Perspectives on the global economic meltdown

vsudhir · Post by **vsudhir** » 30 Mar 2009 00:50

Cracks begin to appear in the carefully manicured G7 facade....

G20 summit: blow for Gordon Brown as £1.4 trillion spending blueprint is leaked

Gordon Brown's preparations for this week's G20 summit in London got off to a bad start last night when a British blueprint for a £1.4 trillion worldwide spending boost was leaked.

Telling picture that.

Ahead of the summit, which will be held at the ExCel centre in London's Docklands, Mr Brown unveiled plans for a new crackdown on tax havens across the world.

Lord Owen, the former Labour foreign secretary, also warned that unless inflation was controlled, Britain's economy might have to be constrained by the IMF.

Insiders at Der Spiegel said the magazine had obtained the leak from German government sources.

British officials, however, declined to blame Mrs Merkel's inner circle directly, pointing the finger of blame instead at smaller political parties inside her ruling coalition.

Amid the frantic preparations for the summit Lord Owen, foreign secretary under Jim Callaghan in the late 1970s, uses an article in today's Sunday Telegraph to warn that Britain's economy might have to be subject to "IMF disciplines" – which would require painful public spending cuts – to halt a "precipitate loss of confidence".

Lord Owen sounded the alert about the twin threats of a falling pound and inflation, which crippled Callaghan's government, being repeated under Mr Brown. "There is an air of breathtaking unreality in Westminster and Whitehall that reminds me of 1975," he wrote. "Hard choices need to be taken now, not postponed until after an election in 2010."

Lord Owen's warning about the IMF echoed similar alerts sounded recently both by George Soros, the Hungarian financier, and Mr Cameron.

Mr Osborne said: "When Gordon Brown sits down with the other G20 leaders in London next week, he will have to explain why he, of all the people sitting around the table, has the highest budget deficit – why the economy he presides over, of all the economies represented at the table, is forecast to still be in recession next year."

Let the games continue, I guess.

Singha · Post by **Singha** » 30 Mar 2009 00:58

BBC: there will be many as people already on edge at the best of times confront economic problems + domestic disputes....its time to collect all the
hundreds of millions of guns floating around among US civilians.

Gunman kills six at US care home

A gunman has shot dead six people and wounded three others at a nursing home in the US state of North Carolina.

A police officer and the gunmen were among those injured in the incident in the town of Carthage, police said.

Police units are at the scene of the Pinelake Health and Rehab Center, where the gunman reportedly opened fire at 1000 local time (1500 GMT).

Carthage Police Department Chief Chris McKenzie said that the shooter was an "adult male".

Mr McKenzie said: "At the Pinelake Rehabilitation Center this morning we did have an individual that did injure six that right now we have confirmed as fatalities.

"We have potentially two others injured at the hospital and a law enforcement officer injured as well."

He said the injured police officer was "fine".

Unconfirmed local reports say the shooting may have been the result of a domestic dispute.

The suspect was taken to hospital and Mr McKenzie said police hoped to question him in due course as to his motive for the shooting.

The facility, about 60 miles (100 km) south-west of Raleigh, has 90 beds and specialises in caring for people with Alzheimer's disease.

The BBC's Jon Donnison in Washington says the shooting will no doubt once again reignite the debate about gun laws in the United States.

Sanjay M · Post by **Sanjay M** » 30 Mar 2009 04:27

GM's CEO Wagoner Steps Down at Obama's Request

Raja Bose · Post by **Raja Bose** » 30 Mar 2009 05:07

Singha wrote:another article against the worlds current whipping boy - MBAs

http://www.thebigmoney.com/articles/jud ... 25/rip-mba

Well all the praise/chappals/jhapads for them is not totally undeserved, is it?

Singha · Post by **Singha** » 30 Mar 2009 09:25

the mystique is intact. folks are still leaving ITvity for ISB!

most people
in ISB change their field of work per a TOI report.

Raja Bose · Post by **Raja Bose** » 30 Mar 2009 09:29

Yeah, thats true. MBA has its uses and will continue to do so for a long time. I think the main thing to remember is that conscience is not a function of education. Regardless of how many MBA classes on ethics one takes or doesn't take, in the end doing the right thing depends more on the person rather than his/her education. Incorrect to blame the degree when the person is at fault (as our newspapers are doing right now)!

markos · Post by **markos** » 30 Mar 2009 09:53

Sanjay M wrote:GM's CEO Wagoner Steps Down at Obama's Request

I think Obama is taking quite a bit of heat from the left, with people like Krugman coming out against Geithner's "cash for trash" program. So he had to act and ended up with GM CEO.

So far, no bank CEO has been fired. I expect Citi or BofA CEO to be the next to be sacked (probably within a month, once quarterly results are announced, if they continue to be disappointing). Citi has already beefed up their board with 3-4 former bank CEOs and the rumour is that Citi was ready to fire Pandit in exchange for bailout in Nov '08, if Govt/Treasury had insisted.

I believe Krugman may be closer to truth than Geithner is. Geithner seems to be unable to propose any thing radical, other than recycling ideas from Paulson era and some few vague demands for more oversight to placate the public while working behind the scenes to neutralize any punitive measures against bonues arguing about the potential for "talent" to leave the bailed out companies.

To certain extent, I am afraid Geithner and Summers may end up as the economist/financial version of "neo-cons" in this administration.

markos · Post by **markos** » 30 Mar 2009 10:10

BTW, Krugman is not the only critic of Geithner/Summers mode of operation.

http://www.theatlantic.com/doc/200905/imf-advice

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time
....
The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary
.....
Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations
...
The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail

I think the largest 4-5 banks in US, BOA, Chase, Wells Fargo and Citi should be broken up, otherwise in another 10 years, there will be need for new bailouts.

I think Geithner should be reminded of what Einstein once said

“You can never solve a problem on the level on which it was created.”
- Albert Einstein

I don't think the problems faced by US/World economy can be solved by folks like Geithner who were asleep at the wheel (as the head of NY Fed) while this entire financial tsunami was brewing. Like Rip Van Vinkle, Geithner just woke up, but his ideas, still remain the same old orthodoxy.

svinayak · Post by **svinayak** » 30 Mar 2009 11:39

China News, China
http://watchingamerica.com/News/24128/u ... -concerns/
U.S. Tries To Save
Market Irresponsibly,
Causes Global Concerns

By Yan Hai

Translated By Warren Wang

26 March 2009

Edited by Christie Chu

China - China News - Original Article (Chinese)

The Hong Kong Daily published on March 26 quoted an expert’s opinion that America’s recent "irresponsible" way of saving the market is the cause of the global intention to abandon U.S. dollars.

The report quoted Yanlin Tan, senior analyst for Bank of China, who remarked that over the past seven months the U.S. Federal Reserve has already injected about 800 billion dollars into the financial system, and according to the new plan, the Federal Reserve may inject a trillion dollars or more into the financial system over the next few months. Such a massive injection of liquidity into the market is equal to turning on the printing presses.

Right now it is helpful for the Federal Reserve to directly buy the U.S. debt in order to ease the U.S. credit crunch and stimulate economic recovery. In the long run, though, it will lead to the devaluation of U.S. dollars. Yaling Tan pointed out that the result of an over-supply of U.S. dollars will be rising gold and oil prices. However, as investors increasingly value gold, America, the holder of the largest gold reserves, will be able to take more initiative globally. At the same time, other countries holding U.S. dollar-denominated assets will become more and more passive. Because the U.S. dollar is a reserve currency, America can take the risk of printing more dollars, and because of this America will finally plunder the "global fortune."

Satya_anveshi · Post by **Satya_anveshi** » 30 Mar 2009 19:54

vina wrote:Atleast the dollar is backed by the good offices of a known sovereign called the US and it's taxation powers. What is Wampum backed by ?. Some "toilet" paper treaties signed on by Chicoms, the Brits and the Euro (trashes) and Japs ?

China pushing to make Yuan world currency

BEIJING: China is assuring the United States it will do nothing to weaken the position of the dollar as the main international currency. But it is also using the financial crisis to urge foreign countries to settle payments in Yuan instead of the US dollar.
The latest move involves a $10 billion currency swap deal with Argentina allowing importers in that country to make purchases from China in yuan instead of the dollar. Argentina on Monday became the fifth country after South Korea, Malaysia, Belarus and Indonesia to sign such a currency swap agreement with China.

The statement has caused a furors across capitals of several western nations because China holds one of the biggest stock of foreign reserves. Zhou’s views have been backed by Russian officials causing a lot of worries in Washington

What is more, the Chinese government is working on a proposal to extend financial assistance to developing countries in Yuan instead of the usual practice of doing it in the US dollar, sources said. Giving aid to poor countries in Asia and Africa in Yuan will encourage beneficiary them to spend at least part of the money in buying China made machinery and other goods, it is argued.

On one hand, we can certainly use it if there is need for liquidity and for the purpose of financial stability. On the other hand, it's useful as far as development of yuan business is concerned, such as yuan trade settlement," he said.

vsudhir · Post by **vsudhir** » 30 Mar 2009 20:25

Raja Bose wrote:Yeah, thats true. MBA has its uses and will continue to do so for a long time. I think the main thing to remember is that conscience is not a function of education. Regardless of how many MBA classes on ethics one takes or doesn't take, in the end doing the right thing depends more on the person rather than his/her education. Incorrect to blame the degree when the person is at fault (as our newspapers are doing right now)!

Education has its role to play.

Highlighting corporate and personal failures due to ethics lapses is sorely needed. Right now, success stories of 'bold plays in the market throwing caution to the winds' outnumber those of caution and risk aversion serving people and orgs well 10-tp-1 even though only 1 in 10 of the bold risky plays may pan out well whereas 9 in 10 of the cautious plays do, ordinarily.

milindc · Post by **milindc** » 30 Mar 2009 21:23

Acharya wrote:
China News, China
http://watchingamerica.com/News/24128/u ... -concerns/
Yaling Tan pointed out that the result of an over-supply of U.S. dollars will be rising gold and oil prices. However, as investors increasingly value gold, America, the holder of the largest gold reserves, will be able to take more initiative globally. At the same time, other countries holding U.S. dollar-denominated assets will become more and more passive. Because the U.S. dollar is a reserve currency, America can take the risk of printing more dollars, and because of this America will finally plunder the "global fortune."

Since US holds the largest official Gold reserves (261M troy ounce, translates to about 8100 tonnes), it can still control the new monetary supply after dollar devaluation.

The problem with this approach, for US, is that India might become one of the richest countries in the world, piggybacking on the strength of private reserves, estimated to be about 30,000 tonnes.

I think Uncle will try to create some black swan scenarios, with intention of emptying the Indian private coffers. While I was researching this, I came across a well researched article that documents the plundering of India Gold reserves over last 1000 years. In fact every major economic upheaval in last 100 years was tied to India's gold or silver reserves.

Indian Gold Reserves. Forgotten History! Lost Opportunity?
A must read article..

India has 20% of the world population and also 20% of the world’s above-the-ground gold.
....
For much of the last 2000 years, India has been the largest buyer of gold. Pliny, the Roman historian lamented, 1800 years ago, how India, the sink of precious metals, was draining Rome of gold - an appellation that resonates even today.
....
During various collapses of temporary gold standards in history, Indian gold reserves (usually unwillingly) stabilised world economies. In recent history, Indian gold reserves went out to stabilise the American currency during the Great Depression and the German currency during the post-Wiemar drift. Indian silver reserves broke the Hunt Brothers’ back and their silver gambit in the 1980’s.
....
Like much of Western history, the British (Lord Willingdon, Montagu Norman, Winston Churchill (as the Chancellor of the Exchequer), Neville Chamberlain) executed a scorched earth policy in India. (After all what is brown life worth?) They implemented a series of economic and administrative measures that killed millions in the Bengal Famine would impoverish India - and sustain the empire.
....
Done over the protests by Gandhiji, trade bodies and merchants and threats of resignation by the Viceroy and his Executive Council , the resulting ‘money famine’ (page 155) had the Lord Willingdon ecstatically say ‘… Indians are disgorging gold … (page 156).

Singha · Post by **Singha** » 30 Mar 2009 22:38

but what kind of project can americans start to make pvt indians sell their gold?
indians tend to hold gold as family hierlooms regardless of the market price or profit taking opportunity, often families pass it from gen to gen. it is a tough sell
to make indians give up holding to gold simply because it is spread across all social strata across a massive population, not in the hands of a few oligarchs.

if they engineer another stock market boom, not much will change for 95% of
people who just use NSC and bank FD. they will not sell gold to buy stock.

vsudhir · Post by **vsudhir** » 30 Mar 2009 23:04

milindc,

That was a gr8 article. Tks for posting.

Meanwhile, aaj ka D&G menu....

Munchau: Banks Sinking Faster Than Governments Are Bailing Them Out

So you think you can see the green shoots of recovery? You draw comfort from the recent stabilisation of forward-looking indicators such as new home sales in the US? Or you think the stock market rally marks the end of the crisis? Of course, economic growth rates are bound to improve soon for technical reasons. Otherwise, not much would be left of the global economy by the end of the year.

Even if a recovery were to start early in 2010, as some optimistic forecasters believe, most of the pain of the recession is still ahead of us: unemployment and default rates will rise sharply everywhere. Most of the pain in the financial sector is also still ahead of us. This will feel like a depression long after it has ceased to be one.

I am more worried now than I was a month ago. The main problem is that the feedback loops between the real economy and the banking sector are truly scary....

At this rate of contraction, the number of private and corporate defaults is likely to increase massively beyond some of the stress-test assumptions made by the banks themselves. After the crisis caused by toxic securitised assets, the financial industry is now hit by another crisis of potentially similar magnitude...

Economists and policymakers who wonder how much it will take to recapitalise the banking sector are discovering that rescuing the banks is a much more dynamic exercise than they thought. Whatever you think it costs – and there have been widely different estimates – it is likely to end up costing you a lot more for that precise reason....

By the end of December, global banks had written off about $1,000bn (€752bn, £699bn) in bad assets, approximately half of that in the US. Since the onset of the crisis, the writedown of assets in the US has exceeded the provision of new capital. Even the Geithner public-private partnership plan is not going to reverse the expected deterioration of capital ratios....

In the absence of such plans, the banking sector will continue to contract its balance sheet by cutting lending. This is a totally rational response by the banks. To unfreeze the global financial market therefore requires significant increases in bank capitalisation, not just to the status quo ante, and not just to account for the toxic securitised assets themselves, but to adjust for the stuff that is getting toxic right now and tomorrow. The estimate by Alan Greenspan, the former chairman of the Federal Reserve, that one needs to push the ratio of banks’ equity capital to assets from 10 per cent to 13 or 14 per cent seems plausible to me. After a long period of undercapitalisation, you need a period of overcapitalisation just to get back to normal.

In other words, you have to do quite a bit more than you think you need to do, rather than quite a bit less. This is the main reason why the Geithner plan is not an optimal policy response. .... For all its technical ingenuity, this plan is at best insufficient – and more likely an expensive distraction that delays the inevitable policy response of a government-led recapitalisation programme.

Europeans think they have less of a problem because they already put bank rescue packages in place last Octo....But we have moved beyond the immediate emergency, and need a strategic response. Europe, too, will have to start to address the problem, by forcing banks to write down their assets in exchange for new capital. And not all the banks should survive. We must allow the sector to shrink while we recapitalise. This means many painful and unpopular decisions have yet to be taken....

The Europeans need a new plan. And the US needs a better plan.

Bade · Post by **Bade** » 30 Mar 2009 23:15

but what kind of project can americans start to make pvt indians sell their gold?

Nothing can separate gold from an average Indian. The extended family members aka goons have been trying to shake me down to part with a few thousand dollars as donation to the upgrades to the family temple. All promissory notes and deadlines having expired they try hard to squeeze me using various black-mail items like calamities that can befall the family using my mom, so I suggested to her that she can as well part with her horde of gold which isn't much in any case to avoid the imminent danger.

That ain't happening anytime soon. Even the family gods will have to wait onlee forever before anyone parts with their gold in India.

vsudhir · Post by **vsudhir** » 30 Mar 2009 23:21

The mites at their hospitable best....

Indian Students Facing Attacks in Australia

Australian police say there have been 500 cases of assault on Indian students in the past six months, perhaps triggered by unemployment

Meanwhile,
U.S. Job Losses Not Due to H-1B Visas, Report Says

New H-1B visa holders don't make much of a dent in the U.S. workforce, according to a report by the National Foundation for American Policy

Meanwhile, does seem like Businessweak is campaign mode to whip up hysteria against yindians onlee...

Share Your H1B and L1 Visa Experience

A bunch of people have written comments on my last post about H1B and L1 visas; pro, con, and in between. I’m inviting anybody who has firsthand experience with such visas to send me detailed examples, in e-mail, of abuses they have seen, or, on the other hand, of examples that demonstrate that the visas are being used correctly. Please send directly to my BusinessWeek e-mail address, [email protected]. Also attach your cell phone number. I won’t reveal your identity publicly. If I want to use something you have sent me in a story, I’ll call you and talk it over. You call the shots.

Also, separately, I invite people to send in comments to this blog posting suggesting ways to reform the worker visa system.

Thanks,
Steve

svinayak · Post by **svinayak** » 31 Mar 2009 00:36

Check the timeline.

Oil politics brought the Middle east countries to the west after 1975.
It also created problems for India in the last 40 years.

http://declineusa.wordpress.com/peak-oil-art/

milindc · Post by **milindc** » 31 Mar 2009 01:08

Singha wrote:but what kind of project can americans start to make pvt indians sell their gold?
indians tend to hold gold as family hierlooms regardless of the market price or profit taking opportunity, often families pass it from gen to gen. it is a tough sell
to make indians give up holding to gold simply because it is spread across all social strata across a massive population, not in the hands of a few oligarchs.

if they engineer another stock market boom, not much will change for 95% of
people who just use NSC and bank FD. they will not sell gold to buy stock.

I tried to think of some out of box scenarios, none made sense to me. May be that reflects my limited ability to conjure up black swan scenarios.
The only thing that might be a plausible scenario is that the price of gold touches some insane number ($10,000 per ounce) and folks run to cash out once-in-a-lifetime opportunity and get handed the worthless $ in turn. Uncle buys up the Gold and then proceeds to rejig the monetary system.

India was net exporter of Gold in last couple of months, I don't know when was the last time we exported any Gold. The amount was pretty low (6 tonnes), but we generally import around 50 tonnes a month. This trend started with Gold hovering around $1000 per ounce.

Ameet · Post by **Ameet** » 31 Mar 2009 04:07

markos wrote:
Sanjay M wrote:GM's CEO Wagoner Steps Down at Obama's Request
So far, no bank CEO has been fired. I expect Citi or BofA CEO to be the next to be sacked (probably within a month, once quarterly results are announced, if they continue to be disappointing). Citi has already beefed up their board with 3-4 former bank CEOs and the rumour is that Citi was ready to fire Pandit in exchange for bailout in Nov '08, if Govt/Treasury had insisted.

From what I read, they wanted to get rid of Pandit, but no one wanted the job! It's a catch 22 for the administration. The administration can't bring in a "big name", they won't take the job because these cos are on life support and there is so much public scrutiny. No one wants the last thing on their resume to be AIG, GM, Citibank, etc. Conversely, they can't always hire guys who might actually know something but the market is not enthralled with, the market will tank - like today.

vsudhir · Post by **vsudhir** » 31 Mar 2009 04:33

Crisis psychology and the march to war

vsudhir · Post by **vsudhir** » 31 Mar 2009 07:40

short but gr8 read

De-coupling skeptics have to explain this

The Bond mkts are signalling again, separating virtue from vampum. And yup, James Bond style heroics haven't found favor with the real Bonds.

Tilak · Post by **Tilak** » 31 Mar 2009 11:23

Russia to call for new reserve currency at G20
March 31st, 2009 - 12:04 am ICT by IANS

Russia will insist at the upcoming G20 summit in London that discussions are initiated into the possibility of creating a new world reserve currency, a Kremlin economic adviser said Monday.
“There are nuances in relation to the priorities of particular topics. For example, Russia is proposing to initiate discussions on reserve currencies while not all are ready for that. We’ll insist that these discussions are necessary in subsequent months at all levels - academic, political and professional,” Arkady Dvorkovich said.

Russia earlier put forward a suggestion to the G20 summit which would see the International Monetary Fund (IMF) examining possibilities for creating a supra-national reserve currency, and also prompting national banks and international financial institutions to diversify their foreign currency reserves.

“We believe it is necessary to consider the IMF’s role in this process and also define the possibility and the need to adopt measures allowing for Special Drawing Rights (SDRs) to become an internationally recognized super-reserve currency,” Russia’s proposals read.

Dvorkovich said that these discussions should result either in a draft proposal or the conclusion that the current financial and payment system “is adequate and sufficient”.
...
....

G20 not ready yet for new world currency debate

PARIS (Reuters) - This week's G20 summit will demonstrate how fast the balance of power is shifting from the old U.S.-led economic order toward emerging market nations, although it is way too early for a productive debate about a new world currency.

Beijing is pushing for more power in key institutions such as International Monetary Fund and, more dramatically, China and Russia are both saying it is now time to consider shifting away from a dollar-dominated world.

While the immediacy of the worst economic downturn since the Great Depression may leave little room for conclusive discussion at the summit, Beijing and Russia have already opened the debate about a more fundamental shift in the global economic order.

In one sense, their timing is right, because the entire world is hit by a crisis that snowballed out of the United States.

In another, it is awful because nobody at the G20 summit really wants to fray financial market nerves any further.

"The rich countries are going to have to move over and make room," says Dominique Strauss-Kahn, head of the Washington-based IMF. "It's not a battle that's won in two hours but it can start at this G20."

Moscow has called outright for the G20 to start looking for alternatives to the dollar as the world's main reserve currency, and Russian President Dmitry Medvedev renewed that call over the weekend.

joshvajohn · Post by **joshvajohn** » 31 Mar 2009 16:54

It will be good to have a separate thread for G 20.

The questions for G 20

We can no more maintain the rich to be rich. So rather than pumping in the money from the Government to Banks. Such money needs to be spent on investments that can create jobs.

The whole share market system has to become a fair market otherwise boom-blast will be a repetitive history.

So the investment needs to be pumped into new ways of industries,new skills, new ways of competitions.

People certainly will invest in those who would maintain trade fair, charity and other trustworthy industries rather than those who would makethem a short term money and then diappear.

So the slogan should be Free and Fair Trade first.

Secondly addresssing the issue of global poverty in economy should become part of the investment strategy of the global companies.

Which means companies should invest and make profit while take into account how the local people can also share and eliminate their own poverty within their own contexts through such investments. Both are inevitable not merely charity business but also a protection for their own company because as many people become poor then they would fight against the government and so the company.

vsudhir · Post by **vsudhir** » 31 Mar 2009 21:04

FWIW, yet another perspective on the gr8 downturn....

Quest for Bailout:

A French pole vaulting champion has run naked with his pole through the streets of Paris and posted the video on the Internet, hoping to draw attention to his quest for a new sponsorship deal.

Romain Mesnil, who won a silver medal at the 2007 Athletics World Championships in Osaka, used to be sponsored by U.S. sports brand Nike but says his contract expired last year and was not renewed.

"It was probably for budgetary and strategic reasons. It's the crisis," he wrote on his website (http://www.romain-mesnil.com).

To which a wag replied:

We should make the Bankers run naked thru Manhattan if they want Tarp money.

ramana · Post by **ramana** » 31 Mar 2009 22:47

Have question. Whenever the US goes to war they also raise money/taxes from excess profiteering. Or else it leads to a crash. Looks like in Vietnam War and the GOAT this was not done. Was this a issues this time?

John Snow · Post by **John Snow** » 01 Apr 2009 01:52

During Vietnam dollar was linked to gold reserves, but Nixon delinked it afterwards, the also you had basket of international curriencies to do trade, like Pound German Marks, French Franks Swiss Franks, Lira, Yen etc.

Now the defacto currency is Dollar, and everything is relative to it (even gold) so there is no restraint on uncle to go on printing the dollars. The cost of capital for uncle is paper cost + ink cost + labor cost to start the printer bundle it and transport it o banks using Brinks or wester union armoured cars thats all to it. Hence the grumbling and rumbling in PRC...

During Fiscal Year 2005, it cost approximately 5.7 cents per note to produce 8.6 billion U.S. paper currency notes. "
Source(s):
http://www.moneyfactory.gov/document.cfm...

shyam · Post by **shyam** » 01 Apr 2009 02:04

John Snow wrote:The cost of capital for uncle is paper cost + ink cost + labor cost to start the printer bundle it and transport it o banks using Brinks or wester union armoured cars thats all to it.

Didn't times change? Today GOTUS doesn't have do all these. Just add appropriate numbers to the electronic accounts of the beneficiaries. Cost ~0!

svinayak · Post by **svinayak** » 01 Apr 2009 05:45

http://www.globalresearch.ca/index.php? ... &aid=12953

What the MSM ( Main stream Media) in US don't tell!

Our top five Banks are BOTTOMLESS PITS to which Taxpayers and the GOVT are held hostages!

March 30, '09

....Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo -Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.

Continued...(See attached for source and complete article)

No wonder the whole Western Economy is chaos!

vsudhir · Post by **vsudhir** » 01 Apr 2009 06:29

Financial Rescue Nears GDP as Pledges Top $12.8 Trillion

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

Posting w/o kament onlee though there's so much I'd like to say about the US' sovereign credit rating at this point of time....

James B · Post by **James B** » 01 Apr 2009 19:10

IMF sees world economy shrinking up to 1 percent in 2009

James B · Post by **James B** » 01 Apr 2009 21:08

US private sector axes 7,42,000 jobs in March

US private sector job losses accelerated in March, more than economists' expectations, according to a report by ADP Employer Services

That's a lot in a month.

ramana · Post by **ramana** » 02 Apr 2009 01:20

The Atlantic article provides an idea on agent based modeling and its early history.

Seeing around corners

vsudhir and Vina pay attention to the description of Zipf's law. Might have some relevance to identifying black swans.

Chinmayanand · Post by **Chinmayanand** » 02 Apr 2009 02:43

How the Treasury Bubble Will Burst and Why
WINTER INTENSIFIES

The deflationary credit contraction, or as some call a Kondratieff Winter, is intensifying. For the time being the worldwide financial and monetary systems have taken a step back from complete oblivion. The usual measurements such as the TED spread, three-month LIBOR and the two year swap spread have shown improvement. This improvement should not be mistaken for a miraculous healing because the fiat currency fractional reserve banking system is terminal. Eventually it will be replaced by a commodity currency with 100% reserves and no counter-party risk.

The system does not so much collapse as evaporate and these measurements only show a decline in the rate of the evaporation. For the most part the financial crisis of 2008 only affected Wall Street. 2009 will be the beginning of Main Street being affected. With unemployment at 17.5%, according to John Williams of ShadowStats, the Greater Depression has arrived and only begun.

A few weeks ago I explained why U.S. Treasuries are the Biggest Bubble of All. In summary, gold is the ‘risk-free asset’ and the normal and natural way for money and currency to function is with gold and silver or some other physical commodity. This allows for useful and accurate value calculation instead of the current derivative illusion. Financial historians may very well view the 95 year FRN$ bubble as an unusual anomaly and wonder how so many people were so ignorant, much like we view the culture who thought the earth was flat or that the sun revolved around the earth.

Currently as evidenced in the M1 Money Multiplier the velocity of the FRN$ is slowing tremendously. As Ludwig von Mises predicted decades ago in chapter 20 of Human Action, ‘The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. … But then finally the masses wake up. … A breakdown occurs. The crack-up boom appears.’ Which begs the question:

HOW AND WHY THE U.S. TREASURY BUBBLE WILL BURST

As long as the U.S. can pay and issue debt, the currency event of hyperinflation cannot happen. Because the U.S. has no internal savings, the debt must be absorbed by foreigners. When foreign demand for U.S. debt subsides then at least two scenarios can happen: (1) printing the money with hyperinflation or (2) a default which may not result in hyperinflation. But what I want to do is focus on the liquidity pyramid.

Seeking safety and liquidity capital has moved from derivatives to real estate to commodities to MUNI bonds to listed stocks to Treasury bills to gold and all the assets either financial or tangible in between. The liquidity pyramid is not set in stone but mainly a large scale roadmap. Most assets can easily be placed in the liquidity pyramid somewhere.

At all times and in all circumstances gold remains money. Therefore, the Ancient Metal of Kings belongs at the very tip of the pyramid. Gold has been and is in tight supply because holders of capital do not want counter-party or custodial risk. Finding a trusted third party, like GoldMoney, to hold one’s bullion in a proper way is extremely hard. As a result, spreads on both coins and bars have risen significantly. People want physical possession of the ’sweat of the sun’ and not ‘paper gold’ like the problematic GLD or SLV ETFs.

COUNTER-PARTY AND CUSTODIAL RISK

An essential element of counter-party risk is the reliance on the financial ability of the counter-party. For example, if your house burns down then receiving proceeds to rebuild the house is contingent upon the insurance company’s financial ability to pay. By contrast, if you drop off a suit at the dry cleaners and they go bankrupt then you get your suit back and do not get in line with the other creditors because the suit was held in bailment.

As counter-party risk increases, holders of capital develop more suspicion of their brokers, custodian banks and on through the food chain. As holders of capital seek safety and liquidity they decrease the layers of risk between them and their purchasing power.

WHY TREASURY BILLS WILL BURST

People run to Treasury Bills seeking safety and liquidity because they are lower in the liquidity pyramid. However, as more capital piles into them it drives rates lower and lower. Eventually Treasury Bill rates reach 0% or even go negative. This presents a problem.

Why hold a Treasury Bill with a bank, broker, custodian bank or the Federal Reserve itself when you could take possession of physical Federal Reserve Notes?

Taking possession eliminates at least two types of risks. First, is any potential counter-party risk with whoever is holding the Treasury Bill for you. Second, ‘political risk’ which is a much larger threat. For example, what if the Treasury Bills cannot be rolled over? What if the government does not redeem the Treasury Bills? What if the government, like other governments have done, decides to transmute the Treasury Bills into 1-2% perpetual bonds?

HOW TREASURY BILLS WILL BURST
As the yields on Treasury Bills approach 0% they have the return of cash but do not have the benefits of cash as they may be impregnated with counter-party risk or have decreased liquidity. In other words, Treasury Bills and cash have the same benefit profile but not the same safety and liquidity profile. This analysis also applies to demand deposits with the bank such as checking accounts or CDs. All the downside but none of the upside.

Holders of capital seek to eliminate their downside while maintaining the same upside resulting in less demand for government debt. To entice capital up the liquidity pyramid, rates must rise but cannot because so much capital is moving down the pyramid. To date, enticements up the pyramid have failed as MBS, Auction Rates Securities, ABCP, the DOW, S&P 500, etc. all show as asset price deflation continues and intensifies.

When a house of cards collapses there are at least cards left on the table. In the current case, there are no cards left on the table. As we see, the current system is not collapsing but evaporating.

CONCLUSION

The deflationary credit contraction is intensifying. Holders of capital seeking safety and liquidity have driven down yields on Treasury Bills. Treasury Bills have the same upside as physical Federal Reserve Notes but additional downside. As holders of capital seek to eliminate the downside for which they are not being adequately compensated demand for government debt will decline. For these reasons the U.S. Treasury Bubble is destined to burst.

vsudhir · Post by **vsudhir** » 02 Apr 2009 03:11

ramana wrote:The Atlantic article provides an idea on agent based modeling and its early history.

Seeing around corners

vsudhir and Vina pay attention to the description of Zipf's law. Might have some relevance to identifying black swans.

Awesome find, ramana garu!

Worth repeat reads onlee..... says it better than entire tomes could have put it. Implications for everything from society to economy to geopolity.

Shiv saar, pls to find simulated proof of your oil drop theory. BRFite assamese need to worry about lower Asom that has already demographically 'tipped'.

Epstein has run this simulation countless times from different random starting points, and it turns out that neither color enjoys an inherent advantage: blues and greens are equally likely to prevail, with the outcome depending on random local events that tilt the balance one way or the other. {which is why ever national election in India attains such critical importance for the future of Ma Bhaarti}No two runs are quite alike. But all are the same in one respect: once a side has attained the upper hand, its greater numbers allow it to annihilate the other side sooner or later. {Thaparite deception apart, Indian history is replete with examples of such mayhem. I living memory, what happened to the Pandits speaks volumes} In Frame 4 greens are confined to a single ethnic enclave (the bottom of the frame wraps around to join the top), where they huddle in beleaguered solidarity as blues continue to nibble at them. The rest of the story, in Frames 5 and 6, speaks for itself.