2 Trillion Dollar Bill Coming Due

[Nbadan]

The Housing bust, a looming credit crunch and years of unofficial dollar hyper-inflation could lead to a serious recession in 08, if not outright depression, or more optimistically, several years of sluggish growth that could amount to a $2 trillion dollar hit on the economy....

The Economy's $2 Trillion Worry


The subprime spread continues: A Goldman Sachs report says the overall impact of mortgage losses on economic activity could be huge

Just a few months ago, analysts believed the collapse of subprime mortgage securities and related investments would lead to losses of $50 billion to $100 billion, a large but manageable number. Now, a new report from Goldman Sachs (GS) says losses from subprime exposure could be much larger than recently assumed, hitting as much as $400 billion. But that's not the extent of the financial carnage: Goldman said the full impact on the economy could be even more substantial, because the losses could compel banks and other lenders to curtail lending by as much as $2 trillion.

If banks trim their lending by that amount, consumers and businesses won't be able to borrow the money they need to maintain strong economic expansion. "This is a large shock. It corresponds to 7% of the total debt owed by U.S. nonfinancial sectors," wrote Goldman Senior Economist Jan Hatzius, the author of the report. "The drag on economic activity could be substantial."

Doing the Math

How does a $400 billion loss in the credit markets translate into $2 trillion of economic damage? The answer is debt, or leverage. Banks, hedge funds, and private equity firms often borrow $10 or more for each $1 of equity they use in a transaction, according to estimates by the New York Federal Reserve. When the investments pan out, the use of debt boosts their return. When the investments go south, the use of debt exacerbates the loss and often leads lenders to be more conservative in the future.

Citing a recent analysis by Tobias Adrian of the New York Fed and Hyun Song Shin of Princeton University in the Goldman report, Hatzius estimated about half the $400 billion in losses will fall on the shoulders of highly leveraged investors such as banks, hedge funds, and brokers. He said they typically cut back on lending when the value of their assets falls, to maintain their targeted ratios of capital to loans. If those lenders take half of the $400 billion hit, they will have to reduce lending at a rate of $10 for every $1 of loss, which would add up to $2 trillion.
Mounting Losses

The subprime crisis already has hit investment banks hard. Merrill Lynch (MER) reported a loss of $8.4 billion (BusinessWeek.com, 11/15/07), and analysts think more could be on the way. Citigroup (C) reported a loss of $6.5 billion in the third quarter, and says it could lose as much as $11 billion more in the fourth (BusinessWeek.com, 11/13/07). If banks cut back on lending, the damage could spread to other parts of the economy. The default rate on corporate debt (BusinessWeek.com, 10/26/07) could rise if corporations can't borrow more money to roll over their debt.

Other market experts agree that mounting losses in the credit markets could compel banks to roll back lending. "The real issue is how much of the losses in the credit markets are leveraged and what that means to banks, which might have to reduce lending to keep their capital ratios," says Martin Senn, chief investment officer of Zurich Financial Services (ZURN), which manages about $200 billion in assets. "If banks are forced to cut back on lending…, that could become a serious stress on the U.S. economy. I see the risk of recession in the U.S. definitely rising."

For the moment, Zurich Financial Services is still forecasting the U.S. economy will grow in 2008, albeit at a much slower rate, about 2%. That's about half the pace of the third quarter.

Damaging Time Frame

The extent of the damage will depend on a variety of factors, such as the speed with which the projected $400 billion in losses are realized. If the losses are realized in one year, the shock could trigger "a substantial recession," according to Hatzius. If they occur over a period of two to four years, the result could be "very sluggish growth." It's possible the damage could be offset by unexpected strength in other parts of the economy, or by government intervention.

But it's also possible the economic effects of the credit crunch could be compounded by other problems. "Oil prices are a huge risk. If it stays at $100 a barrel, the economy is in pretty bad shape," says Joe LaVorgna, chief U.S. economist at Deutsche Bank (DB). He still thinks the economy can avoid recession. But credit-driven fears "are in the market." He adds that high oil prices (BusinessWeek.com, 11/14/07) could shave an additional 1.5 percentage points of growth from the economy.

Not so long ago, some analysts were quick to write off the problems in the credit market as a case of the summer doldrums. They hoped the markets would come back to life after Labor Day, and when the Fed cut interest rates in September, it seemed they might be right. However, the hope for a quick fix has faded like memories of the beach.

Rosenbush is a senior writer for BusinessWeek.com in New York.

[Nbadan]

The Panic of 2008...

Forecast: U.S. dollar could plunge 90 pct
Published: Nov. 19, 2007 at 2:16 PM


RHINEBECK, N.Y., Nov. 19 (UPI) -- A financial crisis will likely send the U.S. dollar into a free fall of as much as 90 percent and gold soaring to $2,000 an ounce, a trends researcher said.

"We are going to see economic times the likes of which no living person has seen," Trends Research Institute Director Gerald Celente said, forecasting a "Panic of 2008."

"The bigger they are, the harder they'll fall," he said in an interview with New York's Hudson Valley Business Journal.

Celente -- who forecast the subprime mortgage financial crisis and the dollar's decline a year ago and gold's current rise in May -- told the newspaper the subprime mortgage meltdown was just the first "small, high-risk segment of the market" to collapse.

Derivative dealers, hedge funds, buyout firms and other market players will also unravel, he said.

Massive corporate losses, such as those recently posted by Citigroup Inc. and General Motors Corp., will also be fairly common "for some time to come," he said.

He said he would not "be surprised if giants tumble to their deaths," Celente said.

The Panic of 2008 will lead to a lower U.S. standard of living, he said.

A result will be a drop in holiday spending a year from now, followed by a permanent end of the "retail holiday frenzy" that has driven the U.S. economy since the 1940s, he said.

UPI (http://www.upi.com/NewsTrack/Business/2007/11/19/forecast_us_dollar_could_plunge_90_pct/4876)

[Nbadan]

I wonder if Dubai will force Citibank to pay outrageous late fees if they are late on a interest payment?


Yesterday, Don Kohn, number two man at the Fed, told the world that America's central bank would be "flexible and pragmatic."...People knew what that meant. The Fed is prepared to cut rates next month. So encouraged by this were investors that they set about buying every stock in sight. The Dow rose 331 points. That brings the total to 546 points gained in the last two days. Not bad...
But let us look at what is happening. The Fed funds rate is 4.5%. Investors now imagine that a 50 basis point cut is coming. That will take the signal rate down to 4%. But in this instance, the Fed will not be leading…it will be following. The 10-year note already yields less than 4%. Bonds have been falling since June. They are just another of the many signs of deflation - of a draining away of credit, cash - liquidity - from the markets.

In other words, now the Fed is no longer driving inflation

…it is trailing along behind deflation, trying to keep up with it.

We indented that last sentence, because we didn't want you to miss it; we are so proud of it. Remember it. Quote it to your friends. To put it another way…the Fed is no longer pulling on the string…it is pushing on it. In offering money at 4% (just a hypothesis) it will only be catching up to what investors have already been doing.

Now, it's private lenders who are doing the pulling. They're reluctant to lend into the open market; because they fear they won't get their money back. But they're happy to lend to the U.S. government. Spreads are widening - always a sign of a tightening credit market....For example, Citibank got itself into subprime trouble and needs big money, fast. So, it turned to Abu Dhabi. But the Arabs wanted a lot more than the T-note rate. They wanted a pound of flesh - forcing one of America's leading financial institutions to pay a rate normally associated with third world hellholes and first world shysters - 11%....

Houses are selling at their slowest rate in eight years, Bloomberg reports. In California, sales are down 40% from a year ago.

And here's more from Bloomberg:

"The worst U.S. housing recession in 16 years will drive down property values by $1.2 trillion next year and slash tax revenue by more than $6.6 billion, according to a report by the U.S. Conference of Mayors… 'The real estate crisis of 2007 and 2008 will go down in the record books… The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods - and it's not over yet.'"

No, it's not over yet. In some ways, it has barely begun…because the knee-bone of consumer spending is still connected to the thigh-bone of house prices, which is still connected to the hip-bone of mortgage credit. And if one of these bones breaks, the economy stops walking forward and falls on its face.

That is what we think is happening.

There's a greater than 50% probability that the financial system "will come to a grinding halt because of losses from mortgages said Gregory Peters, Head of Credit Strategy at Morgan Stanley (NYSE:MS)....Well…yes…the ankle bone is connected to the shin bone. That's the way it works. You can't take $1.2 trillion out of the consumer economy, without consumers feeling it...And now the Fed is rushing to try to put the money back in. Alas, it is not that easy. Japan's central bank tried it for 17 years.

And America is in a much tighter spot than Japan. With a very positive trade balance, and abundant savings, the Japanese had room to maneuver. Not so the United States. Investors have already shown what they could do to the dollar. Let the Fed cut rates more and there could be a bloodbath in the currency markets…forcing spreads even wider, and pushing the U.S. economy into an even deeper crisis.

The Day of Reckoning (http://www.dailyreckoning.com/)

[Nbadan]

Crashing Citigroup
By PAM MARTENS


The saga of how the top minds in Washington and on Wall Street have dealt with the deepening financial crisis in the U.S. would make a great Hollywood screenplay, except for this: it's absurdly unbelievable.

Storyline: The largest bank in the United States (by assets), Citigroup, is discovered to have stashed away over $80 Billion of Byzantine securities off its balance sheet in secretive Cayman Islands vehicles with an impenetrable curtain around them. Citigroup calls this black hole a Structured Investment Vehicle or SIV. Wall Street insiders call it a "sieve" that is linked to the breakdown in trading of debt instruments around the globe and the erosion of wealth in assets as diverse as stock prices to home values. Additionally, tens of billions of dollars in short term commercial paper backed by these and similar Alice in Wonderland assets are sitting in Mom and Pop money market funds at the largest financial institutions in America, with a AAA rating from our renown credit rating agencies.

Setting: Picture the Titanic shortly after it crashed into the iceberg. Imagine that its officers want to pretend to all its passengers and crew and investors that there is no serious damage because the giant floating Citi did not really hit an iceberg; it just hit a wall of worry. It will be able to right itself in no time at all as long as everyone remains calm. Even though the lavishly appointed ship is dangerously listing (stock price fading daily) it says it can stay afloat by an ingenious bailout plan. Everyone just needs to walk calmly to the dining room, collect a tea cup, and pitch in with the bailout.

This is effectively what the U.S. Treasury has anointed as a game plan: Citigroup, the gargantuan and troubled bank, will be bailed out by virtue of all of its smaller competitors chipping in some money to a SuperSIV, a kind of Big Daddy Black Hole whose details are apparently too scary to release to the public. These are the very same competitors who lost market share to Citigroup because Federal regulators allowed it to grow fat and sassy by playing dirty, including collecting massive fees for hiding debt for bankrupt Enron, WorldCom and Italian dairy giant, Parmalat.

Flash Forward: The Federal regulators are busy attempting to restore confidence on the slippery deck of the listing craft. The U.S. Mint has just released a bronze coin celebrating the newly elected (albeit reluctant) Chairman of Citigroup, Robert Rubin, for his days as U.S. Treasury Secretary. [2] No mention on the flip side of the coin that Rubin was one of the cheerleaders who helped win the repeal of the depression era, investor protection legislation called the Glass-Steagall Act. Without that repeal, Citigroup would not exist; nor would its current threat to the financial infrastructure of our country. No mention, either, that Rubin went from government service to Citigroup's board and has collected tens of millions in compensation for a job that did not involve a lot of sweat.

The small brass band on the deck of Citigroup has just been revved up to a big orchestra with Federal Reserve Board Chairman, Ben Bernanke, as Maestro. According to Bloomberg News, invitations have gone out to 16 financial institutions offering a personal, one-hour audience with Chairman Bernanke, ostensibly as the grand prize for chipping in to the SuperSIV bailout fund. (I'm visualizing a new commemorative bronze coin from the U.S. Mint that we can pass down to our children in lieu of a real currency with value. It would be inscribed: "The Shock and Awe of Crony-Capitalists: While We Were Looking for Foreign Threats in Mountainous Caves, Our Own Crony-Capitalists, In Broad Daylight and In Full View of Congress, Flew Our Largest Bank Into the World's Largest Economy and Crashed Both to Smithereens." )

Fade to Citigroup Set: Inside Citigroup, it's business as usual. The ousted CEO, Chuck Prince, who had to own up to approximately $17 billion in write downs and Cayman Islands' black holes, is receiving a bon voyage package that includes a performance bonus of $12.5 million, salary and stock holdings of $68 million, a $1.7 million pension, an office, car and driver for up to five years. And Citigroup, clueless as to what its own assets are really worth, is putting out research recommendations daily to investors, advising them what other companies are worth. On November 16, it said it particularly likes bank stocks (those entities with billions of dollars of Citigroup toxic waste in their money market funds).

Back to the Scene on the Titanic. We have thousands of opulently clad people pouring tea cups of opaque, muddy water from the giant craft when someone wants to know why the Captain isn't there helping out. (The original captain, Sandy Weill, left early in the voyage via a lifeboat loaded with lots of provisions, a rolodex of criminal defense lawyers, and approximately a billion dollars.) It turns out that the new bronze coin captain, Robert Rubin, is not on deck bailing water because he has better things to oversee. He's watching his dangerously listing ship load aboard a bunch of hapless, new passengers from a small ship that came alongside. That's right. Citigroup, barely able to keep its own head above water, pay its dividend, shore up its capital, and regain the confidence of shareholders, has joined with other investors to spend $6.3 Billion on a British water company, Kelda Group Plc. [3]

And while underwater Citigroup buys water, what, you might ask, is Congress doing about the millions of struggling homeowners across America who were tricked into land-mind mortgages by predatory lenders like Citigroup's CitiFinancial and are facing imminent foreclosures on their homes. [4] [5] Congress is also fiddling rather than bringing strong legislative action against its biggest campaign contributors.

Like I said, it's just too preposterous for a movie; but it's the tragic new reality of Crony-Capitalist-Owned America.

Pam Martens worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire.

[Nbadan]

Excellent video on the economic state of union:

We Can't Make It Here Anymore (http://youtube.com/watch?v=jTW0y6kazWM)

Pssssssssssttttttttttt...................do something!

[Clandestino]

The sky is falling!!! ahhhhhh

[Extra Stout]

2008-10 probably will be a sharp recession. Of course Hillary will be blamed.

[Clandestino]

well, bush was blamed for the 02 recession that started under bill clinton.

[George Gervin's Afro]

2008-10 probably will be a sharp recession. Of course Hillary will be blamed.


Book it! Whenever the bill comes due you can bet your ass that the talk radio corwd will in int on every democrat they can..

[Extra Stout]

Book it! Whenever the bill comes due you can bet your ass that the talk radio corwd will in int on every democrat they can..
And since people vote their pocketbook, the Reps will take back Congress in 2010.

I don't know what happens past 2010. By then, the Euro will probably be worth $2 or more, and will be well on the way to supplanting the $ as the global reserve currency.

[George Gervin's Afro]

And since people vote their pocketbook, the Reps will take back Congress in 2010.

I don't know what happens past 2010. By then, the Euro will probably be worth $2 or more, and will be well on the way to supplanting the $ as the global reserve currency.



They then will FINALLY will get their Marriage Amendment..!!! Never gets old attacking homosexuals and their lifestyles!!!

[boutons_]

come on, people, where's your infinite trust and good will?

It's the "Free Market" working its magic, aka, the winners win big, the losers are destroyed. Good ol' economic/social Darwinism.

"Greed is good"

[George Gervin's Afro]

come on, people, where's your infinite trust and good will?

It's the "Free Market" working its magic, aka, the winners win big, the losers are destroyed. Good ol' economic/social Darwinism.

"Greed is good"


You are correct boutons. I should just trust the free market to cure everything.

[Spurminator]

What President will they put on the 2 trillion dollar bill? And how will they have room for all those zeroes?

[Extra Stout]

What President will they put on the 2 trillion dollar bill? And how will they have room for all those zeroes?
http://content.answers.com/main/content/wp/en/f/fb/WiemarRepublic_September_01_1923_50MillionMark.jpg

[Walter Craparita]

Book it! Whenever the bill comes due you can bet your ass that the talk radio corwd will in int on every democrat they can..

Give me a fucking break dude. You guys will blame Reps for every fucking thing that happens for the next 5000 years. Conservatives own you guys at Talk Radio so that is understandable. What will Hillary do to improve the economy? Raise taxes? Implement her socialist bullshit?

Conservatives know how to get rich or die trying.
http://www.officialpsds.com/images/psdthumbs/50-Cent-psd2985.png

[Extra Stout]

Give me a fucking break dude. You guys will blame Reps for every fucking thing that happens for the next 5000 years.

Conservatives know how to get rich or die trying.
When Republicans blame Democrats and vice versa, it reminds of that commerical where the Coca-Cola Zero guys want to sue Coca-Cola for "taste infringement."

[George Gervin's Afro]

Give me a fucking break dude. You guys will blame Reps for every fucking thing that happens for the next 5000 years. Conservatives own you guys at Talk Radio so that is understandable. What will Hillary do to improve the economy? Raise taxes? Implement her socialist bullshit?

Conservatives know how to get rich or die trying.
http://www.officialpsds.com/images/psdthumbs/50-Cent-psd2985.png


if someone's at fault they should bear the consequences. agree or not?when the bill comes due the administration that caused the problem won't get the balme but the resident dems will.. how hard is that to comprehend?

[Extra Stout]

if someone's at fault they should bear the consequences. agree or not?when the bill comes due the administration that caused the problem won't get the balme but the resident dems will.. how hard is that to comprehend?
One thing the power brokers can count on, as they manipulate the economy to enrich themselves at everybody else's expense, is that a lot of people will blame one political party or the other for their hardships, when in reality the same power brokers control both parties.

This is useful, because a Democratic voter will figure that if enough Democrats get voted into office, his hardships will be allayed. The Republican voter will think along those same lines.

[George Gervin's Afro]

One thing the power brokers can count on, as they manipulate the economy to enrich themselves at everybody else's expense, is that a lot of people will blame one political party or the other for their hardships, when in reality the same power brokers control both parties.

This is useful, because a Democratic voter will figure that if enough Democrats get voted into office, his hardships will be allayed. The Republican voter will think along those same lines.


The elite enrich themsleves regardless of party affiliation.. I can agree with that.

[xrayzebra]

come on, people, where's your infinite trust and good will?

It's the "Free Market" working its magic, aka, the winners win big, the losers are destroyed. Good ol' economic/social Darwinism.

"Greed is good"

For goodness sake don't lay the blame where it belongs.
On the steps of the ever loving liberal Congress who
pressured the lenders into loaning this money to
poor risk.

They haven't in many cases lost anything anyhow. Many
got into homes with nothing down and low closing cost
and negative principle type loans. Not only that they
have to pay rent, ie, payments, for a roof over their
head to begin with. So spare me the tears of agony for
these poor souls. They got their chance and could not
afford the freight. Life is not fair, and anyone who thinks
it is or should be, I have a bridge I will sell you with
very low payments.

[George Gervin's Afro]

For goodness sake don't lay the blame where it belongs.
On the steps of the ever loving liberal Congress who
pressured the lenders into loaning this money to
poor risk.

They haven't in many cases lost anything anyhow. Many
got into homes with nothing down and low closing cost
and negative principle type loans. Not only that they
have to pay rent, ie, payments, for a roof over their
head to begin with. So spare me the tears of agony for
these poor souls. They got their chance and could not
afford the freight. Life is not fair, and anyone who thinks
it is or should be, I have a bridge I will sell you with
very low payments.


liberal congress? all of this happened since last year?

[boutons_]

Impending Destruction of the US Economy

By Paul Craig Roberts

11/28/07 "ICH" -- --- Hubris and arrogance are too ensconced in Washington for policymakers to be aware of the economic policy trap in which they have placed the US economy. If the subprime mortgage meltdown is half as bad as predicted, low US interest rates will be required in order to contain the crisis. But if the dollar’s plight is half as bad as predicted, high US interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.

Which will Washington sacrifice, the domestic financial system and over-extended homeowners or its ability to finance deficits?

The answer seems obvious. Everything will be sacrificed in order to protect Washington’s ability to borrow abroad. Without the ability to borrow abroad, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces.

A few years ago the euro was worth 85 cents. Today it is worth $1.48. This is an enormous decline in the exchange value of the US dollar. Foreigners who finance the US budget and trade deficits have experienced a huge drop in the value of their dollar holdings. The interest rate on US Treasury bonds does not come close to compensating foreigners for the decline in the value of the dollar against other traded currencies. Investment returns from real estate and equities do not offset the losses from the decline in the dollar’s value.

China holds over one trillion dollars, and Japan almost one trillion, in dollar-denominated assets. Other countries have lesser but still substantial amounts. As the US dollar is the reserve currency, the entire world’s investment portfolio is over-weighted in dollars.

No country wants to hold a depreciating asset, and no country wants to acquire more depreciating assets. In order to reassure itself, Wall Street claims that foreign countries are locked into accumulating dollars in order to protect the value of their existing dollar holdings. But this is utter nonsense. The US dollar has lost 60% of its value during the current administration. Obviously, countries are not locked into accumulating dollars.

The reason the dollar has not completely collapsed is that there is no clear alternative as reserve currency. The euro is a currency without a country. It is the monetary unit of the European Union, but the countries of Europe have not surrendered their sovereignty to the EU. Moreover, the UK, a member of the EU, retains the British pound. The fact that a currency as politically exposed as the euro can rise in value so rapidly against the US dollar is powerful evidence of the weakness of the US dollar.

Japan and China have willingly accumulated dollars as the counterpart of their penetration and capture of US domestic markets. Japan and China have viewed the productive capacity and wealth created in their domestic economies by the success of their exports as compensation for the decline in the value of their dollar holdings. However, both countries have seen the writing on the wall, ignored by Washington and American economists: By offshoring production for US markets, the US has no prospect of closing its trade deficit. The offshored production of US firms counts as imports when it returns to the US to be marketed. The more US production moves abroad, the less there is to export and the higher imports rise.

Japan and China, indeed, the entire world, realize that they cannot continue forever to give Americans real goods and services in exchange for depreciating paper dollars. China is endeavoring to turn its development inward and to rely on its potentially huge domestic market. Japan is pinning hopes on participating in Asia’s economic development.

The dollar’s decline has resulted from foreigners accumulating new dollars at a lower rate. They still accumulate dollars, but fewer. As new dollars are still being produced at high rates, their value has dropped.

If foreigners were to stop accumulating new dollars, the dollar’s value would plummet. If foreigners were to reduce their existing holdings of dollars, superpower America would instantly disappear.

Foreigners have continued to accumulate dollars in the expectation that sooner or later Washington would address its trade and budget deficits. However, now these deficits seem to have passed the point of no return.

The sharp decline in the dollar has not closed the trade deficit by increasing exports and decreasing imports. Offshoring prevents the possibility of exports reducing the trade deficit, and Americans are now dependent on imports (including offshored production) for which there are no longer any domestically produced alternatives. The US trade deficit will close when foreigners cease to finance it.

The budget deficit cannot be closed by taxation without driving up unemployment and poverty. American median family incomes have experienced no real increase during the 21st century. Moreover, if the huge bonuses paid to CEOs for offshoring their corporations’ production and to Wall Street for marketing subprime derivatives are removed from the income figures, Americans have experienced a decline in real income. Some studies, such as the Economic Mobility Project, find long-term declines in the real median incomes of some US population groups and a decline in upward mobility.

The situation may be even more dire. Recent work by Susan Houseman concludes that US statistical data systems, which were set in place prior to the development of offshoring, are counting some foreign production as part of US productivity and GDP growth, thus overstating the actual performance of the US economy.

The falling dollar has pushed oil to $100 a barrel, which in turn will drive up other prices. The falling dollar means that the imports and offshored production on which Americans are dependent will rise in price. This is not a formula to produce a rise in US real incomes.

In the 21st century, the US economy has been driven by consumers going deeper in debt. Consumption fueled by increases in indebtedness received its greatest boost from Fed chairman Alan Greenspan’s low interest rate policy. Greenspan covered up the adverse effects of offshoring on the US economy by engineering a housing boom. The boom created employment in construction and financial firms and pushed up home prices, thus creating equity for consumers to spend to keep consumer demand growing.

This source of US economic growth is exhausted and imploding. The full consequences of the housing bust remain to be realized. American consumers lack discretionary income and can pay higher taxes only by reducing their consumption. The service industries, which have provided the only source of new jobs in the 21st century, are already experiencing falling demand. A tax increase would cause widespread distress.

As John Maynard Keynes and his followers made clear, a tax increase on a recessionary economy is a recipe for falling tax revenues as well as economic hardship.

Superpower America is a ship of fools in denial of their plight. While offshoring kills American economic prospects, “free market economists” sing its praises. While war imposes enormous costs on a bankrupt country, neoconservatives call for more war, and Republicans and Democrats appropriate war funds which can only be obtained by borrowing abroad.

By focusing America on war in the Middle East, the purpose of which is to guarantee Israel’s territorial expansion, the executive and legislative branches, along with the media, have let slip the last opportunities the US had to put its financial house in order. We have arrived at the point where it is no longer bold to say that nothing now can be done. Unless the rest of the world decides to underwrite our economic rescue, the chips will fall where they may.

End

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan administration. He is credited with curing stagflation and eliminating “Phillips curve” trade-offs between employment and inflation, an achievement now on the verge of being lost by the worst economic mismanagement in US history.

http://www.informationclearinghouse.info/article18787.htm#

=================

Dammit, I wish these commie/pinko/hippy doom-peddlars would shut the fuck up so we can just con-job our way past the graveyard.

Will the Masters of the Universe who created this mess have the mastery to fix it? I'm sure they don't give a fuck, because they've made their $Bs and are fully insulated from any financial hardship of the general economy, like the insulation of $38B in 2007-year-end bonuses to financial institutions, even as those financial institutions stocks' lost $70B+ in value.

[xrayzebra]

Impending Destruction of the US Economy

By Paul Craig Roberts

11/28/07 "ICH" -- --- Hubris and arrogance are too ensconced in Washington for policymakers to be aware of the economic policy trap in which they have placed the US economy. If the subprime mortgage meltdown is half as bad as predicted, low US interest rates will be required in order to contain the crisis. But if the dollar’s plight is half as bad as predicted, high US interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.

Which will Washington sacrifice, the domestic financial system and over-extended homeowners or its ability to finance deficits?

The answer seems obvious. Everything will be sacrificed in order to protect Washington’s ability to borrow abroad. Without the ability to borrow abroad, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces.

A few years ago the euro was worth 85 cents. Today it is worth $1.48. This is an enormous decline in the exchange value of the US dollar. Foreigners who finance the US budget and trade deficits have experienced a huge drop in the value of their dollar holdings. The interest rate on US Treasury bonds does not come close to compensating foreigners for the decline in the value of the dollar against other traded currencies. Investment returns from real estate and equities do not offset the losses from the decline in the dollar’s value.

China holds over one trillion dollars, and Japan almost one trillion, in dollar-denominated assets. Other countries have lesser but still substantial amounts. As the US dollar is the reserve currency, the entire world’s investment portfolio is over-weighted in dollars.

No country wants to hold a depreciating asset, and no country wants to acquire more depreciating assets. In order to reassure itself, Wall Street claims that foreign countries are locked into accumulating dollars in order to protect the value of their existing dollar holdings. But this is utter nonsense. The US dollar has lost 60% of its value during the current administration. Obviously, countries are not locked into accumulating dollars.

The reason the dollar has not completely collapsed is that there is no clear alternative as reserve currency. The euro is a currency without a country. It is the monetary unit of the European Union, but the countries of Europe have not surrendered their sovereignty to the EU. Moreover, the UK, a member of the EU, retains the British pound. The fact that a currency as politically exposed as the euro can rise in value so rapidly against the US dollar is powerful evidence of the weakness of the US dollar.

Japan and China have willingly accumulated dollars as the counterpart of their penetration and capture of US domestic markets. Japan and China have viewed the productive capacity and wealth created in their domestic economies by the success of their exports as compensation for the decline in the value of their dollar holdings. However, both countries have seen the writing on the wall, ignored by Washington and American economists: By offshoring production for US markets, the US has no prospect of closing its trade deficit. The offshored production of US firms counts as imports when it returns to the US to be marketed. The more US production moves abroad, the less there is to export and the higher imports rise.

Japan and China, indeed, the entire world, realize that they cannot continue forever to give Americans real goods and services in exchange for depreciating paper dollars. China is endeavoring to turn its development inward and to rely on its potentially huge domestic market. Japan is pinning hopes on participating in Asia’s economic development.

The dollar’s decline has resulted from foreigners accumulating new dollars at a lower rate. They still accumulate dollars, but fewer. As new dollars are still being produced at high rates, their value has dropped.

If foreigners were to stop accumulating new dollars, the dollar’s value would plummet. If foreigners were to reduce their existing holdings of dollars, superpower America would instantly disappear.

Foreigners have continued to accumulate dollars in the expectation that sooner or later Washington would address its trade and budget deficits. However, now these deficits seem to have passed the point of no return.

The sharp decline in the dollar has not closed the trade deficit by increasing exports and decreasing imports. Offshoring prevents the possibility of exports reducing the trade deficit, and Americans are now dependent on imports (including offshored production) for which there are no longer any domestically produced alternatives. The US trade deficit will close when foreigners cease to finance it.

The budget deficit cannot be closed by taxation without driving up unemployment and poverty. American median family incomes have experienced no real increase during the 21st century. Moreover, if the huge bonuses paid to CEOs for offshoring their corporations’ production and to Wall Street for marketing subprime derivatives are removed from the income figures, Americans have experienced a decline in real income. Some studies, such as the Economic Mobility Project, find long-term declines in the real median incomes of some US population groups and a decline in upward mobility.

The situation may be even more dire. Recent work by Susan Houseman concludes that US statistical data systems, which were set in place prior to the development of offshoring, are counting some foreign production as part of US productivity and GDP growth, thus overstating the actual performance of the US economy.

The falling dollar has pushed oil to $100 a barrel, which in turn will drive up other prices. The falling dollar means that the imports and offshored production on which Americans are dependent will rise in price. This is not a formula to produce a rise in US real incomes.

In the 21st century, the US economy has been driven by consumers going deeper in debt. Consumption fueled by increases in indebtedness received its greatest boost from Fed chairman Alan Greenspan’s low interest rate policy. Greenspan covered up the adverse effects of offshoring on the US economy by engineering a housing boom. The boom created employment in construction and financial firms and pushed up home prices, thus creating equity for consumers to spend to keep consumer demand growing.

This source of US economic growth is exhausted and imploding. The full consequences of the housing bust remain to be realized. American consumers lack discretionary income and can pay higher taxes only by reducing their consumption. The service industries, which have provided the only source of new jobs in the 21st century, are already experiencing falling demand. A tax increase would cause widespread distress.

As John Maynard Keynes and his followers made clear, a tax increase on a recessionary economy is a recipe for falling tax revenues as well as economic hardship.

Superpower America is a ship of fools in denial of their plight. While offshoring kills American economic prospects, “free market economists” sing its praises. While war imposes enormous costs on a bankrupt country, neoconservatives call for more war, and Republicans and Democrats appropriate war funds which can only be obtained by borrowing abroad.

By focusing America on war in the Middle East, the purpose of which is to guarantee Israel’s territorial expansion, the executive and legislative branches, along with the media, have let slip the last opportunities the US had to put its financial house in order. We have arrived at the point where it is no longer bold to say that nothing now can be done. Unless the rest of the world decides to underwrite our economic rescue, the chips will fall where they may.

End

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan administration. He is credited with curing stagflation and eliminating “Phillips curve” trade-offs between employment and inflation, an achievement now on the verge of being lost by the worst economic mismanagement in US history.

http://www.informationclearinghouse.info/article18787.htm#

=================

Dammit, I wish these commie/pinko/hippy doom-peddlars woudl shut the fuck up so we can just con-job our way past the graveyard.

Will the Masters of the Universe who created this mess have the mastery to fix it? I'm sure they don't give fuck, because they've made their $Bs and fully insulated from any financial hardship.


That a boy boutons, keep quoting all the doom sayers.
The sky is falling the sky is falling and it is all these
big monied people who caused it.

By the way, which big money company pays you
your paycheck every payday? You do work don't you
or are you one of the independent wealthy or a
professional student?

[scott]

They could always just employ what I always tell my Intro to Macroeconomics students... a fun little theory I developed in grad school that would always get a giggle in Monetary Policy classes.

The (insert my last name here) Theorem:


Given an unlimited credit supply, you should borrow infinitely to pay off old debts and fund new obligations with no need to ever generate income.

The unfortunate part is that while I and my classmates and professors would joke around about this, dimwitted Politicians apparently think it’s a real strategy.

[Wild Cobra]

http://content.answers.com/main/content/wp/en/f/fb/WiemarRepublic_September_01_1923_50MillionMark.jpg
Well, we should never see inflation like that. I have some too. Not as large, but older... And in near perfect shape! I only took out the damaged on to scan. Forget seeing the rest on my old German money.

Thing is, the 50,000,000 marks was not as much as it may seem. It was worth $20.00 in 1923. My 1910 1,000 mark bill was worth more in 1910 than the 1,000,000 Mark bill was worth in 1924! In 1919, it was worth $30.44, I didn't see an exchange table going back to 1910. They ended up printing so much money, I heard they had to take boxes of it to the store to buy anything before converting to the Reichmark in 1925. 1,000,000,000,000 marks = 1 Reichmark = 10 Deutchmarks.

Here's a scan of mine:

http://i181.photobucket.com/albums/x262/Wild_Cobra/Reichsbanknote1000front150dpi.jpg

http://i181.photobucket.com/albums/x262/Wild_Cobra/Reichsbanknote1000back150dpi.jpg

Here is a historical table, placing the prewar value of my 1000 mark bills at $238.21 each:

http://www.history.ucsb.edu/faculty/marcuse/images/bidwellmarkstodollars.jpg

[Nbadan]

The financial melt-down has already commenced, you just have to know where to look...here's a hint....

Florida Schools Struggle to Pay Teachers as Investments Frozen
By David Evans


Nov. 30 (Bloomberg) -- School districts, counties and cities across Florida are scrambling to raise cash after being denied access to their deposits in a $15 billion state-run investment fund.

Florida's State Board of Administration, manager of the Local Government Investment Pool, halted withdrawals yesterday at an emergency meeting after $12 billion was pulled out this month from participants. Governments from Orange County, home of Disney World, to Pompano Beach asked for their money back following disclosures that the fund held $1.5 billion of downgraded and defaulted debt.

``The unthinkable and the unimaginable have just happened here in Florida,'' said Hal Wilson, chief financial officer of the Jefferson County school district, which kept its entire $2.7 million of cash in the fund. ``What we just experienced here is a classic run-on-the bank meltdown.''

Thousands of school districts, towns and fire departments across the U.S. keep their cash in state- and county-run pools. These public accounts, modeled after private money-market funds, are supposed to invest in safe, liquid, short-term debt such as Treasuries and certificates of deposit from highly rated banks.

--
No Money

Just 30 miles (48 kilometers) east of the state capitol in Tallahassee, there was no money to pay the 220 teachers and other employees in Wilson's Jefferson County school district today. Wilson said he trusted the State Board of Administration's assurances that the money was safe even as other pool participants withdrew billions of dollars.

Bloomberg (http://www.bloomberg.com/apps/news?pid=20601103&sid=aHR5KklFq4X0&refer=us)

We can't have all these trust fund, with people retirement money, taking their money out of these speculative investment vehicles just because they are now worthless....now can we?

[Wild Cobra]

We can't have all these trust fund, with people retirement money, taking their money out of these speculative investment vehicles just because they are now worthless....now can we?
Goes to show the problems with investing in junk bonds... Retirements should never be placed in such vehicles. Any good financial manager will place such money in grade A bonds or better for the low yield investments. If any risks are to be taken for higher yield, it will be placed in the stock market, futures, etc.

Who ever managed this money should be shot! Please stop making it sound as if the world is ending over this. A very tiny percentage of our wealth is tied up in the housing market with the poor mortgages. Not enough to have any real impact. The impact we see is because of all the Lemmings following what the media says.

[Nbadan]

Retirements should never be placed in such vehicles. Any good financial manager will place such money in grade A bonds or better for the low yield investments. If any risks are to be taken for higher yield, it will be placed in the stock market, futures, etc.

These public accounts, modeled after private money market funds, are supposed to invest in safe, liquid, short-term debt such as U.S. Treasuries and certificates of deposit from highly rated banks.

The Florida pool, which was the largest of its kind in the United States at $27 billion before the recent spate of withdrawals, has invested $2 billion in SIVs and other subprime-tainted debt, state records show. Connecticut, Maine, Montana and King County, Washington, are among other governments holding similar investments, in smaller quantities. The Florida pool's $900 million of defaulted asset-backed commercial paper now amounts to almost 5 percent of its holdings.

[Nbadan]

A very tiny percentage of our wealth is tied up in the housing market with the poor mortgages.

The housing crisis is fueling a credit crunch and this in turn is fueling price deflation..record drop in home prices because of weak sales is just the beginning..so it's not just bad mortgages that we should be worried about...

[Wild Cobra]

The housing crisis is fueling a credit crunch and this in turn is fueling price deflation..record drop in home prices because of weak sales is just the beginning..so it's not just bad mortgages that we should be worried about...
OMG!

Get a grip...

The housing market bubble burst. Too many idiots continued to invest after the market was just on a run of buying, therefore causing a fictitious level of value. Housing is overpriced as an average, and that is a problem, but a minor one compared to what the media is doing.

Again, those listening to the media, making it out as a crisis, are lemmings!

Wake up...

This is a natural correction for a market that is over valued. Plain and simple.

[xrayzebra]

How old are you dan? Were you around for the 80's crash in
housing? It was much, much worst than what it is now. Many
people lost their houses in that episode.

Really, really, the sky is not falling. Nor is credit drying up.
Look at the real estate page in the paper today. Plenty of
deals out there.

[Nbadan]

How old are you dan? Were you around for the 80's crash in
housing? It was much, much worst than what it is now. Many
people lost their houses in that episode.

I don't see how you can compare a collapse that only affected most of TX, or at that time, Houston and Dallas-Metro, to one that affects the whole country..

[BradLohaus]

You know things are getting bad when boutons is quoting the Father of Reaganomics.

I like Paul Craig Roberts alot; his article explained why a falling dollar is a terrible thing. A strong dollar is necessary to maintain our current standard of living; about 800 billion of them were traded for imports this year alone, and then used by foreigners to buy US debt, stocks, real estate,11% of Citibank...allowing us to keep spending like crazy while going deeper into debt, as well as driving asset prices higher.

The rest of the world depends on a strong dollar as well; we buy tons of their goods and commodities, and the dollar represents 2/3 of global currency reserves. What happens in this country (and around the world) when that ratio falls to one half, or lower? So the problem is bigger than the subprime mortgages; even if we get through this crisis recession-free it still won't change the fundamental problem: ALL of our debt, public and private, is destroying the dollar. Like ES said, the day will come when the dollar isn't the world's reserve currency - and it will be foreign countries that make that decision:

"The first day the Chinese or the Japanese or the Saudis say, `we've bought enough of your paper,' then the debt — whatever level it is at that point — becomes unmanageable," said Collender.

National debt grows $1 million a minute
http://news.yahoo.com/s/ap/20071203/ap_on_go_ot/nation_in_debt_4

And the day that the debt becomes unmanageable is the day that the dollar is no longer the world's reserve currency. The same things that are happening to us happened to Britain last century. The used the reserve currency status of the pound to rack up debt on domestic spending and to sustain their empire, and the citizens had a blast trading their reserve currency for imports. Sound familiar?

The US economy crisis
http://www.dailyreckoning.co.uk/article/16102006.html

[boutons_]

I saw an argument that said imports are only 16% of total US economy, so inflation of that 16% due to low $ is not a catastrophe, and somewhat offset by increased US exports.

ok, found the article:

December 2, 2007
Economic View


The Dollar Is Falling, and That’s Good News

By TYLER COWEN

ANXIETY about the dollar continues to spread. The falling greenback is often seen as a sign of an impending recession or the fall of the United States from global leadership. A low dollar simply looks bad. We are, after all, used to judging ourselves against others comparing our salaries with the earnings of our peers, and our homes with those of our neighbors. We’re used to thinking it is a big advantage to stand at the top of a numerical list.

But when it comes to currencies, a higher value neither brings national success nor predicts future prosperity. The measure of a nation’s wealth is the goods and services it produces, not the relative standing of its currency. Take a look at 1985-88, when the dollar lost more ground than in the last few years. Those were good times, and the next decade was largely prosperous as well.

Today’s lower value for the dollar reflects the success of other regions. Europe has shown it can make the European Union and its unified currency work, and thus the euro has become stronger. The Canadian union appears increasingly stable, and that means a higher value for the Canadian dollar. Over all, these geopolitical developments are good for America even if the dollar becomes weaker in relative terms.

Many observers have an exaggerated sensitivity to the dollar’s fall because they spend more time in relatively expensive countries. A shopping trip to London will give an American tourist the feeling that all prices have doubled or even worse. A weekend vacation or conference in nearby Toronto or Montreal may no longer feel like a bargain.

But from a broader perspective, the value of the dollar hasn’t fallen quite as much as it might seem. Since President Bush started his second term in January 2001, to Nov. 20 of this year, the dollar has dropped 19.8 percent if we weight the dollar by how much America trades with individual countries. That is a noticeable decline, but it is hardly a radical economic event. There are still many bargains, travel and otherwise, in Asia and Latin America for people paying in dollars.

A falling dollar does mean price inflation in the United States. Just as it costs more for an American to buy a fancy meal in Paris, so do French wines and German cars have a higher markup when they are sold in New York. But imports are only 16 percent of the American economy, and most foreign suppliers have been reluctant to risk their position in the American market by raising prices a great deal. Furthermore many price increases from Europe come on luxury goods and thus they fall on wealthy American buyers, who can afford it most easily. Wal-Mart serves a more working-class clientele and it is stocked with goods from Asia, where currency values have remained weaker against the dollar.

Of course the lower value of the dollar also makes American exports more competitive. Much of Middle America is booming because of its ability to sell tractors, food stuffs and other products abroad at favorable prices. Even after a serious real estate decline, the American economy is continuing to expand, and this is largely because of the strength of our export sector, as encouraged by a low value for the dollar.

Another worry is that a falling dollar puts the United States at the mercy of China. Dr. Brad Setser, a currency analyst at RGE Monitor, estimates that the Chinese hold about $1.2 trillion in dollar-denominated assets. China is likely to slowly diversify into other currencies, but Chinese leaders have no interest in encouraging a run on the dollar or a fire sale of dollar-denominated assets. China is in a more vulnerable position than the United States, if only because China is a poorer country and has underdeveloped capital markets.

Still, it would be naïve to argue that a weak or falling dollar can never hurt the United States. Extreme volatility can increase general anxiety and discourage economic commitments. If the dollar went into a true free fall, it would damage the reputation of the United States as a desirable place for foreigners to invest. That would hurt; but on the other hand a low dollar would mean bargains for foreigners, thereby attracting investment and limiting the potential negative fallout from a dollar collapse.

SO far the Federal Reserve and the Bush administration have shown little concern over the falling dollar. This isn’t because of neglect or lack of interest; trillions of dollars worth of currency are traded every day, so policy makers have only a limited ability to push around long-term exchange rates, even if they wanted to do so.

When it comes to market prices, people can always find reason to be unhappy. In the eurozone, for example, it is a common complaint that the euro is too strong and therefore it is too difficult for Europeans to export goods and services.

In the case of the dollar, we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.

Tyler Cowen is a professor of economics at George Mason University.

[BradLohaus]

If the dollar went into a true free fall, it would damage the reputation of the United States as a desirable place for foreigners to invest.

Next sentence:


That would hurt; but on the other hand a low dollar would mean bargains for foreigners, thereby attracting investment and limiting the potential negative fallout from a dollar collapse.

So a fire sale of US assets will help ease the pain of a dollar collapse. That's reassuring.



The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.

I know I've benefited from paying $3.00 a gallon for gas. I'm guessing this guy's wife does his shopping.

[Nbadan]

Yep, funny how Tyler Cowen, a globalist who likes to disguise himself as a libertarian economist, completely avoids any chance of a squeezing credit crunch, and also, don't look for an increase in exports fueled by a lower dollar to save the day, we simply don't produce enough exportable goods in America anymore...


The contemporary US economy is a consumption economy based on virtual wealth: Increasing debts based on unrealized real estate assets, purchased by loaning printed money that has no real economic backing. The problem is aggravated since production capabilities, including technological know-how have migrated almost completely from the US to the Far East. Thus, 70% of the growth in the American economy has to do with the consumption of finished products, while in China the giant growth of 10% per annum is created by production which is soon transformed into exports.

Uncle Sam's Bankruptcy

The bottom line is that in recent years, the US has been transformed from a self sufficient autarkic economy, into an economy dependent on outside forces. In reality, the US is enormously bankrupt, with the largest debt in the world, reaching the mythic sum of nearly 10 trillion (10,000 billion) dollars! Just for comparison, the second largest external debt in the world, Britain's, stands at 7 trillion, while Israel has an external debt of 73 billion dollars.

At present, nobody has a real interest in stopping this runaway train. The current Chairman of the Federal Reserve, Ben Bernanke, who became known as "the Chopper" after he made it clear he would not allow the US economy to fall into a recession, and if necessary, would fly over America in a helicopter and scatter dollars to citizens in order to fuel the economy (a citation of the recently deceased economist Milton Friedman).

The countries absorbing the excess dollars also encourage the continuous printing of money in order to ensure their growth and the unrestrained consumption of their products by the Americans. Furthermore, the Chinese, for example, make the simple calculation that a lower valued dollar would lower the value of their vast reserves of dollars. Additionally, such a development could also harm Chinese exports, as foreign purchasing power would fall. Simply put, Americans would not have the money to buy another shirt made in China.

The Inevitable Rupture of the Printing Bubble

But economics has one fundamental rule above all others, namely "There is no such thing as a free lunch", and one day it will all end. It could possibly start with layoffs in some factory, such as General Electric, due to an uncontrolled factor, such as a faulty assembly line. The reduced income of the people fired would lower consumption, which would create a feeling of recession and slowdown. This would soon lower real estate prices, the force behind movement in the American economy; mortgages could not be covered and even the banks might collapse.

It could also be triggered an external factor. Thus, for example, a number of countries with large dollar reserves, including China (reserves to the tune of a trillion dollars), Russia and Iran, have recently announced that they intend to diversify their reserves of foreign currency, in other words, exchange their dollars for other currencies such as the Euro.

Actually, it is difficult to predict when and how the bubble will burst, and the question is not all that important. Everybody realizes that the path to an economic crisis has been paved and the process is not reversible. Already, American economists warn of the expected fall in the real estate market, and the dispute is whether it would be an emergency landing or a crash.

Furthermore, the migration of production from the US would prevent any way of rehabilitating its economy, as its strength is very dependent on the ability of industry to produce and export. Textiles, shoes, electric appliances, computers – are all no longer manufactured in the US. The automobile industry, the acme of the American economy, is currently in deep crisis and experiencing soaring losses. General Motors alone lost over 10 billion dollars in 2005. Moreover, even after the value of the dollar plunges, there is still a yawning gap between the Far East and the West when it comes to manufacturing costs and employee salaries.

Even the assumption that the devaluation of the dollar against currencies used to trade with the US would generate positive change and create a trade surplus for the US has proved false. Thus, for example, the dollar has devalued against the Euro in the last 4 years by over 40%! Yet the American debt continues to grow.

A Global Dark Wave

One day a child will call out that "the dollar is naked". The unavoidable result of the weakness of the American economy would be an economic tidal wave – the value of the dollar would plunge, causing a shakeup of unprecedented magnitude in the global economy. It should already be noted that already today the value of the dollar is 5% of its value at the beginning of the twentieth century.

This bleak prophecy is not only the realm of lonely doomsayers. The highly influential book, 'Empire of Debt', by Bill Bonner and Addison Wiggin believes that like any other empire in history, the end of the American empire will also arrive. The authors describe how the enormous trade deficit, burgeoning personal and governmental debts, the real estate bubble and enormous military expenditure will ultimately cause the economic crash of the United States. British economist Bruce Porthouse, is gloomier still, and warns that the collapse of the dollar and the consequent global economic crisis, would cause the collapse of Anglo-Saxon society, to the point of famine in the US, Canada, Australia, New-Zealand, and Britain.

What can be done? There are those who recommend exchanging the dollar for other currencies. Bonner and Wiggin advise the purchase of gold. This metal is the leading economic base and is distinct from a country's economy. It is therefore a safe haven when the world's economies are in trouble. This explains the constant rise by 100% in the value of gold since the beginning of the twenty-first century – from 300 dollars an ounce in 2000 to over 600 dollars an ounce today.

Link (http://www.omedia.org/Show_Article.asp?DynamicContentID=1972&MenuID=726&ThreadID=)

[boutons_]

"fire sale of US assets"

Nobody's forcing the US asset holders to sell, nor the buyers to buy, aka both are "free" to/not buy/sell. Are you now against, are you cherry-picking the results of "free market" when you don't like those results?

"avoids any chance of a squeezing credit crunch,"

the article is about exchange rates, not about absence of liquidity (nobody wants to lend to anybody now, no matter what the interest rate, because they aren't sure of being re-paid, aka, a liquidity "crisis"). The Fed lowering the interest rate and printing $Bs to ease the liquidity will of course have an depressing effect on the $ exchange rate, as always.

100s of $Bs flowing into the US as higher-valued currency holders buy into US assets "should" help the US liquidity crisis.

As the article says, the real measure of wealth is the ability to create wealth by making/having stuff in large quantities that people value and want to buy, in $ or non-$ currencies.

The US 's is still the largest, most productive economy and it ain't going to disappear, even if the bullshit under-regulated Masters of the Universe have been looting it with their bullshit financial shenanigans and Internet and housing bubbles.

Note that the none of the Masters of the Universe, nor their "free market" enabling politicians, will ever live under bridges, be foreclosed on, but they will lay off 10s of 1000s of workers/suckers in the lower 99% so they can keep pocketing their $Ms, eg, the $38B the US financial institutions are paying themselves this month in 2007 bonuses.

[BradLohaus]

"fire sale of US assets"

Nobody's forcing the US asset holders to sell, nor the buyers to buy, aka both are "free" to/not buy/sell. Are you now against, are you cherry-picking the results of "free market" when you don't like those results?

The Federal Reserve exists for the purpose of manipulating the money market; what's going on right now is the result of the artificially low interest rates of recent years. I'm not cherry picking the results of the free market because there is no free credit market.

And nobody's going to hold a gun to US asset holders heads, but just like Citibank's deal with the UAE group, many of them willl be in a tight position and will welcome buyouts, even at "bargain" prices - the end result of Greenspan and Bernanke's actions.


The US 's is still the largest, most productive economy and it ain't going to disappear, even if the bullshit under-regulated Masters of the Universe have been looting it with their bullshit financial shenanigans and Internet and housing bubbles.

That's true, but the dollar's reserve currency status will disappear. That means, in time, no more trade deficit, no more budget deficits, and no more negative savings rate for us. And since our current standard of living is completely dependent on those things, that means a lower standard of living for us when that happens, at least for a while.

[Extra Stout]

See: Argentina, 2001.

On the plus side, it only took them five years to pull out of that depression.

On the other hand, they're not the United States.

[boutons_]

"buyouts, even at "bargain" prices"

the $ prices asked by US asset holdered don't have to be lowered to "fire sale", since for foreign buyers, the prices have been lowered by the devalued dollar.

"reserve currency status will disappear."

replaced by ...?

[Clandestino]

a little basic economics.. when foreigners buy american goods they buy them in US DOLLARS... that means they have to sell their foreign currency for ours... after a while the demand for dollars goes us and so does the value of the dollar.

[Mavtek]

When Republicans blame Democrats and vice versa, it reminds of that commerical where the Coca-Cola Zero guys want to sue Coca-Cola for "taste infringement."

Dude you just wont the "most true statement of the thread" award.

[BradLohaus]

the $ prices asked by US asset holdered don't have to be lowered to "fire sale", since for foreign buyers, the prices have been lowered by the devalued dollar.

Right - a fire sale is usually a panic sale in which a company is facing bankruptcy, so they lower their prices to try to get some quick liquidity to stave off bankruptcy. If the dollar collapses then plenty of US companies will be facing bankruptcy, but they might be in a position to avoid it by accepting foreign investment to gain liquidity, but the dollars they will receive from foreigners will be drastically devalued, which is the equivalent of lower prices, and thus a fire sale.

But it just sounds alot better to say, as Tyler Cowen did, that a dollar collapse will mean bargains for foreigners and attract investment. I'm not saying he's lying; I'm sure he truly thinks that a dollar collapse wouldn't be a major crisis. I, and alot of people around the world, think he's dead wrong.


"reserve currency status will disappear."

replaced by ...?

I don't see how anybody could know for sure. But if you look at this chart of global currency reserves http://en.wikipedia.org/wiki/Reserve_currency the trend since Greenspan started cutting interest rates in 2001 is more Euros (<20% of global reserves in 2001 to 25% in 2006) and fewer dollars (70% to 65%). The difference between those two percentages will continue to shrink, as I'm sure it has done this year.

But I don't think the transition will be to the Euro alone. It will probably be some kind of basket of the major currencies of the world for at least a while; I've read calls for the IMF's Special Drawing Right to replace the dollar's role in international trade. Then it could be the Euro, but that would require the EU to become a military super power like we are today and Britain used to be. We may never see a single currency used as the major reserve currency of the entire world ever again. (And I won't even try to guess about how all of this will play out with OPEC; US military power, and the willingness to use it, is definitely a wild card in all of this.)

http://en.wikipedia.org/wiki/Special_Drawing_Rights

But there's an obvious catch: there aren't enough of the other currencies to fill in the hole that a lower role for the dollar would leave. I think gold will, for a while, make up the difference. In 1950 gold was 70% of international reserve assets. By 1970 it was down to 30%. After the end of Bretton Woods, it was down to 10% by 1980 and by 2000 it was 2%. I'm not sure exactly what it is today, but's certainly not much. Obviously it will never get close to 70% again, or even 30%. But after a dollar collapse its role as a reserve asset will be forced to grow. So if the world went to something like the SDR to play the major role in international trade, you would probably see gold included in the basket. As world trade picked back up it could be slowly removed without causing the currencies in the basket to appreciate.

Or a dollar collapse causes a severe global depression that leads to WW3 and we are all screwed. :lol

[BradLohaus]

a little basic economics.. when foreigners buy american goods they buy them in US DOLLARS... that means they have to sell their foreign currency for ours... after a while the demand for dollars goes us and so does the value of the dollar.


That would be true if our money supply was fixed; instead we have Helicopter Ben piloting the ship. :downspin:

[Nbadan]

when foreigners buy american goods they buy them in US DOLLARS.

So when you go shopping at Walmart do you buy your things with Yen?

[Clandestino]

So when you go shopping at Walmart do you buy your things with Yen?

just keep quoting bullshit articles you find in your hours and hours of searching. you have no thoughs of your own and no education to back up anything you...actually, i guess, you never really say anything. you just quote stories about the sky falling.

[Nbadan]

Actually, I probably write enough to fill a book every month, but like most things in life, my post are well over your head.....

[Clandestino]

Actually, I probably write enough to fill a book every month, but like most things in life, my post are well over your head.....

:lol

[Nbadan]

Slowing the bleeding....


WASHINGTON -Congressional aides say the Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said that President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.

Yahoo (http://news.yahoo.com/s/ap/20071205/ap_on_go_pr_wh/mortgage_crisis_6)

Where are Scott and all the free-marketeers when Govt. steps in to help the supposedly 'free market'?

[Clandestino]

i think it is bullshit.. foreclose on them for getting into a loan they knew they shouldn't be in.

[Nbadan]

Looks like crazy Jim Kramer isn't so bullish on the economy anymore

Hardball: Cramer says the economy is bad and DC won’t admit it (http://www.crooksandliars.com/2008/01/19/hardball-cramer-says-the-economy-is-bad-and-dc-wont-admit-it)