Bharat Rakshak

U.S. and Global Economies Slipping in Unison

By PETER S. GOODMAN
Published: August 23, 2008

Economic trouble has spread far beyond the United States to major countries in Europe and Asia, threatening American businesses with the loss of foreign sales and investment that have become increasingly vital to their sustenance.

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States.

Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

“The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere,” the I.M.F. declared last month in its official World Economic Outlook.

All this means that economic troubles in the United States could intensify into the presidential election season and beyond. It could also make it harder for financial companies like Lehman Brothers — which has been seeking fresh investment in South Korea — and the government-backed mortgage giants Fannie Mae and Freddie Mac to attract much-needed capital from abroad.

As the United States and many other large economies slip in unison, the reality of integrated markets is being underscored: just as globalization spreads prosperity — linking cotton farmers in Texas to textile mills in China — the same forces spread hurt when times go bad.

“The slowdown has reached such a wide range of countries that they’re now feeding on one another,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

The impact of the downturn is reflected by the experience of the Vermeer Corporation in Pella, Iowa. The company, which manufactures farming and construction equipment, has become accustomed to looking abroad for growth as the real estate bust in the United States has crimped purchases of its gear by American home builders. Its overseas sales have doubled in the last five years as a percentage of its total business and now make up nearly a third of its revenue, the company’s senior director of international sales, Steve Heap, said.

But in recent months, even as growth has continued over all, some parts of the world have sunk into malaise.

“The U.K. has been really soft for the last six months,” Mr. Heap said. “Western Europe overall has been flat. We’ve not seen the growth we’ve seen in the last few years.”

Many other major economies are either stagnant or shrinking as well. Japan, whose fortunes are tethered to exports, saw its economy contract at a 2.4 percent annual rate from April through June after accounting for inflation. Germany, another export power, slid at a 2 percent clip. France and Italy slipped slightly.

Spain and the United Kingdom — both grappling with hangovers from their own real estate binges — were both flat amid talk that they have already slipped into recession. The festivity of easy money has given way to recriminations over bad loans, unemployment and inflation.

“The year 2009 in Europe is going to look significantly worse than 2008,” said Marco Annunziata, chief economist at the Italian bank UniCredit.

Even China and India, whose swift growth has occasioned talk of a new global order, have been cooling in recent months, though still expanding at rates that would bring envy in nearly any other land.

“We had buoyant world growth for a few years,” said William R. Cline, a senior fellow at the Peterson Institute for International Economics in Washington. “It was too hot not to cool down, as the song goes.”

There is a potentially significant upside to the downturn under way: it could knock down rising prices for food and energy, which have been driven higher by swelling demand in a swiftly expanding world economy.

The chairman of the Federal Reserve, Ben S. Bernanke, has been betting on that very scenario as he has rejected calls for higher interest rates to suffocate inflation.

The recent drop in commodity prices, combined with “a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year,” Mr. Bernanke said Friday at the Fed’s annual economic symposium in Jackson Hole, Wyo.

Still, concern centers on the possibility that slowing global growth could hurt sales of American goods and services overseas. Exports have been a conspicuous bright spot in an economy colored by falling home prices and declining consumer spending.

The dollar has been strengthening against many currencies in recent weeks — not because of a newfound belief in American prospects, economists say, but because investors are edging out of markets that are weakening, like Britain and other parts of Europe, sending down the pound and the euro.

“It’s the rest of the world going down, not the United States going up,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.

A stronger dollar makes American goods more expensive on world markets. If the dollar keeps strengthening, it could pinch sales.

“Exports have been sort of holding us out of the graveyard,” said Martin N. Baily, a former chairman of the Council of Economic Advisers in the Clinton administration, and now a senior fellow at the Brookings Institution in Washington. “That may begin to peter out a little bit if the dollar continues to climb.”

Some economists argue that the dollar’s recent strengthening is a correction after six years of declines that have sapped it of one-fourth of its value against the currencies of major trading partners. Others maintain that the dollar has further to fall, noting that the United States remains on the short of end of a lopsided balance of trade, with imports outstripping exports by nearly $800 billion at the end of last year.

Regardless of the dollar’s value, sales of American goods may be eroded by a more decisive force: a global loss of appetite for goods. “If the rest of the world economy slows, the demand just isn’t going to be there,” Mr. Ruskin said.

That could be painful for American companies that rely on overseas markets. In 2001, large American companies that disclosed foreign revenues logged about a third of their sales abroad, according to an analysis by Howard Silverblatt, senior index analyst at Standard & Poor’s. By last year, the foreign take had climbed to 46 percent. Europe made up 29 percent of the total.

Some American businesses say it is too early to worry about a global downturn.

“When I see the headlines, I worry, but when I look at my order book, I stop worrying,” said James W. Griffith, president and chief executive of the Timken Company, a Canton, Ohio, manufacturer of industrial bearings and power transmission equipment with operations in 27 countries.

Roughly half of Timken’s bearing business is overseas, cushioning the company against the loss of sales in the American auto industry — a trend Mr. Griffith says he is confident will continue.

“When China decides they want to build a car, somebody runs a steel mill with coal and iron ore out of Australia, and they mine it with Caterpillar dump trucks which are full of Timken bearings,” Mr. Griffith said. “What is driving our success is the globalization of markets.”

Still, the transformation of foreign shores from a refuge for American business into a source of anxiety is a testament to how swiftly trouble can proliferate in the global economy.

India’s customer service call centers — heavily dependent on American demand — are now girding for cuts.

In China, the pace of growth has dipped from an annual rate exceeding 12 percent as recently as last year to something closer to 9 or 10 percent, according to most economists.

China’s leaders have become concerned about flagging exports, recently altering priorities from seeking to squelch inflation to instead sustaining economic growth. The government is easing restrictions on bank lending, which were imposed to put the brakes on the economy.

When China makes fewer computers, it needs fewer computer chips forged in Taiwan and designed in the United States. It needs less steel, and so less iron ore from Brazil and Australia. Which means those countries need less construction equipment made in Germany, Japan or Ohio.

“The global slowdown is going to create some headwind for the United States,” said Stephen Jen, an economist at Morgan Stanley in London.

Financial crisis enters new, uncertain stage
Losses expected to double, while Fed remains under microscope
By Greg Robb, MarketWatch
Last update: 11:49 a.m. EDT Aug. 24, 2008


A previous version of this story misidentified the London School of Economics. The story has been corrected.
JACKSON HOLE, Wyo. (MarketWatch) -- The financial crisis has entered a new phase and will likely bring total credit losses above $1 trillion, according to a leading academic who has been studying the turmoil since its beginning a year ago.
Princeton University economics professor Hyun Song Shin says the subprime mortgage crisis has already cost financial institutions roughly $500 billion. Now, however, the problem has spread to the real economy, and losses on credit cards, consumer and business debt should match or exceed those from subprime mortgages and the like, he said.
"We'll see as much as the subprime losses again on the other side, at the very least," Shin in an interview Saturday with MarketWatch on the sidelines of the Federal Reserve's two-day annual economic seminar in Wyoming.
The International Monetary Fund has estimated that financial institutions will suffer a total $945 billion in credit losses. Shin said that remained a credible number, but was still probably on the low side.
"We are probably half way [through the financial turmoil], "Shin said. "The first stage is done -- we're at the second stage. ... The real issue is how much is how much the prime mortgage portfolio is going to be affected. That is going to depend on how far house prices will fall."
"This is something we don't have a really good handle on. I don't think anyone really knows," he said. "The IMF figures seem most credible, but if you believe others, it could be a lot worse."
But not everyone at the Fed seminar was downbeat on the U.S. economy's prospects.

Charles Calomiris, a professor at the Graduate School of Business at Columbia University, said perceptions of the housing market could turn out to be too pessimistic.
Once this becomes clear, bank stocks could bounce back, which would help them continue to recapitalize.
"Thus, it is still possible to envision a scenario under which the financial system avoids a sharp contraction in the supply of credit, although this is significantly less likely now that it was as recently as May," he wrote in a paper presented at the Fed's symposium.
Roasting the Fed
The Federal Reserve's actions to deal with the financial crisis were a major topic of discussion at the conference.
Since the start of the turmoil, the Fed has sought to pump cash into stressed financial markets. It has lowered its benchmark interest-rate target to 2.0% in a move seen as helping Wall Street's business of borrowing short-term funds to lend long. It also instituted a series of innovative cash auctions to primary dealers of government debt.
Those moves, however, have resulted in the central bank taking many troubled assets onto its balance sheet.
Several academics attending the seminar had heavy criticism of the Fed's actions.
Willem Buiter, a professor at the London School of Economics and a former member of the Bank of England's monetary policy committee, complained that the Fed had not demanded any quid pro quo from Wall Street in return for the enormous amount of liquidity it provided.

He said the Fed had blurred the distinction between what was in the public's interest and what was in Wall Street's interest, describing the recent performance as "not very good at all."
Buiter said there was an acute concern that the Fed was subsidizing banks by taking their "pig's ear" illiquid assets at "silk purse" prices.
He also said the Fed has been "pathologically secretive" about the terms on which financial support is made available to struggling institutions and counterparties.
Draghi sees tests ahead

Bank of Italy Governor Mario Draghi said the next few years will be difficult for monetary policymakers as banks repair their balance sheets.
"These adjustments will not be painless, and ensuring that they will take place in an orderly manner will pose substantial challenges for policymakers: Preserve price stability, while supporting growth, and continue injecting liquidity as needed by an industry that is still far from having resolved its problems, at a time of strong inflationary pressures and tightening credit conditions," he said in a speech at the conference.
Draghi said banks must also do their part to reduce uncertainties about their balance sheets. End of Story
Greg Robb is a senior reporter for MarketWatch in Washington.

The financial crisis has entered a new phase and will likely bring total credit losses above $1 trillion, according to a leading academic who has been studying the turmoil since its beginning a year ago."

Ah, those "losses"... What a lot of people fail to grasp is that there was never any money to "lose" in the first place. If one studies the way the banks and fed operate you come to realize that only they have a license to create money out of thin air. What has happened is that they all got too greedy and loaned out (created) far more funny munny than the system could absorb and the economy just regurgitated it.

All of these so-called "write downs" are just calculations of how much of this conjured up money that they had hoped to pawn off on the general public and purchasers of US debt. Until the American public wakes up and realizes that they have charlatans running the economy and con-men running the government, nothing much is going to change. You can cite all of the numbers and references that you want but it is all based, for the most part, on fiction. I doubt that many of the people who post on MW actually understand how the system works nor do they want to...

They want to benefit from it but in doing so, they perpetuate it.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
Henry Ford

Sharp US money supply contraction points to Wall Street crunch ahead
By Ambrose Evans-Pritchard
Last Updated: 3:04pm BST 19/08/2008



The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.

Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.

"Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.

On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.

The growth in bank loans has turned negative to a halt since March.

"It's obviously worrying. People either can't borrow, or don't want to borrow even if they can," said Mr Stein.

Monetarists say it is the sharpness of the drop that is most disturbing, rather than the absolute level. Moves of this speed are extremely rare.

The overall debt burden in the US economy is currently at record levels, raising concerns that a recession - if it occurs - could set off a sharp downward spiral.


Household debt is now 131 percent of disposable income, compared with 93pc at the top the dotcom bubble, 79pc in the property boom of the late-1980s, and 62pc at the end of the 1970s.

The M3 data measures both cash and a wide range of bank instruments. It tends to provide an early warning signal of major shifts in the economy, although the US Federal Reserve took the controversial decision to stop reporting the statistics in 2005 on the grounds that the modern financial system had rendered the data obsolete.

Monetarists insist that shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.

"There are always short-term blips but over the long run M3 has repeatedly shown itself good leading indicator," said Mr Stein.

He cautioned that the three-month shifts in M3 can be highly volatile.

M3 surged after the onset of the credit crunch, but this was chiefly a distortion caused by the near total paralysis in parts of the American commercial paper market. Borrowers were forced to take out bank loans instead. The commercial paper market has yet to recover.

The University of Michigan's index of consumer sentiment has fallen to the lowest level since the 1980s recession.

The US economy is without doubt facing severe headwinds going into the autumn.

Richard Fisher, the ultra-hawkish head of the Dallas Federal Reserve, warned over the weekend that growth would be near "zero" in the second half of the year

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Figure 2 - Difference between how CPI is calculated today by the BLS and how it was calculated in the 1960s without all the smoke and mirrors. As a result real inflation is now running at 13% not the 5%, the BLS would have us believe. Chart ChrisMartenson.com Fuzzy Numbers (see link below).

Perfecting the insidious art of mass deception
"The truth that survives is simply the lie that is pleasantest to believe." H. L. Mencken

Here's another noteworthy quote that appeared in the opening screen of Chris Martenson's excellent 16 minute video entitled Fuzzy Numbers.

"Ever since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the muscle and vitality of the American economy are measured." - Kevin Philips, April 27, 2008 Harper's magazine entitled Hard Numbers: The economy is worse than you know.

What should shock the majority of viewers is the real size of our debt and how government agencies fudge the numbers to make the economic picture appear far more pleasing than it really is.

So why has the spotlight been suddenly illuminated this problem now, if recent media attention is any guide? We'll explore this question in a moment.

Since the U.S. was taken off the gold standard by Richard Nixon in the early 1970s, the government has done its level best to use inflation to put citizens in a good mood even as real inflation skyrocketed and GDP growth has slowed. As Martenson points out, various administrations, both Republican and Democrat have used some very clever methods to achieve this end. If you look at the numbers, GDP has grown substantially over the last few decades. However, government statisticians have found some ingenious ways of putting their own spin on it.

Real growth occurs when inflation is low and economic growth is high. Martenson tracks how each president from JFK to Bill Clinton has added their own special sauce in dealing with undesirable stats to make things seems rosier than they really were. These fibs have grown in both proportion and scope. And with each adulteration the value of these statistics has declined.

How has this goal been achieved?

In an effort to keep inflation down and accentuate growth, statisticians shamelessly distort and manipulate the facts. For example, the Consumer Price Index measures inflation in part by comparing a basket of goods over the years. But what is not publicly understood is that each year, that basket changes. In 1996 Clinton instituted changes to how the statistics are calculated that include three parameters; substitution, weighting and hedonics (derived from the Greek word for pleasure). They in effect, provide mathematical minions with the power to substitute, weigh and change the ways they measure and present inflation and economic data at their pleasure. An example, if the price of salmon goes up too much, the Bureau of Labor Statistics substitutes it for a cheaper food item like say hot dogs. The result is that from 2007 to 2008, CPI showed a 4.1% rise in the price of food. But according to the Farm Bureau, that tracks the same basket of (without using substitution, weighting or hedonics), food prices actually rose 11.3%!


Figure 2 - Difference between how CPI is calculated today by the BLS and how it was calculated in the 1960s without all the smoke and mirrors. As a result real inflation is now running at 13% not the 5%, the BLS would have us believe. Chart ChrisMartenson.com Fuzzy Numbers (see link below).

Without a doubt, hedonics is the most insidious tool in the hands of government statisticians. Hedonics techniques are creatively used to reduce CPI (inflation) while making economic growth appear bigger than it really is. Without giving away the whole story, these minions can change the price of a product, service or good by imputing a higher value (in the case of the economy) to make the number bigger or imputing a lower value (in the case of an inflation measure like CPI) to make inflation appear lower than it really is.

Hedonic measures currently represent 46% of CPI. What if CPI was calculated the same way it was in the 1960s? Using the techniques employed more than 40 years ago, John Williams of ShadowStats.com estimates that CPI in 2008 was running at 13% not the 5% reported by the BLS (see Figure 2). (It's no surprise that some economists are quick to discount William's conclusions but one only has to examine the rapid recent rise in global inflation to see the problem. Even with all the fudging techniques now used by government, it can't hide a problem once it becomes acute.) According the Martenson, a full 35% of GDP is the result of imputations (changes relating to improvements the government decides are justifiable) and hedonics.

It doesn't take a genius to realize what will eventually happen if inflation is continually distorted lower while the economic output is distorted higher. Those who rely on this data to make decisions are in effect employing increasingly incorrect data and therefore make erroneous decisions - the most obvious of which is to assume the economy is growing when its not. Consumers spend more thinking the economy is better than it is and get themselves in financial trouble. More troubling is that job losses increase while the majority of workers remain oblivious to the threat. This error only becomes apparent to most when they unexpectedly lose their jobs. (The clearest rationale motivating governments to continually hone their mass deception skills is explained by the election cycle. It is the overriding desire to get re-elected.)

Getting back to our first question above, why are these documentaries and reports now gaining public attention? When bubbles are in the process of forming, everyone is too busy figuring out how to profit. It is only when they begin popping and the economy deteriorates that we reflect on our fates. Most challenging is what happens when the foreigners financing our debt habit, who have also been lulled by government statistics, realize they've been duped?

Interest rates will rise as the cost of money skyrockets to reflect true risk. Unfortunately, this usually occurs at the worst possible time and the economy is most vulnerable, if history is any guide.

ramana wrote:What is going on in Jackson Hole, Wyoming? is there a think tank there or some such thing?

Not to be left behind in the battle of the lies, the private sector has also jumped into the fray. First up are the two US mortgage agencies, Fannie Mae and Freddie Mac (see And now for Fannie and Freddie, Asia Times Online, July 12, 2008) who have been at great pain to convince investors that they would survive to the next year with their current hoard of capital and cash.

Considering this in greater detail, doesn't it really bother anyone that the entities that are supposed to be permanent fixtures of the US economy are even talking about mundane existential worries over the relatively short-term? There is a fierce ongoing debate between the likes of former Federal Reserve chairman Alan Greenspan, who would like these agencies dismembered - a course of action I also favor - and others in the US government who would like to see the status quo maintained.

To demonstrate their viability, the agencies have continued to raise debt, with the $3 billion raised this week, mainly from Asian and Russian central banks, being shown as proof of their continued access to capital markets. It is not the least ironic that the only investors to help the US agencies are the very governments that seek accommodation in other matters of US policy?

Temasek Holdings, an investment arm of the Singapore government, this week found itself in the position of actually having to express confidence in John Thain, the head of Merrill Lynch. This follows a disastrous multi-billion dollar investment in Merrill by Singaporeans. With the most recent capital raising done by Merrill denting market confidence in Thain - he had promised barely a few weeks ago that there was no need for Merrill to raise additional capital - it then become important for Temasek to issue the statement.

The statement is Exhibit A in the attempt by Asian central banks and government-backed investors to justify to their stakeholders the merits of their strategy in propping up the US financial system. As I have written before on the subject, investing in the US financial system remains the easiest way to lose money, even in the present market when opportunities to lose money lurk at every turn.

Then there is Lehman Brothers. While I wouldn't presume to have done any extensive analysis of the company, it appears to me from looking at variables such as share prices, funding costs and news flow that the investment bank is in deep trouble; perhaps even of the existential kind.

Taking a leaf from the practices of other investment banks facing such as quandary, Lehman this week quickly unveiled a potential saviour in the form of Korea Development Bank (KDB), a government-owned bank in South Korea that is itself in the midst of a privatization that will see it becoming a more-focused investment bank in the country. The primary reason for such an expression of interest appears to be that KDB's current head used to work for Lehman.

The difficulty here though is to figure out which of the two parties stands to benefit from a statement that for all intent and purposes appears quite distant from reality. While it is tempting to think that Lehman has more to gain - time given by new capital that can be used to take more losses and cut employees - KDB also benefits in more subtle ways, in its battle to determine the terms of privatization.

America's Outrageous War Economy!'
Pentagon can't find $2.3 trillion, wasting trillions on 'national defense'
By Paul B. Farrell, MarketWatch
Last update: 7:27 p.m. EDT Aug. 18, 2008

ARROYO GRANDE, Calif. (MarketWatch) -- Yes, America's economy is a war economy. Not a "manufacturing" economy. Not an "agricultural" economy. Nor a "service" economy. Not even a "consumer" economy.
Seriously, I looked into your eyes, America, saw deep into your soul. So let's get honest and officially call it "America's Outrageous War Economy." Admit it: we secretly love our war economy. And that's the answer to Jim Grant's thought-provoking question last month in the Wall Street Journal -- "Why No Outrage?"


There really is only one answer: Deep inside we love war. We want war. Need it. Relish it. Thrive on war. War is in our genes, deep in our DNA. War excites our economic brain. War drives our entrepreneurial spirit. War thrills the American soul. Oh just admit it, we have a love affair with war. We love "America's Outrageous War Economy."
Americans passively zone out playing video war games. We nod at 90-second news clips of Afghan war casualties and collateral damage in Georgia. We laugh at Jon Stewart's dark comedic news and Ben Stiller's new war spoof "Tropic Thunder" ... all the while silently, by default, we're cheering on our leaders as they aggressively expand "America's Outrageous War Economy," a relentless machine that needs a steady diet of war after war, feeding on itself, consuming our values, always on the edge of self-destruction.

*
Why else are Americans so eager and willing to surrender 54% of their tax dollars to a war machine, which consumes 47% of the world's total military budgets?
*
Why are there more civilian mercenaries working for no-bid private war contractors than the total number of enlisted military in Iraq (180,000 to 160,000), at an added cost to taxpayers in excess of $200 billion and climbing daily?
*
Why do we shake our collective heads "yes" when our commander-in-chief proudly tells us he is a "war president;" and his party's presidential candidate chants "bomb, bomb, bomb Iran," as if "war" is a celebrity hit song?
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Why do our spineless Democrats let an incompetent, blundering executive branch hide hundreds of billions of war costs in sneaky "supplemental appropriations" that are more crooked than Enron's off-balance-sheet deals?
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Why have Washington's 537 elected leaders turned the governance of the American economy over to 42,000 greedy self-interest lobbyists?
*
And why earlier this year did our "support-our-troops" "war president" resist a new GI Bill because, as he said, his military might quit and go to college rather than re-enlist in his war; now we continue paying the Pentagon's warriors huge $100,000-plus bonuses to re-up so they can keep expanding "America's Outrageous War Economy?" Why? Because we secretly love war!

We've lost our moral compass: The contrast between today's leaders and the 56 signers of the Declaration of Independence in 1776 shocks our conscience. Today war greed trumps morals. During the Revolutionary War our leaders risked their lives and fortunes; many lost both.
Today it's the opposite: Too often our leaders' main goal is not public service but a ticket to building a personal fortune in the new "America's Outrageous War Economy," often by simply becoming a high-priced lobbyist.
Ultimately, the price of our greed may be the fulfillment of Kevin Phillips' warning in "Wealth and Democracy:" "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."

'National defense' a propaganda slogan selling a war economy?
But wait, you ask: Isn't our $1.4 trillion war budget essential for "national defense" and "homeland security?" Don't we have to protect ourselves?
Sorry folks, but our leaders have degraded those honored principles to advertising slogans. They're little more than flag-waving excuses used by neocon war hawks to disguise the buildup of private fortunes in "America's Outrageous War Economy."
America may be a ticking time bomb, but we are threatened more by enemies within than external terrorists, by ideological fanatics on the left and the right. Most of all, we are under attack by our elected leaders who are motivated more by pure greed than ideology. They terrorize us, brainwashing us into passively letting them steal our money to finance "America's Outrageous War Economy," the ultimate "black hole" of corruption and trickle-up economics.
You think I'm kidding? I'm maybe too harsh? Sorry but others are far more brutal. Listen to the ideologies and realities eating at America's soul.

1. Our toxic 'war within' is threatening America's soul
How powerful is the Pentagon's war machine? Trillions in dollars. But worse yet: Their mindset is now locked deep in our DNA, in our collective conscience, in America's soul. Our love of war is enshrined in the writings of neocon war hawks like Norman Podoretz, who warns the Iraq War was the launching of "World War IV: The Long Struggle Against Islamofascism," a reminder that we could be occupying Iraq for a hundred years. His WW IV also reminded us of the coming apocalyptic end-of-days "war of civilizations" predicted by religious leaders in both Christian and Islamic worlds two years ago.
In contrast, this ideology has been challenged in works like Craig Unger's "American Armageddon: How the Delusions of the Neoconservatives and the Christian Right Triggered the Descent of America -- and Still Imperil Our Future."
Unfortunately, neither threat can be dismissed as "all in our minds" nor as merely ideological rhetoric. Trillions of tax dollars are in fact being spent to keep the Pentagon war machine aggressively planning and expanding wars decades in advance, including spending billions on propaganda brainwashing naïve Americans into co-signing "America's Outrageous War Economy." Yes, they really love war, but that "love" is toxic for America's soul.

2. America's war economy financed on blank checks to greedy
Read Nobel Economist Joseph Stiglitz and Harvard professor Linda Bilmes' "$3 Trillion War." They show how our government's deceitful leaders are secretly hiding the real long-term costs of the Iraq War, which was originally sold to the American taxpayer with a $50 billion price tag and funded out of oil revenues.
But add in all the lifetime veterans' health benefits, equipment placement costs, increased homeland security and interest on new federal debt, and suddenly taxpayers got a $3 trillion war tab!

3. America's war economy has no idea where its money goes
Read Portfolio magazine's special report "The Pentagon's $1 Trillion Problem." The Pentagon's 2007 budget of $440 billion included $16 billion to operate and upgrade its financial system. Unfortunately "the defense department has spent billions to fix its antiquated financial systems [but] still has no idea where its money goes."
And it gets worse: Back "in 2000, Defense's inspector general told Congress that his auditors stopped counting after finding $2.3 trillion in unsupported entries." Yikes, our war machine has no records for $2.3 trillion! How can we trust anything they say?

4. America's war economy is totally 'unmanageable'
For decades Washington has been waving that "national defense" flag, to force the public into supporting "America's Outrageous War Economy." Read John Alic's "Trillions for Military Technology: How the Pentagon Innovates and Why It Costs So Much."
A former Congressional Office of Technology Assessment staffer, he explains why weapon systems cost the Pentagon so much, "why it takes decades to get them into production even as innovation in the civilian economy becomes ever more frenetic and why some of those weapons don't work very well despite expenditures of many billions of dollars," and how "the internal politics of the armed services make weapons acquisition almost unmanageable." Yes, the Pentagon wastes trillions planning its wars well in advance.

Banks shift funds out of U.S. to Europe: BIS

Sun Aug 31, 9:22 PM ET

WELLINGTON (Reuters) - Banks transferred funds out of the United States and into Europe in the first three months of 2008 as they turned to safer assets amid the global credit crunch, the Bank for International Settlements said.

"In the first quarter of 2008, reporting banks continued their net transfer of funds out of the United States, a trend evident since the onset of the financial turmoil in mid-2007," the Swiss-based BIS said in its quarterly review of financial markets and banking activity, published on Monday.

It said European banks had cut dollar loans booked by their U.S. offices, resulting in a net outflow from those offices of $259 billion during the first quarter of year, following a net outflow of $238 billion during the second half of 2007.

The BIS said banks stepped up their holdings in public sector debt, while their outstanding debt securities claims in the non-bank sector fell for the first time since 2001.

"This fall in debt securities claims seemed to coincide with a broader shift in bank balance sheets away from the U.S. non-bank private sector, at least for some banking systems," it said.

(Reporting by Kazunori Takada; Editing by Kim Coghill)

Acharya wrote:Why do you post the wrong URL
This is the right URL

http://www.marketwatch.com/news/story/w ... 9EA57CB069}

Raj wrote:Acharya,
If you bothered to cour postlick the link you posted, you would have realized why I posted a different url.

Acharya wrote: Why bother with your post

http://www.bizjournals.com/nashville/st ... ily30.html
Friday, September 5, 2008 - 10:54 AM CDT | Modified: Friday, September 5, 2008 - 10:58 AM
Fed official: U.S. must focus on education, immigration
Nashville Business Journal


While the country braces for the remainder of a busy hurricane season that ends in two months, the economy will continue to be battered by "tempestuous" market forces beyond 2008, a top Federal Reserve official said Thursday.

"Our movement through the muck and flotsam and jetsam of the credit and housing debacle will be sluggish, and it may take some time into 2009 for us to get the economy up to a snappier cruising speed," said Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas.

Fisher made the remarks in a luncheon address sponsored by the Greater Houston Partnership.

In order to help push the country through the current recession and better compete in the global economy, Fisher called on the eventual winner of the November presidential election to deal with two key issues: Education and immigration.

Fisher noted that Texas has surpassed California as the country's top exporting state in areas such as high-tech products and semiconductors, and particularly in industrial engineering, medical and construction services. Services sector exports now account for nearly 50 percent of the country's total exports, which reached $1.1 trillion in 2007, buoyed by the depressed value of the U.S. dollar.

He cautioned that the country must increase education standards in order to keep up this important export trend based on "brain prowess."

Fisher also said the country needs to adopt a "sensible" approach to immigration. To illustrate his point, Fisher noted that 55 percent of engineering master's degrees awarded by Texas universities go to foreign citizens, while 75 percent of engineering doctorate degrees go to foreigners.

"These same skilled immigrants must wait up to 10 years for a green card.While the U.S. is turning away the best and brightest other governments are thinking proactively to take more of them in. Australia recently announced it will increase its pool of skilled foreign workers by 30 percent," he said.

"We need an immigration policy that encourages the cream of the crop of foreigners to stay here and help us build our economy," he concluded.

September 6, 2008
U.S. Rescue Seen at Hand for 2 Mortgage Giants
By STEPHEN LABATON and ANDREW ROSS SORKIN

WASHINGTON — Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.

The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.

The drastic effort follows the bailout this year of Bear Stearns, the investment bank, as government officials continue to grapple with how to stem the credit crisis and housing crisis that have hobbled the economy. With Bear Stearns, the government provided guarantees and the bulk of its assets were transferred to JPMorgan Chase, leaving shareholders with a nominal amount.

Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers.

A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.

The executives were told that the government had been planning to announce the decision as early as Sunday, before the Asian markets reopen, the officials said.

For months, administration officials have grappled with the steady erosion of the books of the two mortgage finance giants. A fierce behind-the-scenes debate among policy makers has been waged over whether to seize the companies or let them work out their problems. Even after the companies are put under government control, debates will continue over how they should look and operate over the long term.

But the declining housing and financial markets have apparently now forced the administration’s hand. With foreign governments growing increasingly skittish about holding billions of dollars in securities issued by the companies, no sign that their losses will abate any time soon, and the inability of the companies to raise new capital, the administration apparently decided it would be better to act now rather than closer to the presidential election in two months.

Just five weeks ago, President Bush signed a law to give the administration the authority to inject billions of dollars into the companies through investments or loans. In proposing the legislation, Treasury Secretary Henry M. Paulson Jr. said that he had no plan to provide loans or investments, and that merely giving the government the authority to backstop the companies would provide a strong shot of confidence to the markets. But the thin capital reserves that have kept the two companies afloat have continued to erode as the housing market has steadily declined and the number of foreclosures has soared.

As their problems have deepened — and the marketplace has come to expect some sort of government rescue — both companies have found it difficult to raise new capital to absorb future losses. In recent weeks, Mr. Paulson has been reaching out to foreign governments that hold billions of dollars of Fannie and Freddie securities to reassure them that the United States stands behind the companies.

In issuing their quarterly financial statements last month, the two companies reported huge losses and predicted that home prices would fall more than previously projected.

The debt securities the companies issue to finance their operations are widely owned by mutual funds, pension funds, foreign governments and big companies.

Officials said the participants at the meetings included Mr. Paulson, Ben S. Bernanke, the chairman of the Fed, and James Lockhart, the head of both the old and new agency that regulates the companies. The companies were represented by Daniel H. Mudd, the chief executive of Fannie Mae, and Richard F. Syron, chief executive of Freddie Mac. Also participating was H. Rodgin Cohen, the chairman of the law firm, Sullivan & Cromwell, who was representing Fannie.

Officials and executives briefed on the meetings said that Mr. Mudd and Mr. Syron were told that they would have to leave the companies.

Spokesmen at the two companies did not return telephone calls seeking comment.

The meetings reflected the reality that senior administration officials did not believe they could wait for some kind of financial tipping point, as happened with Bear Stearns, which was saved from insolvency in March by government intervention after its stock plummeted and lenders withheld their capital.

Instead, Mr. Paulson has struggled to navigate through potentially conflicting goals — stabilizing the financial markets, making mortgages more widely available in a tightening credit environment, and protecting taxpayers from possibly enormous losses.

Publicly, administration officials have tried to bolster the companies because the nation’s mortgage system relies on their continued ability to purchase mortgages from commercial lenders and pull the housing markets out of their slump.

But privately, senior officials have been critical of top executives at the companies, particularly Freddie Mac. They have raised concerns about major risks to taxpayers of a bailout of companies whose executives have received huge compensation packages. Mr. Syron, for instance, collected more than $38 million in compensation since he joined the company in 2003.

Although Mr. Syron promised regulators earlier this year that he would raise $5.5 billion from investors, he has repeatedly failed to make good on that promise — even as Fannie Mae raised more than $7 billion. Mr. Syron was slated to step down from the chief executive position last year, but that was delayed when his appointed successor, Eugene McQuade, chose to leave the company.

With the possible removal of the top management and the board, it is no longer clear who would appoint new management.

Mr. Paulson had hoped that merely having the authority to bail out the two companies, which Congress provided in its recent housing bill, would be enough to calm the markets, but if anything anxiety has been increasing. The clearest measure of that anxiety has been the gradually widening spread between interest rates on Fannie- or Freddie-backed mortgage securities and rates for Treasury securities, making home mortgages more expensive. The stock price of the companies has also plunged over the last year.

After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago.

With Fannie and Freddie guaranteeing about $5 trillion in mortgage-backed securities, and a big share of those securities held by central banks and investors around the world, Mr. Paulson appears to have decided that the stakes are too high to take any chances.

The Treasury Department is required by the new law to obtain agreement from the boards of Fannie and Freddie for a capital infusion. The exception is if the companies’ regulator, Mr. Lockhart, determines that the companies are insolvent or deeply undercapitalized it could take the companies over anyway.

Experts said that the longer the administration waited, the greater the potential risks and costs. Charles Calomiris, a professor of economics at Columbia University’s School of Business, said delaying a government rescue would only increase the risks and costs.

“The last thing you want to do is give a distressed borrower more time, because when people are in distress they tend to take a lot of risks,” he said. “You don’t want zombie institutions floating around with time on their hands.”

Stephen Labaton reported from Washington and Andrew Ross Sorkin from New York. Edmund L. Andrews contributed reporting from Washington, and Eric Dash and Charles Duhigg from New York.

Where Is the Economy Going in the Next Six Months?
Projections

1. The housing decline is not yet done, because we will need another year to unwind foreclosures in the pipeline. The housing bubble still has another 10% to 20% to go to fully deflate.

2. Consumers in the U.S. are not able to expand credit and are increasingly concerned about the outlook for the economy, so they will slow spending both at home and on imports, which means we are in a recession or about to confirm one.

3. The financial/banking system is weaker than understood. The global system and literally trillions of dollars in derivatives has left the world’s banks teetering on the edge. Don’t jump back into financials.

4. A slowing economy – recession – coupled with inflation, creates a condition referred to as stagflation, as the simulative bailouts compete with the debt implosion of overleveraged financial institutions and real estate, to leave us with stagnation and still high costs.

The result of this is that the inflation rate, interest rate, food, energy and precious metals are heading higher as the dollar is debased.

Higher rates are not good for housing and stocks.

Finally, it is important to recognize that the world remains in the throes of a deep and serious crisis. While many analysts will express the view that the worst is over or that, after a modest downturn, things will bounce back just like they always have, our view is that what we will actually witness going forward is a fairly steady erosion of paper currency purchasing power and sluggish economic growth. The crisis will accelerate, moving faster, even, than in previous major shifts such as that witnessed in the 1970s.

While history may find we are too pessimistic at this point in time, in our view it is far better to prepare for a worsening crisis and hope that it does not materialize, than to expect business as usual.

Overshooting
http://prudentbear.com//index.php/bearl ... t_id=10106

* by Martin Hutchinson
* September 02, 2008

Martin Hutchinson is the author of "Great Conservatives" (Academica Press, 2005) -- details can be found on the Web site http://www.greatconservatives.com

The Case-Shiller Index of US house prices announced this week, down 17% in the top 10 markets, was greeted with rapture by the stock market, because its rate of decline had slowed somewhat compared to the previous month. Reams of analysis were written about how house prices were nearing the bottom, which was taken to be the level at which the ratio of house prices to individual earnings was the 3.2 times average over the last 30 years, rather than the 4.5 times shown at the peak. However, analysts were as usual over-optimistic – haven’t they ever heard of overshooting?

Wall Street analysts and the media generally have a poor sense of how the business cycle works. Thus the optimistic revised figure of 3.3% for second quarter GDP growth was described by several commentators as the “top for this cycle.” What cycle? The 3.3% growth figure, caused largely by the tax rebates paid out during the quarter, was preceded by two quarters of almost zero growth and will almost certainly be followed by two quarters of very low or negative growth. There’s no cycle there, it’s just a blip. The $115 billion growth in real GDP during the quarter was less than the $120 billion of tax rebates handed out during the quarter, a large portion of which were spent. In the third quarter, there will be no such tax rebates, so GDP growth is likely to be negative.

Housing numbers announced this week caused similar optimism. The Case-Shiller price index, down 17% over the last 12 months, was down only 0.6% over the last month, leading analysts to chortle that the housing market decline was coming to an end. After all, with a 20% decline in house prices and 10% rise in general prices (normally a close proxy for wages) over the last two years, the ratio of house prices to earnings must have dropped from its peak of 4.5 times to quite close to its long term average of 3.2 times.

A moment’s thought should convince us that this trajectory is unlikely. Mortgage conditions are not those in which the long term average was attained. Not only have subprime mortgages as a category disappeared, but so has much of the mortgage securitization market as a whole. The government-backed mortgage behemoths Fannie Mae and Freddie Mac have subsided effectively into bankruptcy, and will not be buying mortgages aggressively in the future. Mortgages have become very difficult indeed to obtain for anyone with a credit score of under 700 or so and generally require a down payment of a full 20% of the purchase price.

On the other side of the equation, home buyer psychology has completely changed. No longer is it expected that house prices will continue a steady and inexorable rise, without significant downdrafts. Buyers now know that if they need to move again in a hurry, they may well be lumbered with an asset that will prove impossible to sell except at a price that wipes out of most or all of their original investment\

With mortgage markets much more difficult than their long term average, and home buyers much more nervous and pessimistic than their average, it is hardly to be expected that house prices will stabilize around their long term equilibrium level. Only interest rates, still exceptionally low in real terms, will tend to hold them up. However since interest rates will eventually need to be raised to combat inflation, that sustaining force also will be removed from the market.

At that point, house prices will decline, not to their equilibrium level but to some much lower nadir. The further drop will itself tend to depress mortgage activity and investor sentiment. The model could be Japan, where real estate prices dropped around 60% from the 1990 high, with further drops extending to 80% in downtown Tokyo. Since Japan is an island chain of dense population and limited buildable land, real estate prices should always be high and might be thought immune to such fluctuations; the experience of 1990-2005 proved that if a deep recession took hold, there might be very little restraint on the downside.

Some areas seem more likely to suffer such a prolonged downturn than others. In Britain, there seems little reason why the top end of the London property market should not drop by 50%, or even 75% -- the latter would be an overshoot, given London’s attractions as a commercial and financial center, but only a modest one. Needless to say, any such drop would take place only over a decade or so, and would be accompanied by enormous pain in the home mortgage market and indeed in the lives of London homeowners, who would have sink their entire future into an overpriced and declining asset.

A movement of similar depth seems likely in the United States only in the most speculative areas. One could imagine, for example, Manhattan and the fashionable San Francisco suburbs suffering such a downturn, as the financial services sector suffered its inevitable lengthy cutbacks (and leftist Manhattan mayors pushed up real estate taxes inexorably) and the technological leading edge moved from tech to biotech, which is much less concentrated in the San Francisco area. However, it seems unlikely that Washington, for example, will suffer more than a moderate downturn, as the growth of government and its accompanying miasma of corrupt lobbyists, lawyers and contractors is more or less everlasting.

Nevertheless, a national price decline of 30-35% seems easily possible, taking the house price to earnings ratio below 3.2 times to a bottom in the 2.5 times range. At that point, unlike in the more crowded Japan and Britain, the availability of attractively priced real estate in outer suburbs and the heartland, where prices had remained much more affordable, will bring new buyers into the market. These new buyers will be easily able to fulfill the prevailing tighter mortgage standards and will see home ownership as a financially attractive alternative to renting, whatever the behavior of house prices.

Overshooting need not be confined to the real estate market. It already seems to be happening in some bond markets, as prices of apparently solid housing related assets decline to 25% or less of their principal amount. Now we are seeing a broadening of spreads in the emerging market bond market. Unlike emerging market stock markets which include the world’s most exciting growth stories, emerging market bond markets contain primarily credits to whom a sensible person would not lend. Over two thirds of the Morgan Stanley Emerging Market Bond Index is devoted to Latin America or Russia, all highly doubtful credits with bad political management, with the exceptions of Brazil (still over-borrowed and vulnerable to a commodities downturn, but with competent economic management) and Colombia (highly competent management, but continued political risk from both the FARC guerillas and the elections due in 2010.)

Even removing Brazil and Colombia, almost half the EMBI bond index is of poor quality; hence it is reasonable that spreads are finally widening. It is also reasonable to expect a cascade effect on credit quality, as the wider spreads begin to restrict loan availability and the restricted availability of new money begins to cause economic difficulties among borrowers. In the end, it is likely that the market will again overshoot, as it did in the early 1980s, so that even well run countries like Brazil and Colombia, or adequately run non-Latin countries like Turkey and Indonesia, will be forced into default simply by the absence of new bond market financing. In 1982, Mexico was poorly run and deserved to default but Brazil was quite well run, and could have survived default had the bond market remained open.

Needless to say, the world’s stock markets will not be exempt from the overshoot phenomenon. So far, only a few emerging markets, notably China, have experienced any significant downturn. In the West, stock prices are generally still well above those prevailing in 2006, considered at the time a boom year. However, when the decline does finally come, it will be severe. Inflating the early 1995 Dow Jones Industrial Index level of around 4,000 by the increase in nominal Gross Domestic Product since then gives a value of 7,800 today, which may be considered the stock market equivalent of the 3.2 times house price to earnings ratio that is considered equilibrium in the housing market.

Needless to say, even a drop to 7,800 would cause consternation and hand-wringing among Wall Street and investors generally. It should be noted however that 7,800 is the equilibrium level for stocks, not a prediction for the bottom, which must of necessity be much lower, as price declines reinforce negative investor psychology and pessimism. 5,000, or even 4,000 would seem reasonable predictions for the Dow’s low. Given the economic changes involved, the market may well take close to a decade to get there. After all Japan, subject to a similar bubble in 1990, took 13 years to reach its low on the Nikkei, which at 7,603 in April 2003 was 81% below its December 1989 high of 38,916. The 13 years and 4 months of the Japanese downturn would, measured from the true peak in market psychology of March 2000, take us to July 2013.

The overshoot phenomenon means we are not yet halfway through the current downturn, even in housing. It is most unlikely that deflation of the 1995-2007 asset price bubble will be accomplished in less than 5 years, since its deflation will be fought every inch of the way by politicians and Wall Street. Maybe we should start buying in summer 2012, but 2013 would be safer.





Disclaimer
The opinions expressed are those of the author and do not necessarily reflect those of http://www.PrudentBear.com. This is not a recommendation to buy or sell any security, commodity or contract.

Petro-Euro Vs Petro-Dollar - Good Eye opener
Must read !
Why the Dollar Bubble is about to Burst?
IRAN HAS REALLY DONE IT...more deadlier than the nuclear..

The Voice (issue 264 -) ran an article beginning, ' Iran has really gone and done it now. No, they haven't sent their first nuclear sub in to the Persian Gulf . They are about to launch something much more deadly -- next week the Iran Bourse will open to trade oil, not n dollars but in Euros' This apparently insignificant event has consequences far greater for the US people, indeed all for us all, than is imaginable.

Currently almost all oil buying and selling is in US-dollars through exchanges in London and New York . It is not accidental they are both US-owned.

The Wall Street crash in 1929 sparked off global depression and World War II. During that war the US supplied provisions and munitions to all its allies, refusing currency and demanding gold payments in exchange.

By 1945, 80% of the world's gold was sitting in US vaults. The dollar became the one undisputed global reserve currency -- it was treated world-wide as `safer than gold'. The Bretton Woods agreement was established.

The US took full advantage over the next decades and printed dollars like there was no tomorrow. The US exported many mountains of dollars, paying for ever-increasing amounts of commodities, tax cuts for the rich, many wars abroad, mercenaries, spies and politicians the world over. You see, this did not affect inflation at home! The US got it all for free! Well, maybe for a forest or two.

Over subsequent decades the world's vaults bulged at the seams and more and more vaults were built, just for US dollars. Each year, the US spends many more dollars abroad that at home. Analysts pretty much agree that outside the US , of the savings, or reserves, of all other countries, in gold and all currencies -- that a massive 66% of this total wealth is in US dollars!

In 1971 several countries simultaneously tried to sell a small portion of their dollars to the US for gold. Krassimir Petrov, (Ph. D. in Economics at Ohio University ) recently wrote, 'The US Government defaulted on its payment on August 15, 1971 . While popular spin told the story of `severing the link between the dollar and gold', in reality the denial to pay back in gold was an act of bankruptcy by the US Government.' The 1945 Breton Woods agreement was unilaterally smashed.

The dollar and US economy were on a precipice resembling Germany in 1929.
The US now had to find a way for the rest of the world to believe and have faith in the paper dollar. The solution was in oil, in the petrodollar. The US viciously bullied first Saudi Arabia and then OPEC to sell oil for dollars only -- it worked, the dollar was saved. Now countries had to keep dollars to buy much needed oil. And the US could buy oil all over the world, free of charge. What a Houdini for the US ! Oil replaced gold as the new foundation to stop the paper dollar sinking.

Since 1971, the US printed even more mountains of dollars to spend abroad.
The trade deficit grew and grew. The US sucked-in much of the world's products for next to nothing. More vaults were built.

Expert, Cóilínn Nunan, wrote in 2003, 'The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.'
Dr Bulent Gukay of Keele University recently wrote, 'This system of the US dollar acting as global reserve currency in oil trade keeps the demand for the dollar `artificially' high. This enables the US to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the US has no serious challengers, and the other states have confidence in the US dollar, the system functions.'

Until recently, the US-dollar has been safe. However, since 1990 Western Europe has been busy growing, swallowing up central and Eastern Europe .
French and German bosses were jealous of the US ability to buy goods and people the world over for nothing. They wanted a slice of the free cake too.
Further, they now had the power and established the euro in late 1999 against massive US-inspired opposition across Europe , especially from Britain - paid for in dollars of course. But the euro succeeded.

Only months after the euro-launch, Saddam's Iraq announced it was switching from selling oil in dollars only, to euros only -- breaking the OPEC agreement.. Iran , Russia , Venezuela , Libya , all began talking openly of switching too -- were the floodgates about to be opened?

Then aero planes flew into the twin-towers in September 2001. Was this another Houdini chance to save the US (petro) dollar and the biggest financial/economic crash in history? War preparations began in the US But first war-fever had to be created -- and truth was the first casualty. Other oil producing countries watched-on. In 2000 Iraq began selling oil in euros.
In 2002, Iraq changed all their petro-dollars in their vaults into euros. A few months later, the US began their invasion of Iraq .

The whole world was watching: very few aware that the US was engaging in the first oil currency, or petro-dollar war. After the invasion of Iraq in March 2003, remember, the US secured oil areas first. Their first sales in August were, of course, in dollars, again. The only government building in Baghdad not bombed was the Oil Ministry! It does not matter how many people are murdered -- for the US , the petro-dollar must be saved as the only way to buy and sell oil - otherwise the US economy will crash, and much more besides.

In early 2003, Hugo Chavez, President of Venezuela talked openly of selling half of its oil in euros (the other half is bought by the US ). On 12 April 2003 , the US-supported business leaders and some generals in Venezuela kidnapped Chavez and attempted a coup. The masses rose against this and the Army followed suit. The coup failed. This was bad for the US .

In November 2000 the euro/dollar was at $0.82 dollars, its lowest ever, and still diving, but when Iraq started selling oil in euros, the euro dive was halted. In April 2002 senior OPEC reps talked about trading in euros and the euro shot up. In June 2003 the US occupiers of Iraq switched trading back to dollars and the euro fell against the dollar again. In August 2003 Iran starts to sell oil in euros to some European countries and the euro rises sharply. In the winter of 2003-4 Russian and OPEC politicians talked seriously of switching oil/gas sales to the euro and the euro rose. In February 2004 OPEC met and made no decision to turn to the euro -- and yes, the euro fell against the dollar. In June 2004 Iran announced it would build an oil bourse to rival London and New York , and again, the euro rose. The euro stands at $1.27 and has been climbing of late.

But matters this month became far, far worse for the US dollar. On 5th May Iran registered its own Oil Bourse, the IOB. Not only are they now selling oil in euros from abroad -- they have established an actual Oil Bourse, a global trading centre for all countries to buy and sell their oil!

In Chavez's recent visit to London ; he talked openly about supporting the Iranian Oil Bourse, and selling oil in euros. When asked in London about the new arms embargo imposed by the US against Venezuela , Chavez prophetically dismissed the US as 'a paper tiger'.

Currently, almost all the world's oil is sold on either the NYMEX, New York Mercantile Exchange, or the IPE, London's International Petroleum Exchange.
Both are owned by US citizens and both sell and buy only in US dollars. The success of the Iran Oil Bourse makes sense to Europe , which buys 70% of Iran 's oil. It makes sense for Russia , which sells 66% of its oil to Europe . But worse for the US , China and India have already stated they are very interested in the new Iranian Oil Bourse.

If there is a tactical-nuclear strike on - deja-vu - `weapons of mass destruction' in Iran , who would bet against a certain Oil Exchange and more, being bombed too?

And worse for Bush. It makes sense for Europe , China , India and Japan-- as well as all the other countries mentioned above -- to buy and sell oil in Euro's. They will certainly have to stock-up on euros now, and they will sell dollars to do so. The euro is far more stable than the debt-ridden dollar. The IMF has recently highlighted US economic difficulties and the trade deficit strangling the US-- there is no way out.

The problem for so many countries now is how to get rid of their vaults full of dollars, before it crashes? And the US has bullied so many countries for so many decades around the world, that many will see a chance to kick the bully back. The US cannot accept even 5% of the world's dollars -- it would crash the US economy dragging much of the world with it, especially Britain .

To survive, as the Scottish Socialist Voice article stated, 'the US , needs to generate a trade surplus to get out of this one. Problem is it can't.'
This is spot on. To do that they must force US workers into near slavery, to get paid less than Chinese or Indian workers. We all know that this will not happen.

What will happen in the US ? Chaos for sure. Maybe a workers revolution, but looking at the situation as it is now, it is more likely to be a re-run of Germany post-1929, and some form of extreme-right mass movement will emerge...

Does Europe and China/Asia have the economic independence and strength to stop the whole world's economies collapsing with the US ? Their vaults are full to the brim with dollars.

The US has to find a way to pay for its dollar-imperialist exploitation of the world since 1945.. Somehow, eventually, it has to account for every dollar in every vault in the world.

Bombing Iran could backfire tremendously. It would bring Iran openly into the war in Iraq , behind the Shiite majority. The US cannot cope even now with the much smaller Iraqi insurgency. Perhaps the US will feed into the Sunni v Shiite conflict and turn it into a wider Middle-East civil-war.
However, this is so dangerous for global oil supplies. Further, they know that this would be temporary, as some country somewhere else, will establish a euro-oil-exchange, perhaps in Brussels .

There is one `solution' -- scrap the dollar and print a whole new currency for the US . This will destroy 66% of the rest of the world's savings/reserves in one swoop. Imagine the implications? Such are the desperate things now swimming around heads in the White House, Wall Street and Pentagon.

Another is to do as Germany did, just before invading Poland in 1938. The Nazis filmed a mock Polish Army attack on Germany , to win hearts and minds at home. But again, this is a finger in the dam. So, how is the US going to escape this time? The only global arena of total superiority left is military. Who knows what horrors lie ahead. A new world war is one tool by which the US could discipline its `allies' into keeping the dollar in their vaults.

The task of socialists today is to explain to as many as possible, especially our class, that the coming crisis belongs purely to capitalism and (dollar) imperialism. Not people of other cultures, not Islam, not the axis of evil or their so-called WMDs. Their system alone is to blame.

The new Iranian Oil Bourse, the IOB, is situated in a new building on the free-trade-zone island of Kish , in the Persian Gulf . It's computers and software are all set to go. The IOB was supposed to be up and running last March, but many pressures forced a postponement. Where the pressure came from is obvious. It was internationally registered on 5th May and supposed to open mid-May, but its opening was put off, some saying the oil-mafia was involved, along with much international pressure. ............ ......... ......

In 2007 Crude was trades around 60 usd. Everyone know dollar was getting weaker and weaker day by day. Than US with the help of their two NYMEX & IPE exchange started rising the price of crude by Future trading on crude( called speculation) . Today crude is around 140 usd. It means whole world who were paying 60 usd, now paying 140 usd, means demand of dollar increase to 230% and dollar start again rising.
Even OPEC recently that in hike og crude, 60% contribution is due to speculation (Future market).
Moral of story is USA has & will go to destroy any nation to keep its monopoly of dollar in world.


http://www.indymedia.org.uk/en/2006/06/342746.html

US BECOMES WORLD'S BIGGEST COUNCIL ESTATE

AMERICA became the world's largest council estate last night after the US government bought all the houses.

Image
Fudd has underpinned US mortgages for 40 years
With the nationalisation of the country's biggest mortage companies, Washington can now begin painting all the front doors the same colour and filling the gardens with rubbish.

Treasury Secretary Hank Paulson said: "By taking Kenny G and Elmer Fudd into state control the US government is now the second biggest owner of third rate homes after Liverpool City Council."

He added: "Since the Pilgrim Fathers set foot on Plymouth Rock, the American dream has been about working hard and owning your own home until the government suddenly turns into a bunch of communists and buys up all the mortgages.

"Rest assured we will choose a sickly blue-green colour for your front door and inject damp into the walls in time for Christmas."

Mr Paulson continued: "Now we all know that when the government owns your home you have an immediate and irresistible urge to use it as a one big toilet.

"All I would say is: do at least try to use the lavatory, but if not, then please sweep all your droppings into the corner of the room and then cover them in sawdust."

Meanwhile economist Tom Logan warned: "If all Americans are now effectively council tenants then it's only a matter of time before they become fat, ignorant ******** who sit around all day eating huge bags of crisps and watching X-Factor."

U.S. Gives Banks Urgent Warning to Solve Crisis

By ERIC DASH
Published: September 12, 2008


As Lehman Brothers teetered Friday evening, Federal Reserve officials summoned the heads of major Wall Street firms to a meeting in Lower Manhattan and insisted they rescue the stricken investment bank and develop plans to stabilize the financial markets.

Timothy F. Geithner, the president of the New York Federal Reserve, called a 6 p.m. meeting so that bank officials could review their financial exposures to Lehman Brothers and work out contingency plans over the possibility that the government would need to orchestrate an orderly liquidation of the firm on Monday, according to people briefed on the meeting.

Flanked by Treasury Secretary Henry M. Paulson Jr. and Christopher Cox, the chairman of the Securities and Exchange Commission, he gathered the executives in person to impress on them the need to work together to resolve the current crisis.

Historic Lehman might be history by next week
Shares sink further as deal is brokered in private

From Chicago Tribune news services
September 13, 2008

Lehman Brothers Holdings Inc.'s shares sank further Friday as executives raced to put a sale of the beleaguered investment bank in place, and the government indicated that taxpayers would not foot the bill.

In fact, experts said, the Wall Street firm that started the U.S. cotton trade before the Civil War and financed the railroads that built a nation might soon fade into history.

Executives worked feverishly in the past two days to find someone willing to buy all or part of the company, bankers and industry executives close to the situation said. But experts said the firm may be sold piecemeal.

"Lehman Brothers, the Federal Reserve, the Treasury Department, and potential suitors are locked deep in the caverns of their headquarters having intense discussions about who gets what chunk of Lehman," said Anthony Sabino, professor of law and business at St. John's University. "Nothing short of a miracle can save Lehman as is. It is highly unlikely Lehman will be in existence on Monday morning."

Treasury Secretary Henry Paulson is against any use of government money in whatever deal comes together for Lehman, a person close to his thinking said Friday. Unlike when the Federal Reserve committed $29 billion to help JPMorgan Chase & Co. take over Bear Stearns, Lehman now has access to a lending facility for brokers and that would permit an orderly process for unwinding the firm.

"Lehman's sale is likely to take a different form because there was serious political fallout from the JPMorgan-Bear deal," said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Penn. "It could be a consortium that buys Lehman, with the Fed's help."

Bank of America Corp. leads the list of potential buyers, a person familiar with the bidding said, though the likelihood of completing a transaction remained uncertain.

Bankers from other firms were reviewing Lehman's books, according to people with knowledge of the situation, and a deal may be announced before Asian markets open Monday.

Spokesmen for Bank of America, Lehman and the Fed declined to comment. The Treasury Department is "in regular contact" with market participants, spokeswoman Jennifer Zuccarelli said.

Lehman shares fell 57 cents, to $3.65, an all-time low.

Can the fed really let Lehman die?

The history of Lehman Brothers parallels the growth of the United States and its energetic drive toward prosperity and international prominence.' So says the Lehman website, which charts the rise of America's fourth largest bank from its beginnings in 1850, when its wealth was derived from the cotton trade.

Some 160 years later, Lehman's decline aptly illustrates an erosion of US power and prestige as the world's largest economy grapples with the second year of the credit crunch.

Many of the country's biggest financial institutions have been rescued by foreign investors and, as we are constantly reminded, the balance of economic power is shifting east.

It would be foolish, of course, to write off America, the first economy to be hit by the credit crunch and, doubtless, the first to recover.

But the fading fortunes of Lehman demonstrate the continuing fragility of financial markets and show just how quickly confidence can evaporate. Bear Stearns suffered a similar fate in April but, to be fair, Lehman is in a different league with valuable assets and a less risky business model. The reason that Lehman is done for is twofold: the collapse of a plan last week for a capital injection from the South Koreans, and its exposure to $50bn of commercial and residential property assets, which investors fear may have to be written down. Lehman's stock value has fallen 97 per cent in 12 months.

Whether the US authorities will let Lehman fail or engineer a rescue takeover by Bank of America - or a consortium - remains to be seen. But it is unlikely they will provide the cash guarantees that JP Morgan enjoyed when it acquired Bear Stearns.

Lehman is a major player, but not in the league of Fannie Mae or Freddie Mac, nationalised last week.

But letting a big Wall Street bank fail is not a decision to be taken lightly. Yes, it would show that institutions can't always expect to be bailed out when they run into trouble. But the worry is that it would shake confidence in the ability of other big banks to survive and bring with it the risk of systemic financial failure.