Busted: Bankers and The Global Economy

December 31, 2010

2011: A New Year for Dogs & Ponies

It’s been a great year if you haven’t looked much at the world around you, but there is always potential, especially for Wall Street leveraging and central bankers. Since I’ve retired in earnest, I sometimes shut off the news because I’d rather think about something else. Perhaps you’ve been doing this too. If so, you may not for much longer. Scuttlebutt at the G20 has it that the dollar won’t be the darling of the world much longer. So what, you say! That kind of talk has been going on for years. Apparently, the G20 finance ministers have decided that on May 4, 2011 that the dollar will no longer be the “world reserve currency.” So what you say? Even if you don’t believe it, the scenario is rather entertaining, i.e., would make a great movie. It’s a real dog and pony show.

Even now silver and gold paper is highly leveraged, much like the dollar is with the fractional reserve. There is so much leveraged paper out there that the system in place is likely to implode from the panic. There isn’t enough silver and gold bullion in the marketplace, or rather, in the storehouses. This is already heating up into a potential crisis, a run on the bank, as it were. Won’t that make gold and silver more valuable? Only if you have your gold or silver in real gold or silver. In that case, you won’t have worthless paper securities, but a real danger of having your life taken from you if anyone knows you have it. Because of this, you won’t be able to spend it either, because if you did, somebody would know you had it.

As I said, the demand for the real gold and silver will be terrific as the former world reserve currency plunges into oblivion. Either singular scenario means hyperinflation. With OPEC oil being the USA major import, the nation will shut down from lack of fuel or rather, the ability to buy it. The nation has an oil reserve, but that won’t last long the way America consumes it. Too bad we can’t leverage the oil reserve to pretend there’s more. I’m not finished yet.

The Fed has initiated Quantitative Easing (known as QE2) that spells an end to the Bretton Woods accord with the idea of replacing it with a different system. Trading partners are nervous, but they aren’t the only ones. For now, export-dependent nations recycle capital to USA markets in order to sustain demand. The Federal Reserve decided that the only way to fight deflation and high unemployment in the USA was by weakening the dollar to make USA exports more competitive. That means that the USA will be battling for the same export market as the rest of the world, which will shrink global demand for goods and services. Never mind that China’s decision to back off on the dollar would be enough to cause a dollar crisis. Never mind that the multinationals will hate this as profits plunge. Government officials will wet their pants in panic. Number of jobless Americans will go through the roof, if we had one. Wal-Mart, so dependent on China exports will close. Inventories will be short. National GDPs will shrink. Economies will contract. Ooh. It’s not pretty.

Paul Volcker recently opined: “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate…” Everyone has rode the pony too hard. Now the powers that be are preparing to run the show in a way that is untested. We aren’t sure whether the dogs can carry the weight. All those “risk-free” treasury bonds are in real danger. The whole system is bankrupt. The USA stands to lose all its status. Central bankers know this, but they already hold all the valuables, and the means for a new system.

The world doesn’t care about the USA deficit, as long as it’s used to bail out the world in some sense. 100 major cities are facing bankruptcy this year unless they get a federal bailout. Even though Great Britain opted for austerity measures, the USA doesn’t really have this for a choice because they hold the debt bag for the global standard. Central bankers have the valuables and the credit to prolong the current system as they please or not. Meanwhile, Main Street and the population is more tightly squeezed than ever. Those trained dogs are walking a tightrope, but for how long? President Obama needs to hold everything together with a grand distraction so that he will be handily re-elected. What do you think that will be? It’s sure to be glorious.

In the meantime, go ahead and shut off your TV until something better comes along. Have a party while you can. You might not have long to wait.

November 21, 2010

Old News, New News

Filed under: banking, central bank, corporatism, economy, federal reserve, globalization, recession — Tags: , , , , , , — digitaleconomy @ 11:26 am

“Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected, mortgages foreclosed as rapidly as possible. When, through the process of law, the common people lose their homes, they will become more docile and more easily governed through the strong arm of government applied by a central power of wealth under leading financiers. These truths are well known among our principal men who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies in fighting for questions of no importance. It is thus by discreet action we can secure for ourselves that which has been so well planned and so successfully accomplished.”

– Montagu Norman, Governor of The Bank Of England, addressing the United States Bankers’ Association, NYC 1924

 

August 13, 2010

Fed Policy Lacks Real Power, Drains Economy

Filed under: banking, corporatism, economy — Tags: , , , , , , , — digitaleconomy @ 10:49 am

Quantitative easing (QE) by the Federal Reserve did plenty for Wall Street and international banking, but hasn’t warmed up the real  U.S. economy. The Federal Reserve creates money out of thin air to buy U.S. Treasuries, mortgage-backed securities and corporate debt for temporary funding purposes with the  hope of selling them at an advantageous time.  Indications (based on gov’t figures) are that either the stimulus did not work or it did work, but the real economy was more severe and harder to control than advertised. Your opinion?   The ongoing structural and underlying massive debt is now more pressing thanks to the Federal Reserve policies. At this moment, Fed Chairman Ben Bernanke is arriving in Washington to testify before Congress to answer for the disaster. No doubt, he will bumble on about financial literacy, like this knowledge actually helps anyone when greed and corruption were and are the largest issues behind the meltdown. The Fed is just another large corporation with their own money-making agenda.

The policy followed by the Fed has bailed out the system that was initially responsible for the meltdown, but has done little to nothing for unemployment, exports, small business, consumer spending or declining revenues. For years America lived on credit as wages have not kept pace with real expenses.  Moral support by the banking community has vaporized since the they have been unable to monetize securities. On balance, the simple act of loaning money isn’t enough for them. They want another way to make runaway profits, as if the fractional reserve isn’t rich enough for them!

The Fed itself is aware of what they are facing and the obvious disconnect from all their past projections. This was published in a chart included in the latest economic paper by the Fed in Dallas titled “Unemployment Exceeds No-Stimulus Forecast.”

June 27, 2010

Jobs & G20: Budget Slashing Fever & Fantasy

To hear the G-20 proclaim it, the U.S. and other “prime economies” had better slash their budget deficits before the world comes to an end. The U.S. Senate quashes continued aid for the unemployed. Wall Street investment firms and banking succeeds in watering down financial reform. The fantasy continues while economists and politicians worry behind the scenes.  Even VP Joe Biden openly admitted that the United States will not regain the jobs that were lost in the “Great Recession.”

The official jobless rate, projected at below 10%, is pure fiction and must treated as such by those that seek the truth. It doesn’t consider many unemployed people that have dropped off the charts into oblivion. Underemployment is a national plague that the Labor Bureau of Statistics has revealed. Many are the discouraged job seekers and those that have settled for part-time work. The U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65. Nearly 18 million of them, a record 22%, are out of work. This doesn’t include the underemployed. The impact is larger in African-American men.

The financial markets, like the government lawmakers, could care less about the deficit. Perhaps they should. As a result, investment rates in bonds is down. Almost all of them ignore engineered inflation which pays off central bankers to the tune of about 10% yearly, the real loss in buying power for the nation. In the meantime, the official inflation rate is a “convenient” 3% most years. Powers that be project an inflation rate 2.3% yearly for the next 30 years. Dreamland. Because of what is really a stagflation economy, falling prices and deflation of the dollar are more likely.

Wall Street and multinational capitalism seems to be in robust condition, to the cost of everyone but them. Corporate profit margins have reached record levels at 36% as the average American is short circuited entirely. These profits have never been so high since record keeping began. These figures are much the same as they were in the Reagan administration.

More than half of the national budget funds defense (don’t forget the wars), national debt interest and Social Security/Medicare. Politicians are eyeballing cuts on the latter, often silent as a senior political voice fades away. Don’t kid yourself. You’ll pay for seniors and the disabled one way or the other. Don’t kid yourself about the other major expenses either. Meanwhile, the national budget has climbed steadily for decades in the 6% to 10% range, much higher than the professed inflation rate.

There are no easy answers beyond beginning to live within our means as a nation. For years, Americans had forgotten about this necessity, encouraged by the system to spend endlessly, until the recession hit us between the eyes. Only bankers, multinationals and Wall Street have profited in their own economic bubble. Government has forgotten what economic balance and locally productive jobs mean, threatening to destroy their own system of weights and balances with unfettered spending and wars overseas, designed to keep terrorist attacks overseas and out of America. We have created our own reality. Are we willing to change?

February 23, 2010

Strength of EU and Euro Threatened

Filed under: banking, corporatism, credit, economy, money, politics — Tags: , , , , , , , , — digitaleconomy @ 10:46 am

With the ongoing financial plight of Greece, the European Union is facing a growing threat of national bankruptcies. The consequences would be profound for the whole of the continent, especially German banks, which are highly exposed to risky debt. EU politicians are feeling increasingly panicky.

Europe is one of the hotter topics on the global financial circuit. The value of the battered euro has been falling since the Greek government confessed to the actual scope of its debt, cobbled together with shaky securities and kept secret for years by complicit bankers. Things are not looking significantly better and EU politicians are looking for a solution that will contain the financial fire.

June 1, 2009

Fed Puzzled by Stats: Are We In Danger?

fed battle economic gloomAll interest rates are not equal when it comes to any given investment product. The rates on bonds of different maturities behave independently of each other. Short-term rates vs. long-term rates can move in opposite directions simultaneously. The gods of finance say that what is important is the overall pattern of interest-rate movement: a direct reflection of the future of the economy and Wall Street confidence.

The Fed is not certain what is driving the sharp rise in long-dated bond yields and has noticed a widening gap between short and long term yields. What does it all mean? Is someone like the Chinese manipulating the market?

A steepening yield curve could mean that investors are worried about the deterioration in the U.S. economic outlook… or the possibility for a collapse in the U.S. dollar as the Federal Reserve continues to load the world with newly minted currency as part of its recent program.

Economists are involved in open combat over what is driving the signs and even worse, what the cause or the solution really is. Some Fed officials believe that a recent glimmer-of-hope in economic data is encouraging investors to believe there is less need for ‘safer government bonds’. Richard Fisher in the Dallas Fed contends that the steepening yield curve is generally a sign of a recovery, but huge debt may dampen that perception.

What is certain is that the U.S. Treasury is being forced to sell more bonds to cover the unprecented U.S. debt and falling tax revenues as a result of the recession. What does appear to be certain is that the relentless dumping of dollars on the market will ultimately result in inflation that could easily get out of hand. Is it recovery from investor confidence, investor manipulation, worried investors or defective monetary policy driven by central bankers? Not even the gods of finance know the answer. The gods of finance do not know right or wrong. They know theory and are now in uncharted territory.

May 3, 2009

Inflation and Devaluation Looms on Horizon

warren_buffettMany of you haven’t been willing to believe me. Inflation despite the current troubled economy is still a very real concern. Why? Continually pumping dollars into the failed financial system is spreading the dollar very thin indeed. The bailout is likely to have “unintended consequences”. So says the blue boy of the financial market and Berkshire Hathaway chief Warren Buffett.

Buffett says that officials should be judged leniently since the economy was facing “as close to a total meltdown as you can imagine.” If you read this blog, you know what the meltdown was caused by: unchecked banking innovation and greed.

In the eyes of Buffet, the runaway debt spending must be paid for sooner or later (no force majeure?). Political leaders show little inclination to raise taxes, at least in an upfront way. Buffett indicates that one sure way to pay for excess spending is to “inflate the value” of the currency. The biggest losers in a surge of inflation, he added, would include holders of bonds and other fixed-income assets. “I haven’t had my taxes raised. My guess is the ultimate price will be paid by a shrinkage of the value of the dollar.” Duh. ~ E. Manning

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