' bursts.

So a lot of these fluctuations have no basis in any fundamentals.

Mind you, if panic waves begin cascading throughout US financial instruments and institutions, nobody is insulated. And even 'better insulated' may translate into substantial pain for half or more of Canadians.

Interesting that the high tax jurisdictions of the EU with their very real and pervasive unresolved employment structure issues, have the strongest currency.


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jester
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posted 26 March 2008 09:09 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
Thats why I consider the inflation-adjusted yield on bonds to be an indicator of fiscal health.

The spread between US, Canadian and Euro bank rates will predicate the treasury inflows. US bond rates will be in negative territory. Canadian rates will be a little better,depending on the BOC's attitude to Cando support because Canada has the inflationary wiggle room due to its solid fundamentals.

The real problems for treasury inflows( or foreign investment into domestic economy/domestic repatriation of foreign investments)will be in Europe.

The potential for higher inflation and,as you say,the structural disparity of the Euro nations does not allow the Euro central bank much room to help,even if they were politically inclined.

Significantly higher interest rates in Europe will propel capital into the Euro,while Canada is not so reliant on capital inflows. The US, on the other hand is entirely dependent on foreign purchases of US debt to fund not only their trade and budget deficits but also their future unfunded SS and Medicare liabilities.

The bald facts are that the US governent has "borrowed" payroll deductions for SS and Medicare, used the funds to hide the size of the deficit and given the programs IOUs.

In future, the money will have to come from somewhere and the poor US taxpayer,who has pissed away his equity on financing lifestyle, enjoying Bush's tax cuts will discover that not only his lifestyle but his government are funded by debt.

The lifestyle,tax cuts,deficit,trade deficit,UNFUNDED Iraq and Afghan wars (hidden deficit) are all funded by foreign purchases of US debt with US dollars. If the holders of foreign debt could figure out a way to get out of US dollar reserves without killing the golden goose,the US would be bankrupt or close thereto.


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Fidel
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posted 26 March 2008 09:50 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by jester:
The US, on the other hand is entirely dependent on foreign purchases of US debt to fund not only their trade and budget deficits but also their future unfunded SS and Medicare liabilities.

The bald facts are that the US governent has "borrowed" payroll deductions for SS and Medicare, used the funds to hide the size of the deficit and given the programs IOUs.



I think the feds should say to Goldman-Sachs and Wall Street: No more bailouts, you're effectively owned and controlled by the taxpayers now as it is with recent cash infusions. All those bonds they've sold are gambling debts and IOU's. And U.S. taxpayers should not be paying anyone's gambling debts.

Social Security is the most successful socialist program in U.S. history, even after a bunch of idiots have sabotaged fiscal and trade balances and cleaned out the treasury. Those socialist programs are federal obligations to American citizens. Goldman-Sachs and Merril Lynch should either pay their gambling debts or get outa Dodge, one or the other.


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jester
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posted 26 March 2008 10:27 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Social Security is the most successful socialist program in U.S. history, even after a bunch of idiots have sabotaged fiscal and trade balances and cleaned out the treasury. Those socialist programs are federal obligations to American citizens. Goldman-Sachs and Merril Lynch should either pay their gambling debts or get outa Dodge, one or the other.


Watch the neo-cons attempt to gut social programs in the name of expediency due to the financial "crisis".

When all the cards are on the table, the US will have to make some difficult decisions. Self-interest will rule the day and the vulnerable will be the first to be sacrificed.

Don't underestimate the capacity of the US economy to recover but also, don't underestimate their capacity to throw anyone who gets in the way under a bus.


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Fidel
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posted 26 March 2008 10:48 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
What I would like to know is, for how much longer can the system be propped up by a wall of money?

At what point does hyperinflation kick in with all this U.S. money and near-money floating around the world? I think Saudis have already experienced erosion of dollar holdings as well as inflation in real estate.

At some point, maybe U.S. Democrats will consider creating regulatory firewalls between banks, investment brokerages, and insurers as occurred during FDR's government in dealing with deregulated banking disasters. And that's if they win the election. The current batch of them aren't very far to the left by sounds of it. I'm hoping for things like the Minnesota Transportation Authority Bill to catch on. Political impotence should have been discarded in the '30's.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
KenS
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posted 26 March 2008 12:29 PM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
If the holders of foreign debt could figure out a way to get out of US dollar reserves without killing the golden goose,the US would be bankrupt or close thereto.

Yes, that is the trick that keeps them floating- so far and for the forseeable future.

I've heard compelling arguments that China let this situation come knowing and accepting that their US debt holdings would not hold their value.

Not sure I fully understood, and its been a while since I heard it, but something like this.

China is neither trapped nor inclined to pull the plug on the US even if it could find a way.

That the holding down of the value of Chinese currency and buying mountains of debt that they know is potentially unsustainable, is a price they took on willingly to power the subsidization of massive growth in China's manufacturing.


From: Minasville, NS | Registered: Aug 2001  |  IP: Logged
Stephen Gordon
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posted 26 March 2008 12:34 PM      Profile for Stephen Gordon        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by KenS:
Yes, that is the trick that keeps them floating- so far and for the forseeable future.

I've heard compelling arguments that China let this situation come knowing and accepting that their US debt holdings would not hold their value.

Not sure I fully understood, and its been a while since I heard it, but something like this.

China is neither trapped nor inclined to pull the plug on the US even if it could find a way.

That the holding down of the value of Chinese currency and buying mountains of debt that they know is potentially unsustainable, is a price they took on willingly to power the subsidization of massive growth in China's manufacturing.


That sounds about right. To that I'd add that China has of course its own internal politics. Just as in Canada, manufacturers want a cheap currency in order to promote exports to the US. The difference is that in China, they have been able to get their way.

[ 26 March 2008: Message edited by: Stephen Gordon ]


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jester
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posted 26 March 2008 02:22 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Fidel:
What I would like to know is, for how much longer can the system be propped up by a wall of money?

At what point does hyperinflation kick in with all this U.S. money and near-money floating around the world? I think Saudis have already experienced erosion of dollar holdings as well as inflation in real estate.

At some point, maybe U.S. Democrats will consider creating regulatory firewalls between banks, investment brokerages, and insurers as occurred during FDR's government in dealing with deregulated banking disasters. And that's if they win the election. The current batch of them aren't very far to the left by sounds of it. I'm hoping for things like the Minnesota Transportation Authority Bill to catch on. Political impotence should have been discarded in the '30's.


Its not really a wall of money. IF these various rescues can contain the threat of financial collapse long enough for the securities underlying the special performance contracts to perform again, the losses will be the difference between actual and notional value of the contracts. Or,the losses can be limited by getting residual value from the securities - as long as the underlying contract is not forced into bankruptcy.

I just read what I wrote and got a headache . Basically, the Fed is providing an element of time to allow these derivatives an opportunity to unwind by guaranteeing to pick up the pieces afterward.

There is some dispute whether the Fed is actually increasing M2 money supply or whether they are providing liquidity on the one hand and draining it with the other. Its beyond my understanding and very possibly,this info is purposely obfuscated to avoid frightening a nervous market.


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Fidel
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posted 26 March 2008 04:19 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
Apparently the U.S. Fed has doled a few billion dollars out to European and Swiss banks to cover projected losses. Mike Witney quotes economist Nouriel Roubini's testimony before Congress. It sounds like the U.S. is headed for a deep recession. Whitney says all of the Fed's tools for fighting inflation are actually inflationary.
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KenS
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posted 27 March 2008 04:49 AM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Just as in Canada, manufacturers want a cheap currency in order to promote exports to the US. The difference is that in China, they have been able to get their way.

One of the beauties of crony capitalism- at least when it works well.

A surprising amount of manufacturing is still state owned. The distribution and allocation and resources from profits has even more of the fruits percolating to the top layers than here. And the top capitalists even manage to realize those profits accoring to the same incentive structure as any owner, but the state is the owner in the final analysis.

And in the case of the currency held down artificially, the benefits of state ownership show up.

I don't actually know what happens in practice, but when China stared taking off analysts talked about these gigantic enterprses being used as instruments to implement policy.

I suspect its more the other way around. The giant enterprises behave like any other such capitalist firm, and the states' aggregate stake in all these firms [and what that means to the lifestyles and effective power of politicians at all levels] ensures that it operates as a sort of politburo for the captains of industry.

[ 27 March 2008: Message edited by: KenS ]


From: Minasville, NS | Registered: Aug 2001  |  IP: Logged
KenS
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posted 27 March 2008 05:12 AM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
When we see all these cascading problems in the financial industries, some of which are al ready crises, and hear how thins are even more interconnected than we knew, how much contagion and nervousness spreads, and how little slack there is in the overarching system....

...the cumulative effect is to see a serious and depp crisis in the making. With many potenial candidates as the match that sets the blaze off.

And there is a real possibility of that.

In the NYTimes a feature article today is how the next big mortgage crisis is the home equity loans on the millions of homes in the US that have dropped in value. Not just the dubious value of the loans. But the holders of those second mortgages holding everyone else hostage to get some of their money- gumming up the works on yet another front. Making already very difficult and tenuous giant rescue plans harder still to EVER get off the ground.

But it sin't just the 'everything is fine crowd' that approaches this differently.

Consider the title in a Globe article today: Bay Street freezes...

Which opens with "Canadian bank executives are skeptical the crisis rocking global financial institutions will be over soon." But doom and gloom to them is "Toronto-Dominion Bank chief Ed Clark says it could stretch into 2009."

In other words, this is going to take longer than people are talking about folks. This is not easy stuff to digest.

A 'digesting process' that stretches even into 2010 would not be longer than anything else we've been through in the past couple decades. And most of them have looked up close at the time, weird, 'suprising' to the extent they happened, and very unstable.

Sure these folks have a vested interest in not seeing it as a crash type crisis in the making, but there are solid substantive arguments for it.


Mind you, even getting through without serious damage, you would think the US has to come out of this with a weakened position. A weakened US dollar just doesn't have the compensating invigoration powers that a weak currency has for the Chinas and Canadas of the world. But who knows, the US economy pulls rabbits out of hats. Maybe this unleashes an onslaught of service and knowledge industry exports?

At any rate, if the US economy doesn't pull out another new rabbit, and dodges nasty bullets to come out intact but weakened... its hard to imagaine we won't share the bulk of the effects.

[ 27 March 2008: Message edited by: KenS ]


From: Minasville, NS | Registered: Aug 2001  |  IP: Logged
KenS
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posted 27 March 2008 06:17 AM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
holding down of the value of Chinese currency and buying mountains of debt that they know is potentially unsustainable, is a price they took on willingly to power the subsidization of massive growth in China's manufacturing.

That I should flesh out some more that bit about the Chinese deliberately buying all that debt knowing the sustainability risks, as essentialy a subsidy for their manufacturing boom... a national scale cost of doing business.

If China is going to keep it's currency undervalued, and intends to have a monstrous trade surplus with the US... it has to fund that US deficit.

Buy buying mountains of T-bills China simulataneously fills its need to:

- keep the US dollar as high as possible.

- finance the US trade deficit.

- do what possible to blunt political probles that flow from those trade surpluses.


No investor looking solely for return and security on funds would buy as much US debt as China does. In the short term the buying keeps the value of the dollar from sliding, and would seem to protect to protect their holdings. And that fits the "China is trapped" notion [if it stops increasing holdings at the same rate, forget about disposing of US debt, it will set off a panic that destroys the values of the holdings].

This outcome of seemingly being trapped was predictable when China set out on stayed on this course. It is not an investors approach. China has plenty of places it could have put money that would have back then been predictably more productive and more secure.

If they take a bath on the value of debt down the road they won't enjoy it. But they went into this eyes open.


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Fidel
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posted 27 March 2008 07:51 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
I think China's bank is practicing Keynesianism by intervening to control the value of the Yuan. If the Chinese also abolished price controls and limits on foreign ownership, privatize everything that isn't nailed down, adopt the U.S. dollar and eliminate tarrifs, then that country, too, could be enjoying anemic growth rates and large outmigrations of people to the U.S. and beyond. The CCP is building up the country, because Keynesian theory says that economic productivity is related to quality of infrastructure and public investments in people. Washington consensus has proven effective in holding back economies with stagnant growth and undermining economic potential. And the CCP knows it.

[ 27 March 2008: Message edited by: Fidel ]


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jester
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posted 27 March 2008 08:00 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
China is suffering commodities shortages due to its managed economy.In one example, the price of imported oil is the world price but China has ordered its domestic prices to be subsidised by the Chinese oil companies.

Most of the demand for commodities in China is domestic. The reliance on American trade is less and less while inter-Asian trade grows.

Once the Beijing Olympics are out of the way,China may make alterations to its foreign reserves - of which 1.3 trillion are denominated in USD - by valuing its currency via a basket of international currencies.

Whatever the reasoning for Chinese support for the American dollar,it is predicated purely on self-interest,not any sort of global economic cohesion to support their pals in the good old USA.

As with the implosion of the USSR, strategic thinkers world-wide are considering how to get a leg-up in the global pecking order at the expense of the Americans.


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Fidel
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posted 27 March 2008 08:49 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
I think countries like China, India, and Russia with economic growth rates of anywhere from 5%-10% might well see a decline in growth if the U.S. goes down for a while. But as one person in the financial industry said, the poorest in developing economies would already be conditioned for absolute poverty by western comparisons. The bottom fifth or so of working poor Americans will likely take the brunt of it.
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clandestiny
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posted 27 March 2008 04:23 PM      Profile for clandestiny     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Stephen Gordon:

Jim Hamilton can.


thanks. i read the link info, but really never understood the M1, M2 thing. M3 'serves no purpose' but if that is so, then why were they publishing those figures pre-bush? And if 'jim hamilton' is so knowlegable, then why in hell didn't he warn the free world electorate that fabricating debt by selling property to poor people then converting the incurred debt to an asset by selling it to nudge wink 'investors' who reason the 'Samson Option' in effect gives them the licence to print money, which we the people must then back up with our very blood, or else there'll be mob rule and mass die off of the trusting poor people who lost their property anyway? His explanation hardly explains anything, and his tone of suffering-the-fools (in my entire career, i never used the M3, the other two mms being sufficient) just exaggerates how wise he is, which is nice, but....


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George Victor
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posted 27 March 2008 08:41 PM      Profile for George Victor        Edit/Delete Post  Reply With Quote 
In Canada, "the fundamentals are strong."
That line was one of the most-quoted confidence-builders that J.K.Galbraith found in researching the chatter on Wall Street preceding October, 1929.

If Alberta does not cut itself adrift, our petro-dollar is going to require real contortions on the part of eastern Canadian manufacturers and governments to stay alive in the immediate future. It's a daily dog and pony show.

A long-term "solution" could come from future world revulsion at - and economic reaction to - Alberta's (Canada's) lack of concern for carbon output in a time of catastrophic, world-wide environmental breakdown, allowing us to re-write NAFTA. The pending desertification of southern Alberta and Saskatchewan could make that easier by creating sober second thought (or first) among ranks of the great unread.

That, in turn, would allow reduction of the outflow of natural gas to the point where eastern Canada, facing the old "freeze-in-the-dark" fate favoured by Ralph the red-nosed, would not have to go over entirely to liquid natural gas brought to the three ports now abuilding along the St. Lawrence,bought from a benevolent Russia, north Africa, or one of the "Stans".


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Fidel
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posted 28 March 2008 09:51 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
I think the international cabal of banksters is deliberately trying to cause the collapse of the world monetary system. Don't ask me for proof.

But it's as if the banks have taken over money creation and created a debt-driven world system. We exist to pay off national debts which were totally unecessary to have slid into in the first place, and to make war in other countries. This is how the Schachtian-Nazi economy was operating for over a decade leading up to WWII, except that 14 million labourers were worked to death by 1945.

Today, the U.S. military-industrial complex and energy sectors are the most successful industries in North America and earning record profits while close to 40 million ppl are food insecure in the U.S., and Canada has a growing number of homeless people. There were no food banks in Canada in the mid 1970's. Today there are numerous food banks across the country and running out of food more often than before. Something's gone terribly wrong with the cold war era promise for peace and prosperity given that the nuclear weapons threat subsided.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
KenS
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posted 29 March 2008 03:00 AM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
Credit market ‘recovers its poise’

quote:
Corporate credit markets have staged their biggest rally this year in the two weeks since the bailout of Bear Stearns Cos. Inc., easing the pressure on the global financial system and economy.

Over the past two weeks, many global indicators show that fears are receding in the bond market. The cost of buying insurance against corporate bond defaults has fallen, the panicked flight to U.S. Treasury bills has abated and the giant clot of unsold debt in areas such as the market for buyout loans is starting ever so slowly to dissolve.

The credit crunch is far from over. Many areas of the debt markets are still struggling with a lack of buyers and concern that more problems lurk in the banking system. Still, any improvement from the grim levels of early March, when many credit indicators were at their weakest levels since the turmoil began, is a help to the global financial system.


quote:
The bad news is that bankers say the market won't start to function normally, with banks being willing to underwrite big new acquisitions, until the backlog shrinks to about $50-billion. And lenders are feeling less of a pinch, but are still not feeling good about making big loans, SocGen's Mr. Mann said.

“Self-preservation mode is still the name of the game for many of them,” he said. “They're not yet at a stage where they're ready to start injecting liquidity through the financial system.”


Hence those warnings that recovery may not begin until 2009- which could easily stretch into 2010.

But that's a far cry from meltdown. Which is still possible of course. But this continues to behave like previous slowdowns touched off by crises in financial markets... that also looked like they could be meldowns, but got resolved, albeit slowly.


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clandestiny
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posted 29 March 2008 05:34 AM      Profile for clandestiny     Send New Private Message      Edit/Delete Post  Reply With Quote 
the moneymen are like hyenas around a kneeling gasping elephant, run ragged by the bastards for years and now publicly dying....but the pigs are agonna eat!
i wish we could just shoot the whole lot. Uncle Joe knew what to do with them (i'll never diss the GenSec again!)

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jester
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posted 29 March 2008 10:32 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by KenS:
Credit market ‘recovers its poise’

Hence those warnings that recovery may not begin until 2009- which could easily stretch into 2010.

But that's a far cry from meltdown. Which is still possible of course. But this continues to behave like previous slowdowns touched off by crises in financial markets... that also looked like they could be meldowns, but got resolved, albeit slowly.


To me, the financial fiasco is not the meltdown as much as it is the spark. The meltdown can occur in stagflation (US), inflation (Euroland) and global food crisis that is gaining traction with export controls on rice and wheat in certain countries that maintain domestic price subsidies.

The rush to speculation in commodities for safe haven is putting basic foodstocks squarely in the sights of the multi-billion hedge funds and the hedgehogs do not care who starves to death as long as their profit expectations are met.

Large rainfalls in Australia and the US midwest indicate production increases may be on the way but regressive policies such as ethanol subsidies will drain production away from basic foodstocks.


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martin dufresne
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posted 03 April 2008 09:16 AM      Profile for martin dufresne   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
The Dilbert Strategy
By PAUL KRUGMAN
Op-Ed, NYT, March 31

Anyone who has worked in a large organization - or, for that matterr, reads the comic strip "Dilbert" - is familiar with the "org chart" strategy. To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes and lines that say who reports to whom.

You now understand the principle behind the Bush administration's new proposal for financial reform, which will be formally announced today: it's all about creating the appearance of responding to the current crisis, without actually doing anything substantive.

The financial events of the last seven months, and especially the past few weeks, have convinced all but a few diehards that the U.S. financial system needs major reform. Otherwise, we'll lurch from crisis to crisis - and the crises will get bigger and bigger.

The rescue of Bear Stearns, in particular, was a paradigm-changing event.

Traditional, deposit-taking banks have been regulated since the 1930s, because the experience of the Great Depression showed how bank failures can threaten the whole economy. Supposedly, however, "non-depository" institutions like Bear didn't have to be regulated, because "market discipline" would ensure that they were run responsibly.

When push came to shove, however, the Federal Reserve didn't dare let market discipline run its course. Instead, it rushed to Bear's rescue, risking billions of taxpayer dollars, because it feared that the collapse of a major financial institution would endanger the financial system as a whole.

And if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks, the implication seems obvious: they should be regulated like banks, too.
(...)


From: "Words Matter" (Mackinnon) | Registered: Dec 2005  |  IP: Logged
Noise
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posted 03 April 2008 09:24 AM      Profile for Noise     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
You now understand the principle behind the Bush administration's new proposal for financial reform, which will be formally announced today: it's all about creating the appearance of responding to the current crisis, without actually doing anything substantive.

Colbert has the best take on this, from his Roast:

quote:
On claims that the shake-up at the White House was merely re-arranging the deck chairs on the Titanic: "This Administration is not sinking. This Administration is soaring. If anything they are rearranging the deck chairs on the Hindenburg."

From: Protest is Patriotism | Registered: May 2006  |  IP: Logged
Frustrated Mess
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posted 03 April 2008 11:02 AM      Profile for Frustrated Mess   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Apparently the US has come up with a plan to assist those impacted by the mortgage crisis. Home builders will see billions while those whose homes are being foreclosed will see $100 million for counseling services.

quote:
The $15 billion Foreclosure Prevention Act of 2008, expected to be debated Thursday afternoon on the Senate floor, is drawing fire from critics who say it would do little to actually prevent foreclosures. The bill contains a $6 billion emergency tax break that would let companies use losses from 2008 and 2009 to offset profits earned over the previous four years, instead of the usual two-year timeframe.

That's good news for big homebuilders such as KB Home and Pulte Homes Inc., which have been saddled with massive losses over the past year.

Jerry Howard, chief executive of the National Association of Home Builders, said in an interview that the tax break is "very important to the building community." It will keep many small homebuilders out of bankruptcy, he said, and will prevent large builders from having to liquidate assets.

Other big beneficiaries would be Wall Street banks such as Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley. In fact, any company now struggling after years of healthy profits that pumped up their tax bills could benefit.

... It includes an additional $100 million — half of what Democrats proposed — for credit counseling to help homeowners avoid foreclosure.



Proving once more, crime does pay if your're well connected.

From: doom without the gloom | Registered: Feb 2005  |  IP: Logged
Uncle John
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posted 03 April 2008 08:24 PM      Profile for Uncle John     Send New Private Message      Edit/Delete Post  Reply With Quote 
Pigs at the trough
From: Toronto | Registered: Feb 2008  |  IP: Logged
Fidel
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posted 03 April 2008 10:40 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
Fascist bastards!
From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
KenS
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posted 04 April 2008 03:25 AM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
jester:
quote:
To me, the financial fiasco is not the meltdown as much as it is the spark.

Good summary, but I think you mean "as it is the spark that might touch off a meltdown."

Correct?


From: Minasville, NS | Registered: Aug 2001  |  IP: Logged
jester
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posted 04 April 2008 08:49 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
Correct. The fed buying risky debt is a cure for the economy as giving whisky to a drunk is a cure for a hangover.

The markets per se are interested in believing this is the "bottom" out of pure self-interest. The fed will continue to agressively target any under-performance in financial instruments but as the situation drags on,even the blindest Wall Street hedgehog or investor will understand that the jig is up.

Next up will be the threat of non-performing credit-default swaps.

The problem with the US scenario is that in order to stimulate the economy,production must preceed consumption.Putting the cart in front of the horse by increasing liquidity to chase less production is inflationary.

If capital inflows are unable to meet deficit requirements, the US is insolvent. As long as investors will flock to the USD, the charade continues.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
clandestiny
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posted 04 April 2008 06:04 PM      Profile for clandestiny     Send New Private Message      Edit/Delete Post  Reply With Quote 
they're going to hang on until bush is gone, it appears. Next year. Then the fiction, or charade, will fizz out, and a brutish reality will emerge, with jennie lee etc will then be saying 'the downturn, which started way back in 2004, is worsening by the minute, and public stock trading is suspended until investors see greater stability maybe next year blah blah...' There's some reason for the entire youngster bush extravanganza- but occam's razor don't work no more in explaining it. I think it could be as simple as the emperor's new suit....they robbed the joint, then had to set a bunch of lil fires to harass/preoccupy the locals, until finally they burn it down altogether, to hide the evidence (and junyer safely retired to paraguay)
From: the canada's | Registered: Sep 2004  |  IP: Logged
jester
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posted 08 April 2008 06:08 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
The International Monetary Fund is pegging the losses related to the global financial crisis at $945-billion (U.S.), and warns that the side-effects of the credit problems will be harsh.

“It is now clear that the current turmoil is more than simply a liquidity event, reflecting deep-seated balance sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper, and more protracted,” the Fund says in its Global Financial Stability Report, released Tuesday morning.


quote:
While the United States remains the “epicentre” of the crisis, the spillover effects to other industrialized countries is major. The IMF warns that industrialized countries with inflated house price levels, as well as stretched corporate and household balance sheets.

quote:
The Bank of Canada has repeatedly pointed out that in Canada, corporate and household balance sheets are remarkably healthy, and financial institutions are well capitalized

"It ain't over till its over" Yogi Berra

IMF

[ 08 April 2008: Message edited by: jester ]


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
martin dufresne
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posted 08 April 2008 06:32 AM      Profile for martin dufresne   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
The Bank of Canada has repeatedly pointed out that in Canada, corporate and household balance sheets are remarkably healthy, and financial institutions are well capitalized
Not unlike the top deck of the Titanic reporting that it was spared by the iceberg and that everything's hunky-dory...

From: "Words Matter" (Mackinnon) | Registered: Dec 2005  |  IP: Logged
jester
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posted 08 April 2008 01:22 PM      Profile for jester        Edit/Delete Post  Reply With Quote 
[QUOTE]Originally posted by martin dufresne:
Not unlike the top deck of the Titanic reporting that it was spared by the iceberg and that everything's hunky-dory...[/QUOTE.

If energy and commodities prices collapse,that may well hold true. With the strength of domestic economies in Asia as well as Canada,it is doubtful that prices will collapse in the present moment but the US and the Euros can trigger a collapse via default in the trillions of $ in credit default swaps.

Iceland and Spain are examples.

The former is close to bankruptcy due to an overleveraged international banking industry whose credit-default swaps push the cost of protecting the county's three main banks against default to stratospheric levels.

The latter's housing market is collapsing,losing 20-25% of value resulting in major Euro banks bailing out of Spain. The effect of the sudden adoption of the Euro currency halved Spain's interest rates overnight below Spain's inflation rate, fueling an explosive credit boom.

If there is a default anywhere, the domino effect will devastate financial markets and result in price collapse but if the central banks can print enough money, the defaults will be avoided. The resultant inflation will eat disposable income in countries succeptible to inflation - US, most of the Euros,developing economies etc but Canada,due to its surpluses,high personal savings rates,and strong domestic economy will be spared.

[ 08 April 2008: Message edited by: jester ]


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
martin dufresne
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posted 08 April 2008 04:10 PM      Profile for martin dufresne   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
But but but... how can you envision Canadian economy remaining strong if the U.S. economy fails and stops buying our products? And our food basket remaining at accessible prices if they no longer dump underpriced products here?
From: "Words Matter" (Mackinnon) | Registered: Dec 2005  |  IP: Logged
Doug
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posted 08 April 2008 04:43 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
The IMF says that losses are spreading from sub-prime mortgage assets to other sectors, such as commercial property, consumer credit, and company debt.

It says that there was a "collective failure" to appreciate the risky borrowing by financial institutions.

And it warns that tough measures and government intervention may be needed.


http://news.bbc.co.uk/2/hi/business/7336744.stm

Make up your mind you silly IMF people, I thought government intervention was supposed to be capital B BAD.


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
Fidel
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posted 08 April 2008 06:59 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by jester:
The resultant inflation will eat disposable income in countries succeptible to inflation - US, most of the Euros,developing economies etc but Canada,due to its surpluses,high personal savings rates,and strong domestic economy will be spared.

Is Canada's economy really that strong? We've lost a third of a million manufacturing jobs in the last four or five years. Those were steady jobs and are now being replaced by seasonal and part-time work in more volatile sectors like oil industry, construction, and services.

And according to this(pdf) and this, personal savings rates in Canada were high at one time, 20 percent in 1982, but have since dropped off to an abysmal ~1-1.2 percent. Canadians aren't saving - we're aging and un-saving by drawing on retirement funds. And we've been borrowing on easy credit. Some percentage of Canadians are in hawk to the banks and credit card companies. Sure the Liberals stole billions from UI-EI-O, social and infrastructure transfers to create the illusion of balanced budgets, but the country as a whole is somewhere over $2 trillion dollars in debt to a cabal of banksters.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Doug
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posted 11 April 2008 05:24 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
The Coming Collapse of the Middle Class - a lecture from legal scholar Elizabeth Warren

It's about an hour long, but if you have the time, you'll find it really quite informative about the condition in which the American middle class finds itself.


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
Doug
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posted 16 April 2008 06:25 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
The Bank of England is on the verge of taking action to address the increasing reluctance among mortgage lenders to lend money in the wake of the credit crunch. It is waiting for Government approval to take over mortgage loans that are sat on lenders' balance sheets, in order to increase liquidity in the money markets.

It is understood that the Bank would grant Government bonds in exchange for securities backed by UK mortgages.


That's an unusual socialized housing program!


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
Fidel
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posted 16 April 2008 07:22 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Doug:

That's an unusual socialized housing program!


That's no national housing program. But this is. Our Liberal and Conservative stoogeocrats would blush at the very thought.

Brown's already nationalised Northern Rock. What more does the mafia want?


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Doug
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posted 20 April 2008 12:16 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Now that we're on the down part of the business cycle, we should really remember that the up part of this last cycle didn't really help a lot of people. Here's a graphic that demonstrates it for the US:

From this article


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
Fidel
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posted 03 August 2008 08:28 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
The Real State of the U.S. Economy Henry Paulson has lost the control over US finance

quote:
The real economy contracting rapidly

Behind the reassuring statements from Paulson and others that the "worst is over" the reality of the credit collapse since August 2007 is a deepening economic contraction which I have said several times in this space will surpass the Great Depression of the 1929-1938 period. A goof friend who is an unemployed homebuilder in a prosperous part of Arizona just sent me the following list of US department retail store closures. It is worth noting that over 70% of the US GDP is consumer spending and that the entire Federal Reserve strategy of Alan Greenspan after the March 2000 collapse of the stock market bubble, was to bring US interest rates to their lowest levels since the 1930’s in order to stimulate consumer spending on credit, i.e. debt, to avoid "recession." Note the scale of the following store closings across America in recent weeks:


Ann Taylor closing 117 stores nationwide.

Eddie Bauer to close more stores after closing 27 stores in the first quarter.

Cache, a women’s retailer is closing 20 to 23 stores this year. . .(see extensive list)


Paulson and friends on Wall Street tried to squeeze $400 million in blue chip dividends from Algoma Steel of Sault Ste Marie, Ontario a couple of years ago. They got $200 million.

[ 03 August 2008: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
jester
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posted 03 August 2008 09:33 AM      Profile for jester        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Uncle John:
Goldman Sachs has estimated the total subprime losses will be $460 billion, about 3 times what has already been written off.

The highest previous estimate I had seen was $400 billion.


The reported losses are now beyond this figure and political pressure has forced the Financial Accounting Standards Board to delay the implementation of revised reporting regulations.

These revised FASB regulations will force financial institutions to take huge losses onto their balance sheets in the immediate financial reporting period (quarter year)rather than writing down small losses based on imaginary mark to market models.

For example, a bank assumes they can sell a financial instrument for .90 on the dollar without a buyer and books it as such presently whereas the new reporting regulations will force them to assume a value of 0 in the reporting period if there is no buyer.

Notice that reporting of losses occurs in a highly regulated manner, accompanied by market spin AND soothing economic spin from the Fed and Treasury just prior to the announcement of more huge losses and now, bank closings.

Its ALL staged to prevent runs on banks. Contrary to the bullshit that the worst is over, these losses and bank closings will drag on for years.

Hopefully,the winddown will be more or less orderly but at the end of the day, the bankers,hedgehogs and government enablers will still be on top while a huge transfer of wealth from the disadvantaged and middle class will be stealthily utilised to pay for these excesses.

The little guys will pay for the entire mess via wealth lost through asset devaluation, currency devaluation, tax funded bailouts, lost future social benefits due to unfunded social liablities and deteriorated government services and infrastructure due to interest on foreign debt.


From: Against stupidity, the Gods themselves contend in vain | Registered: Jan 2006  |  IP: Logged
DrConway
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posted 03 August 2008 06:30 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by KenS:
If China is going to keep it's currency undervalued, and intends to have a monstrous trade surplus with the US... it has to fund that US deficit.

Buy buying mountains of T-bills China simulataneously fills its need to:

- keep the US dollar as high as possible.


If this was truly their objective they would have retained the fixed exchange rate of 8.2 yuan to the dollar.

My feeling is that the Chinese saw the writing on the wall, but chose not to simply fix to the Euro instead in order to avoid the Euro currency politics that seem to have been floated as reasons for the US's bullying tactics wrt OPEC countries.

(That having been said, I would favor China simply choosing to fix the yuan renminbi to the Euro instead. )


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
KenS
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posted 03 August 2008 10:01 PM      Profile for KenS     Send New Private Message      Edit/Delete Post  Reply With Quote 
As the quote said, China seeks to keep the US dollar as high as possible.

The fixed exchange rate was not sustainable for political and other reasons.

So they do it by buying far more T-bills than would a maximizing investor. And this achieves some other non-investment related purposes at the same time [mentioned in the rest of the post].

But any day China could for a variety of purely economic reasosn, let alone the strategic-political ones, decide to start edging away from hooking to the US dollar and the US economy as the hyper engine of its own economy.


From: Minasville, NS | Registered: Aug 2001  |  IP: Logged

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