Perspectives on the global economic meltdown

Suraj · Post by **Suraj** » 28 Jun 2009 02:51

Why would GoI *willingly* tie money supply to gold in the country ? Why would an obligation to pay market price on gold be a fiscal restraint, when they can just print the extra sum if they are resorting to deficit spending ? In simple terms, what's in it for them ?

vsudhir · Post by **vsudhir** » 28 Jun 2009 04:28

Suraj wrote:Why would GoI *willingly* tie money supply to gold in the country ? Why would an obligation to pay market price on gold be a fiscal restraint, when they can just print the extra sum if they are resorting to deficit spending ? In simple terms, what's in it for them ?

Good point.

The fiat currencies in the west (the Anglo Saxon world in particular) ran into trouble at least partly because of the Fractional Reserve banking (FRB) system run amok. The main creation of "money" in the system was not Mx by the Fed but credit/debt by the banks. Of course credit is not the same thing as money coz it requires repayment with interest which is why we now see a movement gaining root calling for public (as opposed to by the Fed reserve and its branches) ownership of the monetary system.

In India, large part of national debt is denominated in INR. GoI needs to have the flexibility to nominally devalue the INR should need arise.

Besides our shadow/informal/black economy rivals the official one in size. The amount of monies in circulation and those held abroad in shadow accounts are immense. Tying in the INR total to gold stock could run into trouble mighty soon.

Totally IMVHO, of course.

vsudhir · Post by **vsudhir** » 28 Jun 2009 05:15

Don't believe the hyperinflation hype - dare to make cuts

wogay. Sri Ambrose Evans Pritchard has also leaped into the deflation camp now.It sure is getting crowded here.

He makes the correct points that inflation is a function of many things (think output gap, sinking velocity of money) and all of them except money printing disfavor inflation right now.

We know that the Fed's balance sheet has exploded (to $2.07 trillion), but that is only half the story. Data from the St Louis Fed shows that the "monetary multiplier" has collapsed from a decade-average of 1.6 to the depths of 0.893. The "velocity" of money has slowed to a crawl.

Professor David Beckworth from Texas State University said the Fed's efforts to boost the money supply are barely keeping pace with the deflation shock. Stimulus is not gaining traction. The credit system is broken.

Where will the inflation impulse come from given that capacity use is at a post-war low of 68pc in the US, and nearer 60pc worldwide? The immediate threat is wage deflation.

Personally, I backed the Brown fiscal package last autumn, but only to buy time when Western banks seized up, and to pressure G20 surplus states to play their part. That phase has passed.

Today's danger is creditor revulsion as governments worldwide raise $6 trillion in debt this year. The solution is remarkably simple. Stop borrowing and step up the Friedman monetary blitz to stop loan collapse. Does any nation have the nerve to do it?

vsudhir · Post by **vsudhir** » 28 Jun 2009 06:44

Yup, it is getting ugly out there. The pipsqueaks borrowing in phoren currency are hardest hit post bubble burst. Sovereign deafult looks tempting to do compared to the pain to come.

Here's a case study of Latvia and a comparison with Argentina from a decade ago.

Latvia is firing a third of its teachers. The welfare state is being dismantled. Pensions for those in work will be cut 70pc. The salaries of doctors, nurses, and police (nota bene) will be cut 20pc. Unemployment has risen from 6pc to 17pc in a year, and is still rising. Jobless benefits for most will run out in the autumn, reducing support to £40 a month. "It is time to take to the streets," said union leader Valdis Keris.

So why is Riga persisting with peg crucifixion? The central bank has burned a tenth of its reserves in a fortnight. Overnight rates have topped 200pc. Why go on? No doubt devaluation would be a shock for middle class Latvians with euro and Swiss franc mortgages, but they face punishment either way – slowly by debt deflation, fast by devaluation. Swedish banks with $75bn of exposure to the Baltics have already thrown in the towel, accepting that it might be better for all to lance the boil.

The usual IMF strategy in these cases is to devalue by 30pc or so, which allows boom-busters to export their way back to health. Further rescue loans change little without this liberating action. They add debt, and draw out the agony.

We know from leaked documents that the Fund advised Latvia to ditch the peg last year. IMF experts were overruled by Brussels. The reason, of course, was to prevent: 1) a chain of falling dominoes in Eastern Europe; 2) a default shock for West European banks with $1.6 trillion (£970bn) of exposure to the region; 3) leakage from Bulgaria across the EU line into Greece – euroland's Achilles heel.

Latvian society is being sacrificed to buy time for EMU's dysfunctional system. It is the designated martyr for the EU Project.

When Latvians wake up to what is being done to them, more than a wretched peg will go.

ANd here's what happened in Argentina in 2001.

Contrary to revisionist talk, Argentina was not a basket case. Its imbalances were no worse than those of the Baltics, Balkans, Spain, or Greece, and arguably better.

It ran a trade surplus in 1999 and 2000 until dollar revaluation against Brazil and Europe crushed exports. The economy shrank 5pc in 2001, mild compared to Latvia's 20pc slump this year.

Yet Argentina span out of control very fast in December 2001 when President Fernando de la Rua stopped cash withdrawals from banks. There was a national strike. Co-ordinated mobs stormed supermarkets.

On the 17th, de la Rua ordered a 20pc cut in public spending. (Like cuts just passed by Latvia's parliament). It set off three days of rioting fanned by Peronist agitators. De la Rua declared an emergency. The army refused to act without backing from congress. Police lost control. Some 27 people were killed on the 20th.

Trapped in the Casa Rosada by furious crowds, De la Rua fled in an air force helicopter. After five presidents in two weeks, Argentina ended a half-baked dollar union that had lured its people into a debt trap. Dollar mortgages − 90pc of home loans − were switched into pesos by decree. Foreign creditors received a 70pc haircut.

The country recovered, as countries do once suicidal policies of monetary deflation are halted. In a sense, Argentina did what Britain and America did in the 1930s by coming off gold. Creditors didn't like that either, but Anglo-Saxon democracies at least survived to save capitalism.

well written. ties in history and perspective to the ongoing turmoil.

link

ldev · Post by **ldev** » 28 Jun 2009 07:15

Suraj wrote:Why would GoI *willingly* tie money supply to gold in the country ? Why would an obligation to pay market price on gold be a fiscal restraint, when they can just print the extra sum if they are resorting to deficit spending ? In simple terms, what's in it for them ?

Whats in it for them is:

1. Price stability.
2. A stable external value for the rupee.
3. Fiscal responsibility.

An obligation to pay market price is limited to a specific exchange of money for gold. Because there is no fiat currency, a holder of currency will have confidence in the currency as a store of value as opposed to the competitive devaluations in store for other currencies.

vina · Post by **vina** » 28 Jun 2009 07:29

Whats in it for them is:

1. Price stability.
2. A stable external value for the rupee.
3. Fiscal responsibility.

An obligation to pay market price is limited to a specific exchange of money for gold. Because there is no fiat currency, a holder of currency will have confidence in the currency as a store of value as opposed to the competitive devaluations in store for other currencies.

Ldev ji. What you essentially are talking about is going back to the gold std. The pitfalls are well known. You lose flexibility . Now flexibility and its other name adaptability is what helps anything survive and grow in an ever changing environment. If dinosaurs had adaptibility, we as humans wouldn't be here typing on the keyboad!.

Point is with gold std, you effectively have a limited monetary base. There are times when you need to inflate, others when you need to clamp down.

With an ever growing global economy, you cannot run an economy on something whose supply is limited. Yes, the limited supply is the reason why it can constrain hyperinflation by imposing discipline against printing notes. But other than that what ?. It is throwing out the baby with the bath water!

Suraj · Post by **Suraj** » 28 Jun 2009 07:39

ldev: why is any of those three be something GoI wants ?

Arguably the first could be, especially if elections are around the corner. But why, particularly at a time when GoI would like to defer its FRBM commitments, would 'fiscal responsibility' be something 'in it for them' ? And on the matter of exchange rate stability, over several decades, GoI eroded the value of the rupee, from Rs.4/$ to almost Rs.50/$ . However, they did not encounter a fiscal cataclysm as a result, attributed primarily to the debt being denominated in Rupees. The only time there was a macroeconomic crisis - 1991 - was when profligate external short term borrowings came back to bite them.

My underlying assumption is that the idea has validity only if GoI buys in with its own self interest. Only one of the reasons you provided (price stability) even appears realistic, and it doesn't require a quasi gold standard. As much as its a great idea on paper, it doesn't appear meaningful unless it is something that would serve GoI's interest. Considering GoI's reluctance to follow the FRBM Act, or its use of SLR in banks, why would anything like 'paying market price on gold' be guaranteed ? GoI has seldom shown any wherewithal to be regulated, and has always preferred preferential treatment for itself.

ldev · Post by **ldev** » 28 Jun 2009 07:51

Vina,

All good points

Essentially I am playing a devil's advocate here against myself to try and figure out whether there is anything which is a real constraint against the use of a representative gold standard even in terms of flexibility and adaptability.

If you are a true Keynesian then ofcourse this proposal is heresy. But India is in a unique position. The last 12-18 months have shown how fragile the global financial architecture is. The USD is being used solely for achievement of USG objectives, the rest of the world be dammned. Why should India which is this unique position of being able to back up 100% of its M3 money supply with domestic gold not look at unique solutions? It does not have to be M3, it can be M1, heck it can even be 25% of M1. But what it will give the rupee is credibility. Eventually in an ideal world, and 20 years down the road, anybody in the world should be able to hold the rupee with confidence. Even a 25% margin, will have credibility.... it can also provide GOI with some flexibility if that is what they need..... But there will always be long term limits to fiscal and monetary irresponsibility. Totally the opposite of the open ended money printing being done by everybody today.

Consider that money creation is nothing but debt creation and also consider that the relationship between money creation and asset prices is highly non linear e.g. $10B of FII inflows into the Indian stock market makes the sensex jump by 30% and adds $300B to market capitalization. This is not confined to the Indian markets. As you know Wall street is the original purveyor of this lunacy and itt continues today.... in fact at an accelerated rate with thin trading volumes. Is this madness or what? Asset price increases are nothing more than the devaluation of the currency that they are denominated in. I would much rather that productive assets be created. Yes, asset price inflation can feed into the "real economy", but that is a highly dangerous game to be playing as many countries have discovered.

For all of these reasons, one should consider a currency for what was its original purpose i.e. as a store of value.

shravan · Post by **shravan** » 28 Jun 2009 09:28

Acharya wrote:
* Panic of 1792
...
crash 1929

the bankers been yanking for years....just nobody talks about it, except the 1 crash, 1929

When was the last time Trillions of Dollars suddenly went missing ?

ldev · Post by **ldev** » 28 Jun 2009 10:23

Suraj wrote:ldev: why is any of those three be something GoI wants ?

Arguably the first could be, especially if elections are around the corner. But why, particularly at a time when GoI would like to defer its FRBM commitments, would 'fiscal responsibility' be something 'in it for them' ? And on the matter of exchange rate stability, over several decades, GoI eroded the value of the rupee, from Rs.4/$ to almost Rs.50/$ . However, they did not encounter a fiscal cataclysm as a result, attributed primarily to the debt being denominated in Rupees. The only time there was a macroeconomic crisis - 1991 - was when profligate external short term borrowings came back to bite them.

My underlying assumption is that the idea has validity only if GoI buys in with its own self interest. Only one of the reasons you provided (price stability) even appears realistic, and it doesn't require a quasi gold standard. As much as its a great idea on paper, it doesn't appear meaningful unless it is something that would serve GoI's interest. Considering GoI's reluctance to follow the FRBM Act, or its use of SLR in banks, why would anything like 'paying market price on gold' be guaranteed ? GoI has seldom shown any wherewithal to be regulated, and has always preferred preferential treatment for itself.

I cannot think of a better time politically than now for GOI to act. The numbers in Parliament are such that this government should last for a full 5 years. Any difficult decisions they make now will begin to payoff in time for the campaigning for the next elections.

This "representative gold standard" does not have to there for the really long term. But it can provide a very solid foundation for the Indian economy over the next 20 years. The stock of gold in country now at about 30,000 tons at current prices and if it provides backing for a 50% MO margin, will ensure that M3 can ultimately grow to $12.5T at the current multiplier and at current gold prices. If the velocity of money remains constant (unlikely, in fact it will become faster), this will support a $15T economy. If you reduce the margin to 25% of MO, then it can support a $30T economy. Are we really limiting the size of Indian economy here? Is $15 trillion or $30 trillion peanuts for Indian GDP? In fact, at the end of this process, the Indian economy will be a rupee centric economy because such a scheme if successful will tie the rupee far more closely to gold than any other currency including the US dollar.

More importantly, when the next global financial cataclysm does arrive, and it will arrive at some point of time, what with the way Obama is spending money the US does not have (makes a drunken sailor look sober by comparison).....India will have a currency with which it will be able to buy what it needs from the rest of the world.

See, if Indian politicos get their heads out of from where the sun does not shine and look ahead 20 years, they will have no hesitation in adopting or adapting such policies.

vera_k · Post by **vera_k** » 28 Jun 2009 12:11

Will such a scheme allow the rupee to depreciate to say 70 to the dollar? I ask, because I suspect the rupee will have to see that level or worse before it starts appreciating like the yuan. Essentially, India will need to let the rupee weaken so that a manufacturing economy is built that puts lots more people to work. Once that is done, the rupee can withstand gradual appreciation and may be ready for such a scheme.

Neshant · Post by **Neshant** » 28 Jun 2009 12:29

China knows that the US is going to inject massive new dollars into the world system to re-ignite growth by forcing dollar holders out of cash. That's why they have been expressing their worries. They know they hold too many dollars to diversify out of cash aka treasuries. China policymakers are very conservative, so after losing massive amounts from FNM and FRE, and US banks, they have vowed to stay away from US equities and corporate debt.

If china tries to diversify out of treasuries, 2 trillion will create huge imbalances in those markets, which could collapse their economy. Treasuries are the only liquid vehicle big enough to absorb the large dollar flows. But, China is trapped by their currency policy. They have built up these huge reserves by pegging to the dollar and dumping their goods below value to US consumers. They thought with their reserves they would be immune to the Federal Reserve's policy, but they are stuck with paper dollars, whose value is subject to Federal Reserve policy.

China exacerbated the US economic crisis by dumping their equities and fleeing to treasuries and commodities last year. They are now trying to dictate US government policy through the debt market. By owning only treasuries, they use the threat of dumping them as a way to influence Washington economic policy. Washington Policymakers don't understand how the treasury market really works, so they are falling prey to the fearmongering from China about a large national debt. But the Federal Reserve is independent from Washington and holds the power to the currency value and monetary policy. That's why you have seen these new House Resolutions from Congress to get more control over the Federal Reserve.

At the same time, the Federal Reserve is trying to force Chinese policy makers to open their capital account with this massive monetary expansion. The Federal Reserve wants a floating renminbi, so China can be subject to the dollar business cycle through investment bank speculation.

China is trying to create a way around this through alliances, and currency swaps. But there is no option. Dollars are flowing out of treasuries and China is sort of the bag holder. If treasuries keep falling, they will lose massive amounts of reserves. The only thing that gives China its economic power right now is their huge reserves. But, alas, they are dollars. There is a power struggle in the financial system between the US and China, and Russia. China and Russia want to be exempt from the Federal Reserve’s policies.

Even if somehow China makes the renminbi a reserve currency, oil is still priced in dollars due to the US/OPEC agreement. Russia does not want the renminbi, they want the Ruble to be a reserve currency. So, who will China buy oil from? Brazil seems to be the only participant.

OPEC knows what happened to Iraq when they were trying to price Oil in Euros. Iran has moved to Euros, but they are dealing with the daily pressure from US policymakers and the economic sanctions. So, it's highly unlikely that the oil/dollar pricing will change.

Europe is essentially neutral in this. They prefer the dollar standard because they have a world view similar to the US and they are allies. The Euro and the dollar have a symbiotic relationship in the interbank market via the Eurodollar.

Germany has a close relationship with Iran that is why the US has allowed Iran to price oil in Euros. It gives Europe an assured supply outside of the Federal Reserve dollar policy. But, Iranian policymakers hate that they have western banks controlling their economy and oil reserves. So, they have been trying to get nuclear weapons. European energy supply would be devastated by this, so the US and Europe keep pressure on the Iranian leaders not to develop the bomb. But Germany supports the Iranian nuclear power industry, because this allows Iran to use less of its oil reserves and it frees up more oil for export to Europe, especially Germany's power hungry export sector.

The ECB has a different mandate than the Federal Reserve. Their policy has a smaller impact on the world financial system, so they hedge against Federal Reserve policy during monetary expansion. Europe still has the old monarchs and very old money. These families want their buying power and wealth protected. So, the ECB has an explicit strong currency policy. They, by mandate are not allowed to dilute the money supply the way US policy does. But again, the dollar must regulate worldwide growth, and commodity prices.

The main thing to watch is how China deals with their capital account. If they open it and allow the currency to float, they will be submitting to the dollar system. China cannot create the renminbi as a reserve currency without finding a reliable source of oil that will be priced in renminbi. If Russia were to accept the renminbi, that could be a huge risk to the dollar. But the Russians don't want to submit to the Chinese.

So, there are many large obstacles for the Chinese. Right now, they are at the mercy of fed expansionary policies, and are seeing their reserves losing value. They have been buying a lot of commodities to diversify, but the problem is, they are still at the mercy of the dollar.

Singha · Post by **Singha** » 28 Jun 2009 15:36

thanks for being so detailed. I had tried to gist of it in one line - their so called dollar trap to control Unkil has instead recoiled and trapped them instead.

unless they can find large sellers of oil, minerals and organic raw materials (to feed their domestic and export industries) who are willing to accept renminbi as payment they dont have room for manouver.

as you mentioned, only brazil might be willing to do renminbi trade among the major economies.

shravan · Post by **shravan** » 28 Jun 2009 17:59

http://money.cnn.com/news/newsfeeds/art ... RTUNE5.htm
2nd UPDATE: Lawmakers Attack Fed For Being Too Secretive
June 25, 2009: 05:20 PM ET

WASHINGTON -(Dow Jones)- U.S. lawmakers, during a hearing Thursday on the central bank's role in Bank of America's acquisition of Merrill Lynch, attacked the Federal Reserve as a secret agency unworthy of new enhanced regulatory powers.

"It's time to yank the shroud off the Fed and shine some light on these events," said U.S. House Committee on Oversight and Government Reform Chairman Edolphus Towns, D-N.Y., who in an opening statement repeatedly described the Fed as being "shrouded in secrecy."
.
.
.
Still, Bernanke warned lawmakers against moving forward on legislation that would give the Government Accountability Office, Congress' investigative arm, new authority to audit the Fed. More than half of the U.S. House has signed on a measure that would make way for audits of the Fed.

"My concern about the legislation is that the GAO is auditing not only the operational aspects of our programs and details of the programs, but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar and our national economic situation," he said.

Furthermore, Bernanke argued that the Fed, under his leadership, has made " enormous strides" to expand the information it releases to the public.

"We think we are quite transparent," Bernanke said.

kmkraoind · Post by **kmkraoind** » 28 Jun 2009 19:38

Shravan, nice analysis, but what about future, who will blink first, who will loose ultimately.
1. US dollar dominance.
2. China's partial amount of lose due to dollar devaluation and ceasing to be global workshop.
3. Role of Japan/South Korea/Taiwan.

vsudhir · Post by **vsudhir** » 28 Jun 2009 19:59

Denninger, among the more outspoken econ bloggers I follow, has been blasting

blatant, wanton and repeated violations of black-letter law by the Federal Reserve

in their mkt ops, its lack of transparency and lack of accountability to the general public.

For instance,

See what happens when Congress refuses to enforce The Federal Reserve Act's provisions that require that equity ownership be taken only in instruments that have the full faith and credit of the US Government behind them?

Under the agreement, AIG will split off AIA and Alico into separate company-owned entities called "special purpose vehicles," or SPVs. The New York Fed will receive preferred shares now valued at $25 billion -- $16 billion in AIA and $9 billion in Alico -- and in exchange will forgive an equal amount of AIG debt.
So now The Federal Reserve (actually the NY Fed) partially owns an insurance company through more off-balance-sheet Frankenstein monsters.

This is blatantly in violation of The Federal Reserve Act but nobody in Congress seems to care.

The FRA was written as it stands to explicitly preclude this sort of transaction. If we are to take an equity ownership position in AIG linked to the taxpayer it has to be done through an appropriation passed by and overseen by Congress, not through an administrative action by The Federal Reserve or one of its districts!

The New York Fed said in a statement that the agreements "further the goals of enabling AIG to fully repay the assistance that it has received from U.S. taxpayers and advancing the company's global restructuring process. The exchange of senior secured debt for preferred equity interests reduces AIG's financial leverage and facilitates the independence of these two key subsidiaries."
And who authorized The New York Fed to engage in that transaction? Where is the explicit legislative authorization permitting the creation of an SPV that amounts to EQUITY OWNERSHIP of an insurance company?

The NY Fed just nationalized an insurance company without a bill proffered in Congress and signed by The President!

WHERE ARE THE DAMN COPS?

Link

And today, he's been reporting on what he terms is an SEVERELY Bearish Treasury Development

From Marketwatch:

NEW YORK (MarketWatch) -- Dresdner Kleinwort Securities has withdrawn from the Federal Reserve's primary U.S. government security dealers, the U.S. central bank said Friday.
The change is net neutral in terms of numbers as a new dealer just came online, but in general this is a major net negative for the Treasury market.

Why? Because being a primary dealer is, in general a license to print money. You get to field customer orders for Treasuries and make your spread, and you have a privileged trading position with The Fed.

There's only one fly in the ointment, and that is that the position comes with a requirement that you bid. This is distinct from most other nations where no such system exists, and essentially guarantees that there can never be a "failed" Treasury auction.

There was no reason cited for the withdrawal but one can surmise that the issue is that they're stuffed to the gills with Treasuries and are finding it difficult or impossible to earn their spread, think there is a material safety risk in their participation (e.g. getting stuck long with a deteriorating position), or both.

Either way there is no possible means to read this as bullish. While the issue may be with their liquidity demands and thus not reflect severely on the Treasury market with the issuance that has gone on this year and will for the foreseeable future I wouldn't take that bet.

Its true that Sri Ron Paul's bill now officially commands majority support in COTUS. Trust the bankers to find ways to keep it from getting voted on in a hurry.

ldev · Post by **ldev** » 28 Jun 2009 20:07

Neshant,

Thanks for that detailed background of the global economic arena. While I dont agree with everything you have written, that global background and the strong possibility of turbulent economic times is what I had in mind when I wrote the series of posts on the way ahead for the Indian rupee trying to utilize India's domestic gold to provide some backbone to the rupee. It is a form of buying downside insurance in the event of a Black Swan type of event for the US dollar.

shravan · Post by **shravan** » 28 Jun 2009 21:23

kmkraoind wrote:Shravan, nice analysis, but what about future, who will blink first, who will loose ultimately.
1. US dollar dominance.
2. China's partial amount of lose due to dollar devaluation and ceasing to be global workshop.

Sep. 10th 2001
http://www.youtube.com/watch?v=OlnQTcLHaMM

May 06, 2009
http://www.youtube.com/watch?v=PXlxBeAvsB8
1:22mins & 3:13mins listen carefully.
-------------

I don't think anyone can answer your questions....

But the below paragraph gives a good hint where they are heading.

June 25, 2009: 05:20 PM ET
"My concern about the legislation is that the GAO is auditing not only the operational aspects of our programs and details of the programs, but is making judgments about our policy decisions that would effectively be a takeover of monetary policy by the Congress, a repudiation of the independence of the Federal Reserve, which would be highly destructive to the stability of the financial system, the dollar and our national economic situation," he said.

vsudhir · Post by **vsudhir** » 28 Jun 2009 22:06

From a blogpost, so believe at yoru own peril. Nonetheless, the poster is highly credible judging by his past record.

How important are jobs? The State of North Carolina just gave the PCS mine (a phosphate mine owned by Potash of Canada) permits to mine, for the next 35 years, 11,000 acres adjacent to its current open-pit operation. It will destroy 3,900 acres of wetlands and will impact 4.8 miles of streams. The mine is the largest single employer in Beaufort County, a beautiful intra-coastal county located on the inner banks of NC. It presently employs 1,000 people.

There is another trade-off. Experts say that it is the air and water contamination from this mine that have rendered this rural county with one of North Carolina's highest cancer rates. The rate is 30% higher than neighboring Hyde county.

How ironic that the US outsources jobs to countries that will take jobs over the health of their citizens and over the protection of their environments, while Canada will outsource mining to the US, which will take jobs over the health of its citizens and over the protection of its environment. Four members of Congress and two Senators from NC rammed these mining permits through the EPA.

OK. zimble googling reveals much only.

PCS Phosphate Mine project would be the single largest destruction of wetlands in North Carolina history

SENATOR HAGAN APPLAUDS FINAL RESOLUTION OF PCS PHOSPHATE PERMITTING PROCESS

That last was from the honorable senator's own website.

vsudhir · Post by **vsudhir** » 28 Jun 2009 22:09

Hotel foreclosures jump in California

In California, 175 hotels are in default -- the first stage in the foreclosure process -- according to a report from Atlas Hospitality Group, an Irvine-based brokerage firm. Another 31 have been foreclosed, nearly one third of them in the Inland region.

Of those in default or foreclosure, about 75 percent obtained new loans between 2005 and 2007 for construction financing, re-financing or to buy the hotel, according to the firm. Atlas Hospitality estimates that 2,500 hotels -- about 25 percent of the state's entire hotel population -- refinanced or obtained new loans in that time meaning more defaults and foreclosures could be on the horizon.

The industry has been rattled by foreclosures before, especially in the mid-1990s, but the impact today is more widespread, hitting both low-end and high-end properties in every region, Reay said.

Those who bought hotels between 2006 and 2006 are likely sitting on properties worth at least 50 percent less than what they paid, he said. [Mish: obviously there is a typo in the date range]

Reay's firm is marketing The Block at Big Bear, a 50-room hotel that catered to snowboarders. The hotel's owner walked away earlier this year and closed the hotel, which is in default. The hotel was appraised for more than $4 million in 2006. Today, Reay's firm, working with a court-ordered receiver, is asking $2.04 million for the property.

Hoteliers will likely have to survive at least two more years of low revenues, diminishing profit margins and fewer rooms booked by travelers unwilling to spend.

Atlanta-based PKF Hospitality Research has forecast that the revenue hoteliers earn per room will reach its lowest point of the recession in the third quarter of this year.

That CRE (Commercial real estate) is the next big blowup is no secret. Dunno if hotels would count under CRE but the hotel bustup was long in coming, IMO.

svinayak · Post by **svinayak** » 29 Jun 2009 00:35

vsudhir wrote:
So now The Federal Reserve (actually the NY Fed) partially owns an insurance company through more off-balance-sheet Frankenstein monsters.

This is blatantly in violation of The Federal Reserve Act but nobody in Congress seems to care.

The FRA was written as it stands to explicitly preclude this sort of transaction.

I dont think this violation of the FRA but AIG and its links to the rest of th eworld is due to the clout of the backers of the FED

A law was passed 40 years ago to cut FED out of the banking system and currency. It may be revived by ROn Paul and could be important for America in thsi turbulant times.

Check it out here
http://www.india-forum.com/forums/index ... st&p=99219

What is the Federal Reserve Bank?

What is the Federal Reserve Bank (FED) and why do we have it?

by Greg Hobbs November 1, 1999

The FED is a central bank. Central banks are supposed to implement a country's fiscal policies. They monitor commercial banks to ensure that they maintain sufficient assets, like cash, so as to remain solvent and stable. Central banks also do business, such as currency exchanges and gold transactions, with other central banks. In theory, a central bank should be good for a country, and they might be if it wasn't for the fact that they are not owned or controlled by the government of the country they are serving. Private central banks, including our FED, operate not in the interest of the public good but for profit.

There have been three central banks in our nation's history. The first two, while deceptive and fraudulent, pale in comparison to the scope and size of the fraud being perpetrated by our current FED. What they all have in common is an insidious practice known as "fractional banking."

Fractional banking or fractional lending is the ability to create money from nothing, lend it to the government or someone else and charge interest to boot. The practice evolved before banks existed. Goldsmiths rented out space in their vaults to individuals and merchants for storage of their gold or silver. The goldsmiths gave these "depositors" a certificate that showed the amount of gold stored. These certificates were then used to conduct business.

In time the goldsmiths noticed that the gold in their vaults was rarely withdrawn. Small amounts would move in and out but the large majority never moved. Sensing a profit opportunity, the goldsmiths issued double receipts for the gold, in effect creating money (certificates) from nothing and then lending those certificates (creating debt) to depositors and charging them interest as well.

Since the certificates represented more gold than actually existed, the certificates were "fractionally" backed by gold. Eventually some of these vault operations were transformed into banks and the practice of fractional banking continued.

Keep that fractional banking concept in mind as we examine our first central bank, the First Bank of the United States (BUS). It was created, after bitter dissent in the Congress, in 1791 and chartered for 20 years. A scam not unlike the current FED, the BUS used its control of the currency to defraud the public and establish a legal form of usury.

svinayak · Post by **svinayak** » 29 Jun 2009 02:15

Neshant wrote:China knows that the US is going to inject massive new dollars into the world system to re-ignite growth by forcing dollar holders out of cash.

China exacerbated the US economic crisis by dumping their equities and fleeing to treasuries and commodities last year. They are now trying to dictate US government policy through the debt market. By owning only treasuries, they use the threat of dumping them as a way to influence Washington economic policy.

At the same time, the Federal Reserve is trying to force Chinese policy makers to open their capital account with this massive monetary expansion. The Federal Reserve wants a floating renminbi, so China can be subject to the dollar business cycle through investment bank speculation.

China is trying to create a way around this through alliances, and currency swaps. But there is no option. Dollars are flowing out of treasuries and China is sort of the bag holder. If treasuries keep falling, they will lose massive amounts of reserves. The only thing that gives China its economic power right now is their huge reserves. But, alas, they are dollars. There is a power struggle in the financial system between the US and China, and Russia. China and Russia want to be exempt from the Federal Reserve’s policies.

Even if somehow China makes the renminbi a reserve currency, oil is still priced in dollars due to the US/OPEC agreement. Russia does not want the renminbi, they want the Ruble to be a reserve currency. So, who will China buy oil from? Brazil seems to be the only participant.

The main thing to watch is how China deals with their capital account. If they open it and allow the currency to float, they will be submitting to the dollar system. They have no choice but submit. China cannot create the renminbi as a reserve currency without finding a reliable source of oil that will be priced in renminbi. If Russia were to accept the renminbi, that could be a huge risk to the dollar. But the Russians don't want to submit to the Chinese.

So, there are many large obstacles for the Chinese. Right now, they are at the mercy of fed expansionary policies, and are seeing their reserves losing value. They have been buying a lot of commodities to diversify, but the problem is, they are still at the mercy of the dollar.

The answer to China threat to dump is Arunachal Pradesh.
Is Governor JJ Singh going to meet Hu during the summit on ADB financing. Hope they know who he is!

Any border war will dump the floating renmimbi down wards.
Even a UAV flight to cross the border will bring panic to the currency market inside China.

China and Russia want to be exempt from the Federal Reserve’s policies.

When you say this does it mean that they are negotiating with Fed Reserve or the backers of FED

putnanja · Post by **putnanja** » 29 Jun 2009 03:31

So does China have any option at this stage? If they dump treasuries and dollar values go south, so does their reserves and their currency. If they don't, they are at the mercy of US. Earlier, it used to be said that due to the huge reserves that china holds, US and China are in a bear hug and one can't hurt the other without hurting itself. slowly, it seems to be that US is emerging stronger in that it can hurt china while trying to recover its economy, and china can do zilch to prevent it. Is this a correct assessment? I remember vina having alluded to this some time back. Is china running out of options?

Once the US and global economy recovers, what can china do to ensure that it won't end up in this state again? and how does that affect the global economy?

vsudhir · Post by **vsudhir** » 29 Jun 2009 04:58

ok, FWIW, dunno what PRC is upto but doubt its anything good.

Dollar Declines After China Repeats Call for New Global Reserve Currency

Meanwhile crisis in the boor states of the rich khanate federation constinues unabated

Mounting Jobless Claims Force States To Borrow Funds

And the boverty of the states has all to do with the fact that they are constitutionally required to balance their budgets and can't print extra to cover the shortfall like DC routinely does.

vsudhir · Post by **vsudhir** » 29 Jun 2009 06:09

x-post from the UKstan thread

Benefit payouts will exceed income tax revenue
.

The state will pay out more in social security benefits than it raises from workers in income tax this year, The Daily Telegraph can disclose.

The stark evidence of the growing imbalance between what the Government raises and what it spends is likely to intensify the political row over the public finances and may strengthen calls for cuts in spending.

uh-oh. Long live the Mervyn King, I guess.

This year will be the first in a decade that benefits cost more than workers pay in income tax.

And the last time the threshold was crossed, in 1999/00, benefits exceeded revenues by only a small margin. Then, income tax raised £95.7 billion and benefits cost £97.2

As well as spending more on welfare, the Government is facing rising bills for the interest on the growing national debt, which is set to hit £1.4 trillion in five years.

The Government is already spending more money paying the interest on its debts than it raises from one of its most unpopular taxes, fuel duty imposed on motorists.

This year, motorists will pay £26.6 billion in fuel duty. At the same time, the Government will pay out £27.2 billion debt interest to the investors who hold Treasury bonds.

Debt trap, anybody? Nah, just kidding. Not yet, at any rate. But if Labor returns to power powered by the packee vote, who can say?

Let us hope UKstan pulls out of that morass now.

Anyway, in the meantime, more gems tumble out.

Debt interest payments are growing rapidly. Grant Thornton, an accountancy firm has estimated that by 2013, debt interest will cost £58 billion, exceeding Government spending on education in England and almost as much as the Treasury raises from VAT.

The rising cost of welfare payments and debt interest represent a political embarrassment for Gordon Brown, who has described such spending as the "costs of failure."

Sri Brown, embarrassed? Hah, the fool journo has no clue abt the typical thickness of political hides seems like.

Mr Brough warned that unless the public finances are quickly brought back into balance, the international investors will turn their backs on Britain, threatening a national financial catastrophe.

He said: "If the parties aren't honest with the people then the markets will be. If you have any doubts then ask the people of Iceland what it is like when the markets lose faith."

{Whoa! careful Brough fella....with reckless statements like that you risk angering (but *not* embarassing) Sri Miliband, if not Sri Brown himself! And lest anyone forget, twas UKstan under the sterling leadership of these two gents that tightened the screws on boor Iceland when their first bank failed and the Ukstanis in their classic generosity seized the assets of the third largest Icelandic bank that had nothing, I repeat nothing, to do with the defaults of the largest two.}

The soaring benefits bill will increase the political pressure for sweeping reform of the welfare system.

Long overdue, no? Having skimmed trillions off India's capital surplus, too bad your welfare system is under strain, chum.

Anujan · Post by **Anujan** » 29 Jun 2009 06:26

RaviBg wrote:So does China have any option at this stage?

This is the $2T question that the Chinese themselves are asking. It is not the case that the Chinese have been outwitted (yet). They can still come out ahead. The trick is not to exchange dollars for euros or the yen (both of which, it is clear, is not backed with anything of "value") or even Gold, the trick is to exchange dollars for goods and services which have "value" in the long term.

The Chinese are adopting a three pronged approach to this. As a first (determined in dollar terms) prong, they are on a world wide commodity buying spree, trying to buy themselves an empire. Many economists are saying China is making purchases much beyond "what they can efficiently use". I dont think they are buying it with an intention of using it, they are just investing in the commodity market. (You want copper. All the copper in the world is owned by China. How much will you pay for it ?).

As a second (determined in dollar) prong, they have increased domestic spending on infrastructure, signing dollar-denominated medium-term contracts with western companies for building roads, bridges etc. IE, trying to pass off the funny money to the guy who invented the funny money in the first place.

As a third prong, they are increasing dollar-denominated aid to nasty regimes to buy influence.

This is interestingly similar to and different from how Unkil (used to) spends his money. It is different in the sense that US access to resources is ultimately guaranteed by its military (as opposed to Chinese commodity contracts). It is similar in the sense that Unkil (used to) domestically invest money with a aim to foster "innovation" (a fancy term for trying to figure out how to do massive value addition in new ways per unit of raw materials consumed).

The $2T question is, how much of the $2T can the Chinese offload in medium to long term commodity contracts and medium term service contracts with western firms. And whether these contracts will be worth anything in say, 10 years' time. The more time there is a "credit crunch" and no inflation due to money printing (keeping prices of goods and services low), the more time the Chinese have to snap up these contracts. Unkil better start hoping the hyperinflation thing starts kicking in fast....

vsudhir · Post by **vsudhir** » 29 Jun 2009 06:36

Unkil better start hoping the hyperinflation thing starts kicking in fast....

Good point. John Snow saar had the whole cycle forecast and mapped out.

I've no doubt Sri Bernanke is *very* desirous of inflation, but deflation it is.

The money creation is simply not able to keep pace with the destruction of credit lines. And overcapacity is rife (68% capacity utilization in the US, I hear).

Anujan · Post by **Anujan** » 29 Jun 2009 06:52

vsudhir wrote:Good point. John Snow saar had the whole cycle forecast and mapped out.

I've no doubt Sri Bernanke is *very* desirous of inflation, but deflation it is.

I myself am not sure that the Chinese are as weak as portrayed in this forum. They are not stupidly going to "offload" currency quickly (I wonder how you "offload" currency ? Take them out in a boat and dump them ?). They have to buy *something* with it. What will they buy ? Currency of other countries ? What would you rather trust - your own economy that you have some control over, or western economies which are going off on a money printing spree ?

The Chinese *will* and *are* offloading currency. They are buying contracts for goods and services.

This is what is going *for* them. What is going *against* them is the fact that domestic consumption in China is low, savings rate is high. Now if every other country is bankrupt, so they cant buy anything and China owns all natural resources, but the chinese are not buying finished products, how do they put their population to work ? So,

Issue no 1 is stimulating domestic consumption. I dont know how well the recent voucher program where rural people were offered money to buy TV/Refrigerator is working. This is a good move, you have a fridge, your neighbor is going to want one. You will buy another when this one breaks down. This is a good start. But they need a "cultural revolution"

to forget the culture of saving, get the culture of spending to increase consumption,

Issue no 2. How to make sure that the tin pot dictator from whom you bought rights to mining is going to honor its contract ? Unkil does it by his army and his control of multinational financial institutions. Mr Dictator wants to renege on his contract ? well WB/IMF wont give him a loan for his irrigation project to feed his population. It is not clear how much clout the Chinese can build up in multinational financial institutions. Their recent test of strength in ADB (trying to force them to cancel aid to India because it includes aid to Arunachal) was a practice bombing run, but did not pass weapons separation test. I would proffer a guess that they have lesser influence in IMF/WB.

It would be interesting to watch Chinese moves in these direction as well (Stimulating domestic consumption/Increasing Army, International influence to make sure their contracts are honored and their interests protected). All this "we want international standard currency" is just doublespeak for "we want to get into the current financial system, take us inside the tent so we can all piss out instead of us pissing in". Let us have a "international standard currency" is neither feasible nor safe. It is a mutually assured destruction button for the Cheenis and Unkil. Instead what they want is "One dollar, one unit of influence" in international financial institutions, whereby Cheenis are taken in as a partner of Unkil as far as the pull in WB/IMF is concerned. So that the international currency is effectively US Printed Dollar + Cheeni Saved up Dollar with Amreekis promising not to be sneaky and print more dollars and end the partnership.

Watch out for a IMF/WB take over attempt (Unkil/Londonistan is not going to allow this) and Cheeni expeditionary "Marine" force being raised soon (Wont impress any tinpots as long as Taiwan still thumbs its nose). The most likely scenario is Unkil inviting Cheenis to "Share the burden of financial leadership of the world" and proclaiming that they are taller than the oceans and deeper than the mountains. That would be bad for the rest of us.

vsudhir · Post by **vsudhir** » 29 Jun 2009 07:11

Very nicely explained, Anujan. Agree mostly.

And no, I doubt anybody here really underestimates either the chinis or the khans. Interesting times (in the chini sense of the term) beckon.

Meanwhile, Telegraf is releasing bountiful info on what accounts the 'great' in grate Britain.

Dark pension cloud hangs over UK as US emerges from sub-prime storm

But now the economic fate of the transatlantic partners is diverging. The US will recover from sub-prime and return to growth reasonably quickly. But the UK is in much deeper trouble – and could struggle for longer than any other major Western economy.

Last week, the OECD forecast that US GDP will contract by 2.8pc this year. Just three months ago, the rich nations' think tank was predicting America's economy would shrink by 4pc. The US growth outlook is improving, then, with the OECD foreseeing a relatively buoyant 0.9pc expansion in 2010.

The UK's prospects, in contrast, are getting worse. The OECD now forecasts a 4.3pc contraction for 2009, downgrading its previous 3.7pc prediction. Britain is unlikely to grow next year either, the OECD says.

Thats not all. There's also the fiscal deficit to contend with.

But the main reason the US and UK will now diverge economically is that their economies are very different. The UK is heavily exposed to financial services – accounting for almost a fifth of the economy and an even bigger share of taxation.

{wow. take a deep breath. Exhale slowly as you comprehend that factoid.}

That's why the OECD is forecasting a UK budget deficit equivalent to an eyewatering 14pc of GDP this year.

{Bah, so what? UKstan still has the vaunted AAA rating onlee. Am sure investors and institutions everywhere will look at the rating and not at the ground realities as long as the rating agencies decide to ignore the latter.}

While home to Wall Street and some of the world's most powerful financial institutions, the US economy is far more diversified – with financial services accounting for less than 10pc of national income, making America's economy less exposed to the ravages of sub-prime.

But the real advantage America has over the UK is demographic. The US remains a relatively "young" country. Across the industrialised world, over the next thirty years, "dependency ratios" escalate. Our ageing societies mean the share of the population supported by working taxpayers rises from around 50pc today to 68pc in 2040.

This is code for let more packees in. Their demographics am sure would be impressive.

Now comes the bombshell...

An astonishing report, to be published tomorrow, provides a stark illustration of this reality. As this column has often pointed out, the vast majority of the UK's public sector employees – a fifth of the workforce – enjoy taxpayer-funded final salary pensions, payable from 60 years of age.

In the private sector meanwhile, as the demographic pressures crank up, workers face the reality of much lower pensions, payable much later, with this public-private "pensions apartheid" getting worse all the time.

Authoritative research from the British North-America Committee (BNAC) shows the extent of the fiscal burden public sector pensions are now imposing on Britain. Even using official assumptions, the bill for such pensions, over and above the relatively tiny investments put aside to fund them, amounts to an astonishing 64pc of GDP. More realistic assumptions push that total to 85pc of GDP – all of it off balance sheet but to be paid from future taxation.

In the US and Canada, where such pensions have been reined-in and the population won't age so quickly, these totals are far smaller. This BNAC report is impeccably sourced and backed by an advisory panel full of distinguished, non-partisan experts. Once again, I implore Messrs Osborne and Cameron to tackle this issue of massive political and fiscal importance.

Whew...again, take a deep breath, exhale slowly.....take in what it means to have 2/3rds of your GDP == unfunded pension liabilities in the public sector alone.

The numbers are staggering (though not surprising, IMVHO). Hope GoI learns from UKstani mess and cuts its pension obligations FAST.

Anujan · Post by **Anujan** » 29 Jun 2009 07:23

Vsudhir-saar

I think Londonistan is finished. People are laughing about Germany and how her export driven economy is going to take a huge pummeling. But I think that Londonistan is the one to die. Germany is still *making* something and did not depend on their control of international financial institutions nor international influence (This lack of control is historic. All of their international influence was stripped post WWII) for running a stable economy (so far). The moment consumption picks up in some part of the globe, Germans are safe.

Londonistan on the other hand, had money because, well, it was Londonistan.

IMHO the gradual decline started when a captive population who supplied raw materials and consumed finished products wanted to run their own affairs. (That would be us.) As an aside, at this point, please pay obeisance to the strategic genius which was Gandhi, who burned a few clothes and demonstrated to Londonistan that he understood what was going on and was capable of shutting down SDRE consumption of finished products from UK and therefore this "captive market" idea wont work. To rub it in, he even visited the laid off textile workers in Manchester to "explain to them" why he was doing this

(The original news reel is in the movie "Gandhi"). It would be interesting to study Londonistan exports to Desh and other former colonies and how it changed over the years.

The next best way to run an empire with neither the manpower for an army nor a captive market was to peddle influence and run the banks. Periodically join up with Unkil to show that they have an army capable of fighting.

Turns out the vaults are empty, nobody wants printed paper.

Who will you place bets on ? Germany or Londonistan ?

vsudhir · Post by **vsudhir** » 30 Jun 2009 00:19

uh-oh. Sri Ambrose E Pritchard targets PRC banking sector this time.

China's banks are an accident waiting to happen to every one of us

China's banks are veering out of control. {I disagree. They're firmly under state control thanQ. Now if you're saying the chini state is veering out of control.... that would be news.}

The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.

Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. {Predictably so, IMVHO}.

It is doing very little to help lift the world economy out of slump.
{Huh? And why is China obliged to help the world ekhanomy, pray? Weird presumptions these foreign barbarians have}

Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected....

"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear."

Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".

Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate...Roll-over risk is rocketing. China's monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye....

Aha to the last one.

Andy Xie, a Sino-bear and commentator for Caijing, said Western analysts are in for a rude shock if they think that China's surging demand for raw materials implies genuine recovery.

Commodity speculators have been using cheap credit to play the arbitrage spread between futures and spot on the oil markets. They have even found ways to trade lumber to iron ore by sheer scale of leverage. "They've made everything open to speculation," he said.

Mr Xie thinks the spring recovery is an inventory spike, to be followed a double-dip downturn into next year as stimulus wears off.

So the regime is resorting to hazardous methods to keep excess factories humming: issuing a "Buy China" decree: using a plethora of export subsidies; holding down the price of coke, bauxite, zinc and other resources to lower production costs (prompting a complaint from America and Europe); and suppressing the yuan, again.

Protectionism is a risky game for a country that lives off global trade and runs a surplus near 10pc of GDP. Mr Pettis said he fears China is nearing its "Smoot-Hawley moment", repeating the US tariff blunder of 1930 that brought the world crashing down on Washington's head.

Two facts stand out about China's green shoots. While the Shanghai composite index is up 70pc since November, Chinese imports are down 25pc from a year ago. China is still draining real stimulus from the global economy.

Huh? wow. Funny how that works, eh?

Disclaimer: The chinese are smart. I'm sure they know what they are doing as much as the next guy. Problem is I dunno if the next guy knows what he is doing onlee.

Duniya is precariously poised at the edge of abyss.

vsudhir · Post by **vsudhir** » 30 Jun 2009 02:02

Matt Tabibi on Goldman Sachs. Doing the rounds furiously on the web. Recommended (12 page) read.

The great american bubble machine

The Rolling Stones columnist is on a deadly mission to expose the past present and planned future of Goldman Sachs. He might just meet with an unforeseen car accident the way he's going about it. Read it all with a grain of salt. What lends his writing cred is that Tyler Durden of zero hedge fame agrees with his conclusions.

Hysterics and colorful language are no strangers to Tabibi. Sample the opening para:

The first thing you need to know about Goldman Sachs is that its everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Whoa! GS is technically no longer an I-bank, though. After glass-steagell repeal, the comm banks still can retain I-bank functions, no doubt.

zero hedge reported a few days back that program funds from the I-banks accounted for almost 40% of traded volume on the NYSE.

Anyway, read it all. Keep the namak ready but don't necessarily use it onlee.

Chinmayanand · Post by **Chinmayanand** » 30 Jun 2009 03:27

^^^ Read it in full...

Now my worry is how to get invested in carbon credits...make some mullah outta this coming bubble...

RamaY · Post by **RamaY** » 30 Jun 2009 03:38

self deleted...

vsudhir · Post by **vsudhir** » 30 Jun 2009 05:03

OKie folx. Confirmation (if you still needed it) that the gubmint is playing in the mkts and propping them up. A floor trader spills the beans in his classic artless way. 6 minute CNBC clip linked frm Denninger's. Watch it all!

link

vsudhir · Post by **vsudhir** » 30 Jun 2009 06:33

The latest Bill Buiter column is out. The guy is in a sweet spot - an insider-outsider, and a non-yank to boot. Fresh persp, crystal clear thinking, zimble articulation. Recommended reads, his are.

Central banking as partisan politics

shravan · Post by **shravan** » 30 Jun 2009 12:58

Dollar Out in Brazil-China Trade. Real and Yuan In
http://www.brazzilmag.com/content/view/10868/1/
Tuesday, 30 June 2009

"We have reached an initial understanding and we will begin working on the issue" to use the real and the yuan in bilateral trade said a spokesperson for the Brazilian Central Bank.
.
.
.
"For the US dollar to be left aside as an international reserve currency there must be another currency which must perform that role," Meirelles said quoted by the Folha de S. Paulo. The Brazilian official also anticipated that there are similar discussions with India to replace the US dollar for the real and the rupee in bilateral trade.

=====================
China Plans to Start Yuan Settlement With Asean Soon
June 30 (Bloomberg)
.
China, the world’s third-biggest economy, is seeking to make it easier for companies to do business in yuan and to expand trade with so-called Golden Triangle nations after the global recession choked sales to the U.S. and Europe. Chinese officials, including President Hu Jintao, have called for reducing its dependence on the dollar and the creation of a new global reserve currency.

The People’s Bank of China has agreed to provide 650 billion yuan ($95 billion) to Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea through so-called currency- swaps. Yesterday, the central bank signed an agreement with Hong Kong to allow the settlement of cross-border trade in yuan.

vsudhir · Post by **vsudhir** » 30 Jun 2009 20:12

^^ PRC is moving with a plan and a purpose seems like. Its now the khan's move. Lets wait and see (not that we've much of any other choice anyway).

America's most endangered malls

vsudhir · Post by **vsudhir** » 30 Jun 2009 21:05

BIS calls for global financial reforms

Financial products should be regulated like medicine in future, the Bank for International Settlements, said on Monday as it advocated sweeping reforms to financial instruments, markets and institutions.

The central bankers’ bank had previously given the most accurate warnings about the impending financial crisis.

In its annual report on Monday it called for an overhaul of financial regulations, economic policy and the structure of the global economy.

{Structure of the global economy, eh? like what, some details plz! Do nothing and the global economy will restructure on its own - with the institutional representation and power of inflated players like UKstan and Italy come down and that of a Brazil or PRC rise at their expense}

It advocated big reforms to markets to limit bilateral trading between banks and instead introduce central counter parties, with trading on regulated exchanges.

It said institutions, particularly banks which posed a risk to the financial system, should also be subject to higher requirements to hold bigger buffers of capital against a future crisis. The authorities should strive to increase those buffers in good times.

{put all this under a common sense category. Remarkable that the obvious needs to be said repeatedly in these overloaded times.}

It also recommended “a scheme analogous to the hierarchy controlling the availability of pharmaceuticals”, with a sliding scale topped by the safest products available for everyone to purchase, and tailed by financial instruments deemed illegal.

The report was particularly scathing in its assessment of governments’ attempts to clean up their banks. “The reluctance of officials to quickly clean up the banks, many of which are now owned in large part by governments, may well delay recovery,” it said, adding that government interventions had ingrained the belief that some banks were too big or too interconnected to fail.

This was dangerous because it reinforced the risks of moral hazard which might lead to an even bigger financial crisis in future.

Outside the financial system, the BIS warned that economic management also needed to change. The huge increases in public deficits were “at serious risk of overshooting even in the economies with the most room for debt expansion” and would be difficult to restrain.

The authors of the report also had little confidence in central bankers’ ability to raise interest rates quickly enough when recovery comes. “Because their current expansionary actions were prompted by a nearly catastrophic crisis, central bankers’ fears of reversing too quickly ... increase the risk that they will tighten too late,” they said.

vsudhir · Post by **vsudhir** » 30 Jun 2009 21:07

Govt bails out GE

General Electric, the world's largest industrial company, has quietly become the biggest beneficiary of one of the government's key rescue programs for banks.

At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government.

The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.

As a result, GE has joined major banks collectively saving billions of dollars by raising money for their operations at lower interest rates. Public records show that GE Capital, the company's massive financing arm, has issued nearly a quarter of the $340 billion in debt backed by the program, which is known as the Temporary Liquidity Guarantee Program, or TLGP. The government's actions have been "powerful and helpful" to the company, GE chief executive Jeffrey Immelt acknowledged in December.

GE's finance arm is not classified as a bank. Rather, it worked its way into the rescue program by owning two relatively small Utah banking institutions, illustrating how the loopholes in the U.S. regulatory system are manifest in the government's historic intervention in the financial crisis.

Heh, heh. Read it all.