Busted: Bankers and The Global Economy

October 10, 2008

Dollar Rally Due to Global Inflation?

safe haven again?

safe haven again?

The U.S. dollar is once again holding its status as a safe haven because of deteriorating economic outlooks in the global economy and increases in inflation overseas. The recent adjustment in oil prices is due to the leveling effect that inflation is having on economies coupled with recent U.S. government intervention in commodities futures.

The crisis in Iceland, Britain and much of Europe and Asia has electrified the so-called G-7 Finance Ministers to meet to decide on unified actions and strategies to bolster sagging economies.  Iceland refused to stand behind their failed banking system, resulting in large losses to British depositors. Prime Minister Gordon Brown has frozen the assets of Iceland in Britain to insure that losses by British depositors are covered as much as possible. The European Central Bank has also summarized the idea that recent exchange rate imbalances are due to the current financial crisis. Globally, banks are becoming more imperiled as the system locks down due to financial fears and the unknown effect of bad securities globally.

The general consensus is that the goal of the G-7 meeting must be to promote liquidity and growth. Those kind of financial moves dilute monetary systems and boost inflation. Even so, inflation is considered as a back door issue. Today, only stability is king. ~ E. Manning

October 7, 2008

U.S. Federal Reserve Extends Economic Lifeline

Now the Fed is loaning on “commercial paper” for the first time in history and extending credit to nearly one trillion dollars. What is next to expand the economic lifeline?

global bailout crisis

global bailout crisis

Countries scrambled to slow the growing global financial crisis today. The Federal Reserve was close behind the heels of a bad day at the stock market with a few arrows in its quiver early this morning to counter the mess that has evolved from frenzied mortgage lending and trading in unregulated financial derivatives. 

The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.

The economic lifeline credit for banking has been extended by the Federal Reserve and will reach nearly $1 trillion dollars by the end of the year.

“The sizes of both 28-day and 84-day Term Auction Facility (TAF) auctions will be boosted to $150 billion each, effective with the 84-day auction to be conducted Monday. These increases will eventually bring the amounts outstanding under the regular TAF program to $600 billion. In addition, the sizes of the two forward TAF auctions to be conducted in November to extend credit over year end have been increased to $150 billion each, so that $900 billion of TAF credit will potentially be outstanding over year end.”

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve’s existing credit facilities to help provide liquidity to term funding markets. The U.S. Federal Reserve has focused on calming chaotic markets by creating a new commercial paper facility that buys “short-term highly rated debt,” funding corporate borrowing for the first time in history.

 

crisis worsens

crisis worsens

Today Ben Bernanke admitted that institutions including Washington Mutual and Wachovia had experienced banking runs by depositors, creating a crunch on funding. Because of the size of Wachovia and to prevent destabilization, the Federal Reserve is working to have other institutions absorb the assets of that bank without closing it down.

 

Bernanke also admitted that inflation has been elevated, reflected by the steep increases in the price of oil this year as well as other commodities, imports and higher costs of production. Until now, the Fed has been reluctant to publicly admit such a fact. However, more recently, the prices of oil and other commodities, while remaining quite volatile, have fallen from their peaks, and prices of imports show signs of decelerating. The recently falling price is due to inflation in the rest of the world lining up with the United States, although Uncle Ben didn’t specify that reality.

Uncle Ben is ever the public optimist:

“The steps being taken now to restore confidence in our institutions and markets will go far to resolving the current dislocations in the markets. I believe that the bold actions taken by the Congress, the Treasury, the Federal Reserve, and other agencies, together with the natural recuperative powers of the financial markets, will lay the groundwork for financial and economic recovery.”

Meanwhile, the pillars of high finance are giving way. The International Monetary Fund increased an estimate of global losses from the financial crisis, warning that the world’s economic downturn is quickly evolving into a global depression. Iceland, Russia and Australia are high on the list of countries working at a frantic pace to protect their banking and monetary systems.

August 19, 2008

All Quiet on the Western Front

Overall the news has been moderate with folks talking on and off about recovery sometime next year. Earlier in the day, the scuttlebutt was about recession concerns and corporate defaults, but later in the day, that worry had faded compared to inflation fears. Fear is what we have sold ourselves as the bankroll of greed and carelessness. Banks think that they have managed their resources well as they have cut back and are watching for corporate defaults as several prime economies continue to decline. Authorities are quiet, waiting for the next shoe to drop with inflationary and recessionary pressures.

The only man with a soul in the Federal Reserve, Richard Fisher, has been complaining about the refusal of the Federal Reserve to do anything meaningful about inflation. He proclaims food and oil prices have “overshot” on the upside, and that the Fed cannot afford to “gamble away” its credibility by failing to act against inflation. Strangely, based on what overseas influence says, the Fed has already done just that based on talk from as long as a few months ago. The Fed has no credibility. However, the Fed’s credibility is a symptom of banking abuse, by now a tired haggard topic. Raising interest rates is all the Fed can really suggest to combat inflation. Intelligent people know that Fed interest rates have little to do with inflation or recessionary recovery. Maintaining a viable economy is the key. Politicians have forgot that.

The Federal Reserve is in disagreement about what they can do to stem the tide of increasing and debilitating inflation. A few say that tightening the credit market is the answer. Inflation is double the Fed’s underestimated estimates and expectations. That reality isn’t much different than Europe. Inflation is a symptom of a lack of economic viability. The U.S. economy and global economy is rife with overprinted devalued greenbacks much like a cancer. Authority is focused on economic keys instead of allowing the individual to prosper.

Central bankers and economists really don’t know what to do about inflation, much less admit the real severity against global economies. The reality is that once a downward cycle begins, quietly waiting is the single best thing that can be done as the correction made by peoples and businesses in the economy adjust to the current economic reality. There is no disgrace in recovery for that is exactly what we want. A return to what brought the U.S. and the U.K. to the current recession is exactly what we don’t need. Bankers need to be bent over and heavily spanked for they are the ones that have precipitated the crisis we are dealing with aside from the fact that the country has lost its’ soul where independent job creation is concerned. The problem has become systemic because of the insistence on the U.S. government on crippling personal control.

The reality is that bankers have a huge advantage with the fractional reserve. The are able to loan out 90% of everything they have on the books over and over. In that regard, the banker’s ability to make money would seem almost limitless, but that isn’t enough for them. Instead, they have developed creative banking instruments like CDOs, designed to catapult profits into the stratosphere. Bankers abused the mortgage marketplace for predatory and creative profit, selling off loan securities to investors. That was unsustainable and dangerous. Instead of doing what bankers do best, the boring hum-drum of bean counting with interest and closely judging and rating those they loan to, they have involved themselves in gross speculation. Unfounded speculation is the debacle and outlook that the world has been hesitant to stop because of the temporary glory of profit. We have become a nation, even a world of shiftless gamblers with an aversion to hard work of any kind.

Everyone is worried because, as Standard and Poor’s says, “lots of damage has been done”. This economist says that if we are willing to learn from mistakes without repeating them, something real and meaningful has been accomplished. Those bankers that have involved themselves intentionally in criminal activities will be taken care by federal authorities, but most banking institutions will seek to buy off the authorities while passing off blame to certain internal authorities as scapegoats.

Since Congress closed for vacation, the U.S. has been in a waiting frame-of-mind with little to do. Everyone is in limbo waiting for a handout instead of getting to the business of life building. There is nobody to petition or to manipulate, the favorite pastime of America. All is quiet on the western front. The war against inflation and the economic roller coaster ride isn’t over yet. We are just now breaching the top of a rather large decline. Have we learned that life is not just an intellectual pursuit?

~ E. Manning

July 3, 2008

Inflationary Fears Explode in EU

The European Central Bank is fearful of an inflationary explosion. Political pressure has been to ease credit pressures and lower interest rates. The central bank explains that if the bank is not “resolute”, inflation will explode. Jean-Claude Trichet believes that the economic situation can be mastered. Apparently, the central bank believes by exercising discipline, inflation can be tackled. What central banks around the world, including the Bank of England and the Fed, fail to realize is that printing money or issuing monetary credit to bankrupted banking institutions or for politically expedient funding is driving up inflation.

In the past thirty years, central bankers have conveniently refused to acknowledge the cost of food and energy into their economic calculations for inflation. Recently, the high cost of these commodities have forced them to admit rising and uncontrolled inflation as well as revising their mathematical formulas.

Apparently, the global economic community wants to believe that high oil prices are driving inflation up. While market speculation looks like the cause for rising energy costs, what is really going on behind the scenes? Is it possible that runaway inflation is driving oil prices up? That is food for thought.

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