America's Financial Crisis

[Mos]

Re: America's Financial Crisis

This is what America needs:











just kidding

[Armenian]

Re: America's Financial Crisis

China, Russia renounce the dollar?

The recent meeting between Russian Prime Minister Vladimir Putin and his Chinese counterpart, Wen Jiabao, created a financial sensation. Wen said that the two nations could withstand the global financial crisis if they joined forces; Putin urged him to go farther and stop using U.S. dollars in Russian-Chinese settlements. This idea is nothing new. Russia and China reached a "framework" agreement in November 2007, which was followed by China's similar agreement with Belarus. Earlier this year, Iranian President Mahmoud Ahmadinejad and Venezuelan leader Hugo Chavez turned against the dollar as well when they asked their OPEC partners to stop using the dollar for oil settlements. They argued that the "green" currency was no longer reliable and it was high time they look for a more stable and predictable alternative. Curiously, unlike the Ahmadinejad and Chavez appeal, Putin's proposal came as the dollar was on the rebound and even began pushing the euro. Economists even started talking in terms of a reversal of the global currency trends, rather than the temporary appreciation of the dollar. Analysts predict that the dollar will regain its value in the next few months. They do not see anything which could hinder its steady growth. Yet, Putin proposed that Russia and China stop using it as a settlement instrument. What is it - lack of confidence in the dollar's prospects or a political move? Experts differ on this count. Igor Nikolayev, chief strategic analyst at FBK private auditing firm, sounded skeptical: "I think it was a political statement rather than an economic decision. There is a dominant public sentiment that the United States is the source of all evil, so let's stop using the dollar," he explained. One has to bear in mind, though, that some other currency will need to be found to replace the dollar for international settlements. China is unlikely to use the ruble, and Russia would be equally reluctant to accept the yuan. "They could opt for the euro, but its future is uncertain, especially considering current developments on global financial markets. It is also unclear whether China would be happy to start using the euro while most of its international reserves are held in dollars," he added. There are more questions than answers here, Nikolayev concluded. To be objective, one has to admit that other analysts are not as skeptical about the possibility of using other currency units between Russian and Chinese companies. Andrei Marinchenko, director general of the Kalita-Finance company, said the idea was quite realistic. Moreover, he thinks that the ruble stands a good chance of being selected as a reserve currency, primarily because the Chinese are disappointed in the dollar but aren't yet accustomed to the euro. Only time will show who is right. But to stop using the dollar in Russian-Chinese settlements is too important a decision to make for purely political reasons - that much is obvious. Suppose we do it; what will be the implications for Russian businesses, how will the new financial and political reality affect their incomes and savings? Marinchenko is convinced of a beneficial impact. According to Marinchenko, once the ruble is recognized as a settlement unit, it will enjoy growing demand with Chinese companies and individuals. The Russian currency will consequently grow stronger and more influential globally. Russia will also become immune to many shocks from stock market meltdowns and won't have to fear future devaluation or revaluation of the ruble. It will happen because the role of the U.S. dollar, which has earned a reputation as an unstable and unreliable currency lately, will be much less important.

Source: http://en.rian.ru/analysis/20081030/118047851.html

Russia Seeks to Trade Oil for Loans From China

As credit streams from troubled Western banks dry up in the financial crisis, Russian oil companies are negotiating multibillion-dollar loans from a more reliable source: the cash-rich Chinese government. Under a proposed loans-for-oil deal, reported by Reuters on Monday, Russian oil companies would borrow $20 billion to $30 billion from Beijing. In return, they would export about two billion barrels of oil to China over the next 20 years. The Chinese prime minister, Wen Jiabao, was in Moscow on Tuesday for talks with Prime Minister Vladimir V. Putin, but there was no indication that the deal had been signed. The agreement would commit Russian companies to redirect some of their energy exports to the East at a time when Russian and Chinese leaders have been saying they would like to see greater integration of their economies, and Russia’s relations with the West are at a low point. It would also offer a prime example of the way the financial crisis is realigning global commerce, directing it away from reliance on Wall Street lending and toward China and Japan, with their enormous cash reserves. It was unclear how close Russia and China were to an agreement. A planned pipeline to China, a spur of a trans-Siberian pipeline that is under construction, would be capable of carrying about 300,000 barrels of oil a day. On Tuesday, the countries agreed only to build the spur, from the Russian town of Skovorodino to the Chinese border, at a cost of about $800 million. How much oil will flow through the pipeline, and at what cost per barrel, have been matters of contention for some time and have yet to be resolved. There is little doubt that the crushing cash needs of the Russian oil companies helped narrow the differences. Much of the companies’ revenue during the recent spike in oil prices went to taxes. As a result, the state oil company Rosneft owes about $21 billion to Western banks and has already been confronted with demands from creditors for early repayment. China, after years of piling up trade surpluses with the United States, is awash in cash, with currency reserves of $1.9 trillion, the largest in the world. The Russian government, which also has a healthy cash reserve, has pledged $9 billion in loans to its country’s oil companies, but that does not begin to cover their cash needs, which include the enormous sums needed to expand into the more expensive and remote fields in Siberia. Mr. Wen and Mr. Putin also discussed relying on rubles and yuan in bilateral trade, rather than on dollars. Mr. Putin is an advocate of reducing the dollar’s role in international commerce. “At the moment the world, which is based on the dollar, is suffering serious problems,” he said.

Source: http://www.nytimes.com/2008/10/29/wo...=worldbusiness

[gmd]

Re: America's Financial Crisis

Bernanke's last reel
By Julian Delasantellis

Think of the great concluding scenes of some of the most memorable movies of all time.

"There's no place like home," Judy Garland wistfully exclaims at the end of The Wizard of Oz; "Rosebud" in Citizen Kane; the camp doctor crying out "madness" as Alec Guinness gives his life to destroy the bridge he built in The Bridge on the River Kwai;

Now, after the Federal Reserve interest rate cuts on Wednesday, the conclusion for a new story is being written. As it happens, we're essentially watching the end of The Ben Bernanke Story.

For the 11th time in 14 months, more importantly, for the second time in three weeks, the United States Federal Reserve Bank's Open Markets Committee has engineered a set of interest rate cuts, this time twin 50 basis point reductions to 1% on the Federal Funds Target Rate and 1.25% on the Discount Rate.

There is every reason to believe that the Fed made this month's cuts with the greatest reluctance. After nine rapid-fire reductions that took the Target Rate to 2% from 5.25% in just eight months, the Fed had been holding pat from late April to this month's first cut, the emergency interest rate reduction of October 8.

Federal Funds at 1% have an enormous historical significance. That was where former Fed chairman Alan Greenspan took the rate down to for more than a year, from mid-2003 to June 2004. With the desire by Americans to always find simple causes and ready scapegoats for complex problems, much blame has been placed on Greenspan's 1% interest rates of that period in kindling and stoking the real estate boom and bubble that engendered the current subprime mortgage crisis a few years later.

As simple explanations go, this one possesses more than a few grains of truth, and it is infinitely superior to many of the other explanations now bobbing about in the thick fetid swamp of the punditocracy, such as that which posits that the whole crisis is the result of American liberals foolishly trying to put minorities in their own houses.

When Greenspan left office to mostly wide public acclaim and adoration in early 2006, just a few months before the real estate bubble was finally stretched so thin that it cracked and burst open, one criticism he generally received was that rates had been kept too low, for too long. Nobody took much notice of it then, for, at that time, criticizing the huge scads of money being generated by the real estate bubble was seen as a lot like being the guy who keeps his coat on at the orgy. Still, many observers opined that, for the future health of the financial system, rates should never be driven that low again.

But now we're here again, four years after we left these rates, back down at 1%. There is perhaps no other data set more indicative of the failure of the Greenspan/Bernanke ideology of debt-driven macroeconomic administration, indeed, of the entire free-market, laissez-faire consensus that has recently so dominated the ideology of economic management, than this fact.

That ideology only a few years ago proclaimed such an overwhelming practical superiority at generating prosperity that it represented "the end of history"; it now proves itself so poor at consistently maintaining prosperity that it seems that every few years or so it must drive rates down so low that it, in effect, involuntarily seizes the assets of savers and devalues them through even modest inflation.

Amazingly enough, we come out of this FOMC meeting with reports of even more possible interest rate cuts. A good number of Fed watchers had predicted more for Wednesday, forecasting 75 basis point cuts that would have brought the target rate down below 1%, to 0.75%. These predictions are being brought forward to the Fed's next meeting, on December 16.

The Fed, in the statement that accompanied Wednesday's cuts, gave every possible indication that it's not done yet.
The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for US exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. …downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.
As if he had decided to prove the point that, in the words of philosopher George Santayana, "A fanatic is someone who redoubles his efforts as he loses sight of his goals," former Fed governor Laurence Meyer says that it won't be enough to lower the rate to 0.75% or 0.50%, it has to be, and will be, cut to 0.0% next year.

I suppose after that would come punitive interest rates. Maybe the Fed will subsidize a new program to let the air out of the tires of people who come in to make a deposit.

The basic problem here is that, at its core, capitalism is a system that wants, and is supposed to reward, the behavior that these rate cuts are punishing - thrift, savings and delayed gratification. I very well remember teaching an economics class in 2003, when depositor interest rates were low. I tried to impress on the youngsters the importance of savings and thrift, to avoid running up big credit card bills, to regularly deposit money in the bank.

One raised a hand. "If I deposit $100 in the bank today, when will it double?"

I explained the rule of 72, the economic formula that describes how long it takes an investment to double with compound interest. The formula is 72 divided by the interest rate. With interest rates then at 1%, the answer then was "2075".

The class laughed the laugh of college students who think they know more than their professor. Maybe they were right.

Of course, dropping rates to 0.75% brings the doubling date up to 2104; 0.50% rates brings it to 2152. Bring interest rates to zero, and it will take longer to double an investment than the universe has time remaining.

Japan attempted very low interest rates for about a decade from the mid-90s. It worked better with them, for, with government pension support still a newer concept there than in the United States, the savings ethic was much more firmly established in Japan than in the West. Still, although the low rates might not have led to a disaster in Japan on the level of a fire breathing Godzilla, there is little evidence indicating that they did much in the way of spurring growth.

Once you're under 2% or so, if you haven't spurred growth by then, more cuts after that probably aren't going to do it either.

Whatever the problems bedeviling the American and world economy today, high short-term interest rates aren't all that prominent on the list. Today's core current problem is the wave of deleveraging caused by the credit crisis, as banks and other financial institutions initiate round after round of shrinking their loan balance sheets.

The US$250 billion initiative by Treasury Secretary Henry Paulson to take equity positions in banks and other financial institutions placed no mandates on the banks to actually make new loans with the government largesse, and the $500 billion program to buy toxic mortgage securities out of the banks' portfolios just can't seem to get out of the starting gate.

Every day, reports emerge that everybody who can get to the "lobbyists" page of the phone book, be it insurance companies, banks that are privately owned, or auto companies, are lining up to get their snouts in the trough of the bailout bill's munificence, and the Paulson Treasury is beginning to look foolish as it just can't seem to decide who to say yes to next.

But the really important thing to remember is not whether bringing the Federal Funds Target Rate down near zero works to spur growth. It's the failure of the economic policies so long dominant in America to bring long-term prosperity that is really seen here.

As the American presidential election of 2008 winds towards its ignominious denouement, those outside the United States might be amazed, indeed, they may even think a joke is being played on them, when they hear that the campaign is now centered on the issue of whether an unlicensed Ohio plumber, who can't or won't pay his current taxes, will be required to pay extra taxes should his fantasy of buying his employer's business for well more than it's worth comes true.

That's the way it's been in America these past few years, under Republicans such as Ronald Reagan and the Bushes, as well as Democrat Bill Clinton. The rich are looked after first, through tax, regulatory and consumer protection policies, and if the middle classes benefit, fine; if not, well, nothing much can be done about it, for that would be equivalent to the establishment of an American gulag.

The middle class saw the lifestyles of the rich and famous rapidly accelerating away from them, and they tried to keep up. That was attempted by leverage, borrowing their way to the good life, with dot-com stocks at the turn of the millennium, and real estate these past few years. Both bubbles spectacularly burst, and, as America looks for a new road to prosperity that might not necessarily involve more "extraordinary popular delusions" and "madness of crowds", the saver class must apparently be once more raped while the country waits.

In recent testimony before Congress, economist Mark Zandi (who, surprisingly, is an economic advisor to Senator John McCain; the Republican presidential candidate, apparently does not know he has a flaming Trotskyite on staff) listed the prospective economic benefits to be accrued from the different possible policy alternatives to be included in the new fiscal stimulus package that will be considered after the election; apparently, a repeat of the spring initiative, which merely sent out big government checks, otherwise known as the Chinese Pearl River Delta factory employment plan, will not be considered.

What did Zandi say would provide the most assistance to the economy? Enhanced government food assistance, called "food stamps", after that, more and longer assistance to unemployed workers. The least-productive initiatives would be exactly what has most been produced by the Congress and the government, and what is most advocated and debated in the campaign - dividend and capital gains tax cuts, corporate tax cuts, and accelerated depreciation for corporate investment.

Maybe, if government policies had been along these lines in the first place, people would not have had to borrow their destinies into crazy bubbles just to live the American dream.

But whatever happens from the latest rate cuts, it certainly means the approach of the effective end of the Bernanke story. Whether or not he cuts once more in December, he has, at the very most, two more 50 basis point cuts in him; after that, all he'll be doing is standing up there behind the podium as either McCain or Barack Obama's Treasury secretary (which very well may still be Paulson) assumes the initiative in policy advocacy.

I can see the last scene as the curtain falls on the Ben Bernanke Story, otherwise know as Gone With the Write Down.

A frantic saver confronts Bernanke. "Oh, Ben, if you lower rates to zero, where should I go, what shall I do? "
"Frankly, my dear, I don't give a damn."

Julian Delasantellis is a management consultant, private investor and educator in international business in the US state of Washington. He can be reached at [email protected].

http://www.atimes.com/atimes/Global_Economy/JJ31Dj03.html

[skhara]

Re: America's Financial Crisis

I am not sure what to do here to prepare.

At work we had an interesting presentation by a lady calling herself "futurist". Anyway she covered scenarios for 2009-2010.

Her scenarios were a fictional analysis. Anyway, she presented that governments around the world blame the American version capitalism. She presented that the IMF, the WTO, the G7 collapse and instead a new world body rises who monitors financial activity. The US is not invited to lead this organization, instead it is the east that takes the lead.

In the US people hunker down, move away from a culture of consumerism and move more towards family, religion, personal well-being. Birth rates decline as people delay their life advances like moving away from the parents, getting married, having kids, etc....

Funding for research drys up but alternative energy sources makes major gains.

[Armenian]

Re: America's Financial Crisis

Out of all the "conspiracy theory" videos, I have seen, this one actually scares me.

What surprised me about the video is that the new money that is said to replace the US Dollar, the Amero, is 'already' being minted and information about it is all over the internet... This is astonishing for me! I knew of the talk about the North American Union. I knew of the talk about creating the Amero. But I had no idea that this new currency was already being produced, albeit in small quantities. Is the current financial turmoil a prelude, a way to prepare the field for the introduction of the Amero? When will this occur? What will our assets in US Dollars be worth in the aftermath of this? I don't know who to believe anymore. I don't know what is the truth. I don't know what's going on... This whole situation has me very worried.

The Amero

Website dedicated to the Amero: http://www.amerocurrency.com/index.html

The Amero - North American Currency: http://www.youtube.com/watch?v=6hiPrsc9g98

NORTH AMERICAN UNION: http://www.youtube.com/watch?v=T74VA...eature=related

Vicente Fox hints about a North American Union: http://www.youtube.com/watch?v=gYGrn...eature=related

[crusader1492]

Re: America's Financial Crisis

Dollar collapsing by February 2009 and replaced by the Amero? I don't know what to make of this: http://video.google.com/videoplay?do...00958565&hl=es

Out of all the "conspiracy theory" videos, I have seen, this one actually scares me. This guy actually has an "Amero" coin in his posession and a plausable theory backed up by markrtplace realities and current events.

I have a lot of thinking to do...that is, should I take this guys advise and transfer my assets into gold/silver and stable foreign currency.

Anyway Armenian, thanks for posting...you may have just save me from becoming destitute.

[Armenian]

Re: America's Financial Crisis

Dollar collapsing by February 2009 and replaced by the Amero? I don't know what to make of this: http://video.google.com/videoplay?do...00958565&hl=es

[Armenian]

Re: America's Financial Crisis

How Can We Have Capitalism with No Capital?

By Ron Paul

It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control. We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.

Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run. Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.

These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.

Source: http://www.americanfreepress.net/htm...ul_101408.html

[Armenian]

Re: America's Financial Crisis

BANKERS BUY U.S. POLITICIANS

The very people who were in charge of keeping Wall Street honest are biggest beneficiaries of ‘kickbacks’

Wall Street Banksters doled out $2 billion to federal candidates and political parties since 1989 when the scam to rip off of the middle class of their savings and real property—with the fleeced taxpayers ultimately footing the bill—began to unravel. That $2 billion “investment” enriched the contributors many times over—but the ultimate payoff was the $700 billion bailout that costs taxpayers $850 billion. The Center for Responsive Politics, a Washington nonprofit group that studies money and politics, reports congressmen who voted for the bailout bill took in 151 percent more in campaign contributions from the FIRE (finance, insurance and real estate) lobby than those who voted against the give-away. In this election cycle, the 140 House Democrats who voted for the bailout bill collected 78 percent more from the FIRE lobbies than the Democrats who opposed it. Over their careers, they collected 88 percent more. The 140 Democrats who supported the bailout received, on average, $792,744 over their careers from the FIRE sector—and $188,572 during this cycle.

Republicans in the House who voted yes on the bailout got 53 percent more than House Republicans who voted against it. The 65 Republicans who backed the bill collected $1,078,533 from the finance sector in their careers and an average of $185,461 to help them get re-elected this November. Rep. Barney Frank (D-Mass.) chairman of the House Financial Services Committee, collected nearly $800,000 this election cycle from the FIRE industries. Spencer Bachus (R-Ala.), the ranking Republican member of the committee, who voted for the bailout, took in $822,000 from the FIRE special interests this election cycle—for a total of $3.7 million since 1989. Senate Banking Committee Chairman Chris Dodd (D-Conn.) received nearly $6 million in the past two years from AIG, Lehman, Merrill Lynch, Bear Stearns, Freddie Mac and Fannie Mae, etc. Eighteen of Dodd’s top 20 backers are FIRE’s insurance or financial companies. The language creating slush funds for the Association of Community Organizatons for Reform Now (ACORN,) etc., was slipped into the misnamed “economic rescue” proposal by Dodd and Barney Frank.

Members of the House and Senate have received more than $180 million from PACs and individuals associated with FIRE this election cycle—and there’s still weeks to go. The FIRE sector has so far contributed more than $68 million to House members in this election, and nearly $315 million since 1989 to members who voted Monday. These politicians say they were “voting their conscience,” and those bushels of dollars had nothing to do with their votes. To which populists respond, “liar”— hoping outraged voters will cast the incumbents out. The establishment presidential candidates—who joined the “sky is falling” chorus—also benefited from FIRE’s largesse; Democrat Barack Obama collected about $25 million and John McCain $22 million. Dodd’s proposal would set aside 20 percent (estimated $140 billion) from the Treasury’s sale of assets to the Housing Trust Fund to benefit ACORN. ACORN is a corrupt organization that has been accused and convicted of voter fraud in at least 13 states. Their tactics have ranged from registering dead people to trading cocaine for illegal ballots in Ohio in 2004.

Dodd has been rewarded in the 2008 election cycle with $7.65 million in campaign contributions—he took in $11.7 million in all—from FIRE, the securities, insurance, real-estate and commercial-banking industries, according to his latest Federal Election Commission filing posted at opensecrets.org. With $165,400, Sen. Dodd also tops the list of members of Congress who took campaign cash from Fannie Mae and Freddie Mac since 1989. Sen. Barack Obama is a distant second at $126,000—but he’s only been in the Senate three years. Sen. John Kerry is third at $111,000. Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and Sen. Hillary Rodham Clinton are in the top 20.

Source: http://www.americanfreepress.net/htm...ticians_1.html

[gmd]

Re: America's Financial Crisis

Anonymouse, I have read some of the sources you have sited in threads. My question is especially considering the current situation... What percentage of economists fall within the Austrian school of thought in the US and of those how many are in a position to influence policy?
thanks