This last figure is a
very « politically correct » projection for 2050 by Goldman Sachs
which does not take into account the current peak oil
factor, and thus the end of the petrodollar and of
fiat money - this, subsequently will all have ended by 2030
at the latest, i.e. together with the end of the oil era. The
disclosure of American hedge funds practices which had been destroying
economies and jobs in the US and around the world, now the total meltdown
of the financial subprime banditism system resulting in
chain bankruptcies of major financial institutions of the
US, all these events will certainly lead to the rapid decoupling of other
economies from that of the USA. And eventually, future taking-over of US
assets by foreign wealth funds will provoke the faster decline of
the United States as an overall influential and leading economic
and military power. Some might be tempted to say, not
without a sigh of relief, « as a super terrorist state and a permanent
threat to world peace ».
Johannjs, September
2008 |
September 30, 2008 at
22:43:54The Beginning of the EndIf one were to believe the Bush Administration's theory on 911- that
19 Arab terrorists hijacked airliners with box cutters, flew them into the
buildings that symbolized the financial center of the world, and attacked
the bastion of freedom and democracy simply because they hate our freedoms
and way of life, one would be compelled to believe that the terrorist's
strategy - bringing down the financial might of the United States in one
fell swoop - succeeded brilliantly.
Could the terrorists have planned all of this in a spectacular strategy to engage the United States in a protracted war in both Afghanistan and Iraq? Then eventually bleed the USA dry of dollars, sending most of those greenbacks to the Middle East in the largest transfer of wealth in United States history, and propel the USA into a financial crisis reminiscent of the great depression of 1929? Again, we find Bush employing fear tactics to warn US citizens of an imminent collapse of the financial system if Wall Street does not get a government bailout. Another huge transfer of wealth ($700 billion) from ordinary US taxpayers to the Wall Street fat-cats and the well connected will take place. On the other hand, did Bush and his administration of upper-crust C-
students from Yale just screw things up so badly that the next president
will inherit a financial mess that is beyond
repair?
The reason Bush invaded Afghanistan, and then Iraq, in simplest
terms, is crude oil. In other words, this is Bush's national energy
policy - to invade and occupy two sovereign oil rich nations to consume
their crude oil reserves and their economies, and absorb them into the US
economy in terms of keeping the US dollar afloat as the world's reserve
currency. By attacking and invading these sovereign countries, Bush
was also sending a signal, to those who know of such things, that the US
economy is in serious trouble.
Bush used military force to insure that
Congress recently raised the debt limit to 9 trillion
dollars.
Is this Middle Eastern colonialism so important that it requires the
United States to deplete its currency reserves?
Nevertheless, Bush, being an upper-crust C-student from Yale,
apparently has no conception of even one simple economic theory, such as
the elementary theory of supply and demand. If he did have an
inkling of any comprehension of economics, it did not matter anyway, as
his cowboy style of diplomacy ruled the day. Since the United States
has lost a SIGNIFICANT portion of its manufacturing base, and most of its
citizens are sending their wealth overseas to oil-rich Arab nations, the
US did not earn enough to cover any portion of its import bill for oil and
Chinese clothing. Instead, the US became entirely dependent on
China to finance its massive deficits, thereby indicting Asian
countries in financing the invasion and occupation of Afghanistan and Iraq
by proxy. Of course, China has an economic interest in appeasing the
United States since the US is China's huge export market.
Nevertheless, one must look at the Chinese economy in more
detail. Since the state owns and regulates the banking system, and
has its fingers in the means of production, in terms of regulating its
huge population to be the most productive as possible, China is setting
the paradigm for other countries to follow in a truly global economic
world. While Bush was busy scheming pretexts to invade and occupy
oil rich Middle Eastern countries, China was refining its economic
strategy to dominate the global economy. China even tied its
currency to the US dollar, so the US could not profit from favorable
gains based on the repayment of interest on China's investment in US
treasuries. The United States, under Bush, is now looking more and
more like a socialist country [!], of course, if you are rich. In response
to the financial collapse of venerable Wall Street institutions, Bush has
begun the nationalization of private companies, such as AIG.
This is unheard of in modern times, and governments in Europe, for example, are beside themselves watching the once great nation of the United States privatizing profits, and socializing losses on Wall Street were the well-connected and super-rich are getting, for lack of a better term, government welfare. The Middle Class must suffer the indignities from the very leaders they elected into power, and, most amazingly, they are about to elect an individual whom will continue the same course in the near future. Note to European countries - prepare for a windfall of super-rich American immigrants seeking asylum into your countries. Please do not let them in or they will destroy your economy too. It is my guess that the United States, under the leadership of George
W. Bush, and the conservative Republicans, have began a series of
unfortunate events that will transfer not only billions of dollars to the
Middle East and Asian countries (China), but will also, by default,
transfer the world's financial center from New York to Europe
(Germany). This is the beginning of the end for the United States,
and let the world know that George W. Bush and his policies provoked this
financial crisis and directly resulted in the ruination of the US
economy. Will Rogers once said that the United States is the only
country in the world where one can drive to the poor house in an
automobile.
Note to Will Rogers - if you have the gas! We are all out in Georgia!
I hold several degress from the Pennsylvania State University and I
love to research what most people call conspiracies. For example, the JFK
assassination and 9-11, and vCJD (Mad Cow disease), to name a few. I have
come to realize that we in America do not live in a democracy, but a rule
by a small corrupt majority which happens to be filthy rich - the same
people who brought us the genocide of the Native Americans, slavery, and
endless perpetual wars as part of a national energy strategy for the
United States by the collusion of energy corporations and the US Military.
My primary goal is to help expose these people who start all of the wars,
become bloated with wealth, from the backs of the destitute poor soldiers,
and try to make the world a better place for humanity by helping cure the
sick, discovering new forms of energy, and to make warfare illegal on
planet Earth. The human species has now evolved enough to know better, and
we need leaders to show us the way, as we can have heaven here on Earth,
not some form of a deranged idea of heaven in some parts of outer space,
which extremists of all forms are dying to get into. |
A whole new worldIs global economic power shifting East, spelling the end of the Western model?Felicity Duncan
23 September 2008 12:16 Confidence in American economic management has slumped in the
wake of the subprime crisis and the collapse of Wall Street (see "Wall
Street" no longer exists). According to some Moneyweb market
commentators, this may spell the end of the economic dominance of the
United States, and its status as the world's premier investment
destination.
For decades, the US Treasury
Bill was the last word in safe haven assets. It was seen as virtually
risk free, and was implicitly backed by the strength and resilience of the
US economy. At the end of 2006, foreigners held 44% of publicly held
T-Bills; between them, Japan and China hold more than $1 trillion-worth of
US debt instruments.
But times, they are a-changing.
The financial instability the last few weeks have revealed have sent
shockwaves through global markets, and eroded investors' faith in the US
system.
"Foreigners are going to start realising that running to the comfort
of Uncle Sam in times of trouble isn't necessarily the right thing to be
doing - not least when the core problems that we are all facing actually
come from Uncle Sam's camp anyway," said
Investec Asset Management's Michael Power.
"I think [the use of T-bills as a safe-haven asset is] something we
are going to have to re-examine, and it's going to be difficult in the
short term, because there's no obvious successor to the T-bill as a place
of refuge. But I do think that, looking ahead, we are going to have to
come up with something else."
"Interestingly the Chinese are already starting to talk about the
idea of replacing the US dollar and the US Treasury bill with a basket
of currencies. They weren't specific in the China Daily, but
there's an indication already that people are starting to think in other
directions."
For Power, the recent series of disasters on Wall Street, and the
decision by the US government to spend over $1 trillion on remedying them,
is a worrying sign.
"I don't think the clean-up operation is going to be as simple as
just saying, 'OK, we are willing to go $700bn' (see Struggle
looms over bailout plan details). The mechanics of that whole process
are going to be very complicated."
"On top of that I don't think that many people have focused on what
all this ultimately is going to cost in terms of the credit
standing of the United States itself. Over the last couple of weeks
they have added potentially $1,2 to $1,5 trillion dollars worth of debt to
the national balance sheet, and I don't think that they can do that
without the yields on treasury bills starting to suffer, and the value of
the dollar, which we have already started to see turn around this week. I
think the rest of the world is going to be a lot more circumspect when
looking at the United States from now on."
Macquarie First South's chief investment officer Imtiaz
Ahmed agreed that the US is showing major signs of financial
instability.
"I've been a strong supporter of the US dollar for a long, long time,
but these latest developments in the last two weeks have certainly scared
me. Just say to yourself, a large part of the US is service-orientated; a
large part of that service denomination is banking and financial
services-driven. And what we've seen there, the weaknesses in their
financial system, must be a cause for concern. More importantly, we all
talked about the budget and trade deficits in the States for a long time,
and a further $700bn bail-out by the US Federal Reserve is just going to
drive the budget deficit even wider."
Ahmed pointed out that investors already seem to be seeking out
alternative safe havens.
"I think right now there is a real worry and risk of currency
debasement, what I mean by that is that most currencies right now are at
risk. You just don't know which is most at risk, whether it's going to be
the US dollar, the Swiss franc - you might have already heard rumblings
about UBS being in trouble as well - and whether it's going to be Europe
or the UK. You know that those economies are slowing very quickly."
"So investors right now are not spoilt for choice and in this
environment gold does best. And that's what we've seen in the last
few days. And even today we saw a sharp rally in the gold price. The gold
price for me has always been an excellent barometer of risk measure, and
that gold price right now is telling you that there is more trouble
coming."
With more trouble perhaps brewing on the horizons, and global
investors already nervous, it looks like tough times ahead for the world's
economic powerhouse, the USA. |
What the Fannie and Freddie Nationalization MeansSeptember 10, 2008 | From theTrumpet.com
The Fannie and Freddie takeover shows the banking crisis is getting worse. What are the implications? By Robert MorleyOn Friday, the federal government announced it was nationalizing the two giant mortgage
lenders Fannie Mae and Freddie Mac. Predictably, the markets responded as
if it was the end of the credit crisis. Hardly anything could be further
from the truth. We are just getting started.
The economy is in such a precarious position that even though the
bailout will be disastrous for taxpayers and the economy from a
longer-term perspective, the immediate consequences of letting the lenders
fail would most likely have been even worse. If Fannie and Freddie had
collapsed, America probably would have had economic Armageddon on Monday.
As Gerald P. O'Driscoll Jr. wrote in the New York
Post, "At the moment, they're too big to fail but also too costly to
keep."
America's economy has similarities to a drug addict. It desperately
needs cheap money. If you take the easy money away (let Fannie and Freddie
fail) the economy goes into cardiac arrest (or that is the fear). But give
the lenders another shot of money (from the U.S. Treasury), and maybe the
economy will keep functioning for a while longer. Inject enough money and
you can even induce a temporary high. The problem is, you constantly need
ever increasing amounts of dollars to remain in the "feel good" zone. And
all the while, other side effects, such as a devaluing dollar, rising
inflation, and deteriorating credit worthiness, drain the future economic
life of the nation.
Fannie and Freddie were huge sources of money for the economy. They
provided inexpensive loans and provided financing to many people who would
normally have been considered too risky for traditional lenders. This
increase in demand for homes-and the resulting increase in home prices
across America-helped create the biggest housing bubble in history.
Hundreds of thousands of jobs were created during the housing boom, and
homeowners were able to use their homes as a cash machine by borrowing
money against their rising value.
Now, because of the current banking crisis-which is the result of
risky lending, skyrocketing foreclosures, and plummeting home prices-the
major lenders have curtailed lending, or have gone bankrupt. Consequently,
Fannie and Freddie now fund around 75 percent of all mortgages issued in
the country. If Fannie and Freddie had failed, the complete mortgage
market would have gone into meltdown.
Unfortunately, the Fannie and Freddie takeover will do little to fix
the system. Nothing fundamental has changed. Housing prices keep falling,
unemployment has now increased to a five-year high, and foreclosures
continue to escalate. As long as the housing market deteriorates, bank
balance sheets will pay the price for years of risky lending practices.
Government officials have opted for what they considered the lesser of two
evils and traded hundreds of billions in bad Fannie and Freddie loans for
a functioning lending market.
The seizure also illustrates just how dependent America is on foreign
lenders.
These foreign investors (primarily the Chinese, Japanese and Middle
Eastern oil exporters) are the same ones that provide the hundreds of
billions of dollars the federal government needs to borrow each year to
function. The federal government had to keep its foreign creditors happy,
and as the Wall Street Journal points out, the Treasury Department
was receiving a flurry of calls from angry and worried Asian investors
just prior to its decision to nationalize the two lenders. America cannot
afford to have China and Japan angry.
For example: Last August, two Chinese government officials
highlighted how China could use its massive U.S. dollar holdings (which
include hundreds of billions in government treasuries) as a political
weapon to influence the United States. One Chinese cabinet-rank minister
went as far as saying that America's debt should be used as a "bargaining
chip" to influence trade talks. Another Chinese official warned that China
could set off a dollar crash if it so desired. Chinese state media
referred to the country's stockpile of U.S. dollars as its economic
"nuclear option," capable of destroying the dollar at will.
This angle of the risk of foreign capital flight has not been well
covered in the media. And part of the reason may be that the dollar has
rallied lately-rising approximately 10 percent since mid-July as measured
against the U.S. Dollar Index (a basket of currencies). However, the rise
of the dollar is not the reflection of newfound strength in the U.S.
economy; it more reflects the breakdown of confidence in other economies
and their currencies, such as the pound, the euro and others. The dollar
is still down about 40 percent from 2002.
The most likely result of the Fannie and Freddie seizure will be
temporary stability. Mortgage rates fell following the announcement, so
credit markets may temporarily loosen up.
But longer term, economic prospects have not changed. Five trillion
dollars' worth of suspect mortgages are now on the federal government's
books. This means that U.S. government debt will become suspect, and there
is an increased chance that U.S. bonds will be downgraded in the future to
reflect the increased likelihood of a reduced credit rating. The takeover
will also place more pressure on the dollar, at least over the longer
term.
|
Paulson's Bailout Money = Asia's Extortion MoneySeptember 30, 2008 | From theTrumpet.com
$700 billion is a lot of money. Where is it all going to come from, and what will be the price? By Robert MorleyBig numbers get thrown around like they are nothing these days-a $140
billion tax refund here, an $85 billion bailout there. America must be one
rich country. But America is not rich. It's broke!
U.S. Treasury Secretary Henry Paulson's $700 billion bailout plan may
have been killed by the House of Representatives, but you can be sure that
some form of similarly-sized gigantic rescue will most likely make it
through eventually. The U.S. government, however, was already expecting to
borrow over $430 billion to cover its normal operating
expenditures. Judging by the size of the problem, America could easily be
looking at a budget deficit of well over $1 trillion if it tries to prop
up the banking sector. As a percent of gross domestic product, America
hasn't spent that much money since World War II.
Such an outlay would put the United States well within banana
republic territory. And as America's leaders and banking experts claim,
the other alternative-doing nothing-would be the financial equivalent of
bombing us back to the Stone Age.
So which foreign investors are going to loan the U.S. government
hundreds of billions so it can purchase above-market-price
mortgages and other noxious "investments" to bail out big banks? Who would
be willing to brave the growing U.S. credit risk?
The American monetary black hole might be about to realize that its
orbiting countries are no longer enthusiastic about lending it money.
Already there are inklings of discontent from America's largest
supporters. According to Bloomberg, foreign creditors may be past their
limit on how much U.S. government debt they want to be exposed to. In
fact, there are rumblings of possible central bank treasury sales, as no
nation wants to be the one left holding the bag if America's economy
plunges and investments in its bonds and dollars become worthless.
International holders of U.S. treasuries must quickly reach an
agreement to prevent panic sales leading to a global financial collapse,
said Yu Yongding, a former Chinese central bank adviser.
"We are in the same boat; we must cooperate. If there's no selling in a
panicked way, then China willingly can continue to provide our financial
support by continuing to hold U.S. assets."
"China is very worried about the safety of its assets," says Yu. "If
you want China to keep calm, you must ensure China that its assets are
safe." According to Yu, high-level U.S.-Chinese communication every
"couple of days" is keeping Chinese leaders informed and helping to avoid
a potential panic.
But here is the most interesting statement of all from Yu: After
noting that China is helping the U.S. "in a very big way," he said that
China should get something additional in return for taking so much
extra risk!
If China is thinking that way, you can almost guarantee that
America's other creditors are thinking along the same lines.
So what is America giving in exchange for the hundreds of billions in
international loans? Concessions on Taiwan? Oil and other natural
resources? Freedom to purchase strategic U.S. corporations? Access to U.S.
military equipment and technology purchases? Political and national
compromises?
The consequences of America's indebtedness are about to give a new
perspective to the biblical proverb, "The borrower is servant to the
lender."
As both the Wall Street Journal and the Washington
Times point out, one of the primary reasons the government
stepped in and nationalized Fannie Mae and Freddie Mac was to protect the
foreign bond holders-the same bond holders who lend the hundreds of
billions of dollars the government needs each year to keep functioning.
America has become a servant to foreign creditors. And
servants don't tell others what to do. They get told what to
do.
|
Stephen
Flurry | Columnist
9/15 and the Next SuperpowerSeptember 26, 2008 | From theTrumpet.com
America's financial meltdown has awakened a beast in Europe.How SIGNIFICANT that the United States has inflicted itself
with a financial wound so grotesque and debilitating that it will NEVER
fully recover. "This is embarrassing for the United States of America,"
Treasury Secretary Henry Paulson said on Tuesday.
It's so much more than an embarrassment. It's a trumpet-blast
SIGNAL-to the U.S. and the rest of the world-that America's reign as the
global economic superpower is now over.
"The world will never be the same again," Berlin's finance minister
told the German parliament yesterday. Given the financial muscle now being
flexed in Europe and Asia, he said, "The U.S. will lose its status as the
superpower of the global financial system."
Germany's Foreign Minister Frank-Walter Steinmeier said earlier in
the week, "The sole remaining superpower has lost credibility."
These are not doomsday prophecies predicting a future failure
in the U.S. economy. It's already RUINED. The world knows it.
And how SIGNIFICANT that European banks have been largely
unaffected by the collapse of America's economy. Spiegel attributes their stability to "more conservative banking
practices" and applauds EU banks for having "steered clear of risky
subprime-style mortgage lending."
As Bundesbank President Axel Weber noted earlier this week, "The
German financial system is stable and its resistance to adverse shocks has
markedly improved in the past few years."
U.S. Treasury Secretary Henry Paulson has appealed to America's
"friends" in Europe for assistance in bailing out the U.S.-led global
financial system. "We are talking very aggressively with other countries
around the world," Paulson said on Sunday, "and encouraging them to do similar
things, and I believe a number of them will."
In fact, THEY will not. And here again, how SIGNIFICANT that European
states, particularly Germany, have resoundingly balked at America's plea
for help. "The world shouldn't have to bear the burden for America's
lapses," said Carsten Meier of the Kiel Institute for the World
Economy.
Joachim Poss, deputy parliamentary head of Germany's Social
Democratic Party, said, "The Americans can't make Germany accountable for
their failure and their arrogance."
"The U.S. is the origin and the clear focal point of the crisis,"
Germany's finance minister said in his parliamentary speech, adding that
its sickening impact will spread "worldwide like a poisonous oil spill."
Even German Chancellor Angela Merkel was uncharacteristically harsh
in her criticism of America, saying Washington should have legislated
tighter controls on the financial markets.
Similar sentiments were echoed in the European Parliament. "We should
not forget that first and foremost this is an American crisis," the head
of the International Monetary Fund said this week. "Therefore the job of
dealing with the crisis should be fulfilled first and foremost by the
United States."
It's more than unwillingness on the part of EU members to help
the ailing American economy to recover. In their disdainful rebuke of
America's reckless economic practices, some EU officials are practically
gloating over America's misfortune. "It's a rare day," the Los Angeles
Times wrote last week, when finance officials, leftist intellectuals
and ordinary salespeople can agree on something. But the economic meltdown
that wrought its wrath from Rome to Madrid to Berlin this week brought
Europeans together in a harsh chorus of condemnation of the excess and
disarray on Wall Street.
Yes, Europe is united in its self-righteous condemnation of the
American economic model. And yet, how SIGNIFICANT that among European
Union states, the United Kingdom is the one nation being lumped
together with the United States. That same Times article noted,
"Among the European economies, it is Britain's that most resembles
America's in its vulnerability." As National Public Radio reported last week, "In Britain, many analysts expect the credit
crunch to get worse. There are also fears that British companies unable to
raise credit might be forced to close."
But rather than sympathize with their fellow EU member, the Continent
sees the UK not as an innocent victim of a global crisis but rather as
part of the problem. In calling for strict regulations to be
imposed on financial markets, Chancellor Merkel made a point of singling
out Britain along with the United States in an interview with a Munich
newspaper. Merkel blames Washington and London for stonewalling Germany's
attempt to bring greater transparency to the global financial system early
in 2007.
The way Germany sees it, America is not the only problem-it's the
Anglo-Saxon economic system that needs to be scrapped.
|
Robert
Morley | Columnist
Does the EU Want America to Fall?September 30, 2008 | From theTrumpet.com
A giant rift in monetary policy has left the U.S. and the rest of the West deeply divided. Is the European Union setting itself up to replace the U.S.?America is on the ropes. Pummeled by the historic failure of its
financial center, its economy is on the verge of collapse. America is now
pleading with the world for assistance. But is there anyone to come to the
rescue?
U.S. Treasury Secretary Hank Paulson is clearly in panic mode. On
Friday, 119-year-old Washington Mutual, the largest U.S. savings and loan,
bit the dust and was taken over and sold off by the government. Then
yesterday it was announced that Citigroup would be "purchasing Wachovia,
the fourth-largest bank in America, to keep it from collapsing. To
facilitate the deal, the FDIC agreed to accept $12 billion worth of
Citigroup stock in exchange for insuring hundreds of billions in
near-worthless Wachovia-owned mortgages. These two failures join a list of
sensational tragedies that now include: Bear Stearns, Indy Mac Bancorp,
Lehman Brothers, Merrill Lynch, AIG, and Fannie Mae and Freddie Mac.
"It's all hands on deck," says Richard Yamarone, director of economic research at
Argus Research. "Any and every entity, Treasury, the Fed and all central
banks around the world are being summoned to right the potentially sinking
ship."
Thus Paulson, President Bush and Federal Reserve Bank Chairman Ben
Bernanke have pushed for what will be the biggest intervention in the
financial markets by a U.S. government since the Great Depression-a
multi-hundred-billion-dollar taxpayer check to purchase toxic mortgages
and cover speculative derivative exposures that are imploding U.S.
financial institutions.
Furthermore, Paulson has appealed to America's "friends" in Europe
for assistance in bailing out the U.S.-led global financial system. "We
are talking very aggressively with other countries around the world," he
said, "and encouraging them to do similar things, and I believe a number
of them will."
Unfortunately, Paulson is living in a dream world. Many of America's
European "friends," if not already openly revolting against the U.S.
financial system, certainly seem to be moving in that direction.
America's plan is "not a call for assistance; it's a scream for
help," writes Germany's Spiegel. "Some countries are
planning to help. But the German government has answered this call
quickly and clearly: no" (emphasis mine throughout). Chancellor Angela
Merkel slammed greedy American finance, criticizing the U.S.
administration for not listening to German calls for tighter regulation.
Finance Minister Peer Steinbrueck slammed America too, saying, "there will
be shifts in terms of the importance and status of New York and London as
the two main financial centers. State-owned banks and funds, as well as
commercial banks from Europe [and elsewhere], will close the gaps,
creating new centers of power in the financial world," and "the
International Monetary Fund should become the controlling authority for
the application of worldwide financial market standards."
Actually, German media from all across the political spectrum was
extremely heavy in its criticism of the U.S. For example, the conservative Frankfurter Allgemeine
Zeitung wrote:
Center-left Süddeutsche Zeitung wrote:
And the left-leaning Frankfurter Rundschau wrote:
But Europe's biggest economy is not the only one disdaining America.
Even UK Prime Minister Gordon Brown says America's financial markets should be
subordinated to a set of global rules and global regulators.
But French President Nicolas Sarkozy was perhaps the most critical.
He said that the U.S. economic system was dead.
And as a result, he said, it is "necessary to rebuild the entire global
financial and monetary system from the bottom up, the way it was done at
Bretton Woods after World War II."
That is a statement with huge implications, coming from
another of America's supposed allies. In July 1944, the Bretton Woods
agreement tied the Western democratic economies to America, established
the U.S. dollar as the world's reserve currency, and helped usher in
America's economic superpower status.
A rejection of Bretton Woods is a rejection of America!
"Sarkozy is building to make the crisis a wider struggle between
Europe and the U.S.," reports the Guardian.
The European Union is trying to set itself up as the
alternative to the now-defunct U.S.-centric economic system.
When the EU finance ministers met in the south of France on September
14, they publicly ruled out a U.S-style major stimulus package to ward off
recession. Jean-Claude Juncker, finance minister and chair of the
Eurogroup, said that U.S.-style interest rate slashing, spending
increasing, and tax cutting only saddled economies with debt and otherwise
had few positive effects.
Juncker wished America luck, saying Europe tried those methods back
in the 1970s, and it pretty much ruined their respective economies.
The European Central Bank (ECB) also seems to be setting itself up as
an alternative to the Federal Reserve System.
As the Fed has drastically whipsawed interest rates and injected
billions of dollars into the financial system to prop itself up, it has
done so at the expense of the dollar, rising inflation, and financial
system credibility. In contrast, the ECB has been much more conservative,
instead focusing on stability and protecting the reputation of the euro.
Whenever a central bank makes money too easily available, it undermines
the value of the currency and erodes confidence in the system.
But the point is that America and its European "allies" are on
drastically different economic courses. And the losses the world has
sustained because of the fraud-ridden financial investments that U.S.
banks marketed to the rest of the world as AAA-safe investments are
causing unparalleled resentment around the globe.
The current banking crisis in America has left America discredited
and distrusted. Europe is rapidly setting itself up as the alternative to
the U.S. system. And the euro, with all its own problems, has one big
thing going for it: It is not the dollar.
The world is about to be introduced to a new economic superpower.
With America in free fall, the world is about to shift its confidence
and its money elsewhere. Europe is about to inherit the global economic
crown by default.
|
Why China Won't Come to the RescueBy Bill Powell /
Shanghai
Friday, Sep. 19, 2008
The headquarters of
investment bank Morgan Stanley in midtown Manhattan
Mike Segar / reuters
If "once burned, twice shy" isn't an old Chinese proverb, it probably
should be. As Gao Xiqing, the chief investment officer of China's $200
billion sovereign wealth fund, meets in New York City this week with
Morgan Stanley CEO John Mack to discuss increasing the Chinese
government's stake in the venerable — and flailing — investment bank, he
bears an obvious burden.
Last December, the CIC (the China Investment
Corp.) invested $5 billion for a 9.9% stake in Morgan Stanley (for which
the bank must pay CIC a 9% annual dividend until 2010). On paper, that
investment is now down more than 25%. Worse, Beijing paid $3 billion for a
piece of the Blackstone Group just ahead of the private-equity firm's
initial public offering last June — an investment that occurred about a
nanosecond before the so-called subprime crisis began annihilating value
on Wall Street and beyond.
Fairly or not, the Blackstone stake has since
become the symbol in China of a naive bunch of foreigners getting hooped
by Wall Street sharpies. It's been the subject of withering public scorn
in China and has drawn pointed private criticism from the highest levels
of the Communist Party, banking sources in Beijing and Hong Kong have
said. The message: Never again. All of which makes CIC's critics in China
wonder why Gao, a soft-spoken graduate of Duke University's law school
(class of '86), bothered to get on the plane.
The answer, if the recent behavior of other sovereign wealth funds
and foreign private equity houses is any indication, may be to deliver, in
person, a simple message: No. Not again. Not unless you structure a deal
in such a way that we simply cannot lose. Otherwise, goodbye.
That, in
effect, is what Sameer Al Ansari, the CEO of Dubai International Capital,
told Wall Street earlier this summer. He had had discussions "with all the
people you'd expect" in the pantheon of U.S. finance regarding a possible
investment from his fund, he told TIME. Wisely, it turns out, he told all
of them no — and then set out on a tour of China to look at direct
investments in companies that produce something other than toxic
collateralized debt obligations. "There are a lot of other compelling
places to look for investments these days," he said.
The decision a couple of months ago not to invest looks pretty smart
today, and it's not clear, despite this week's carnage on Wall Street,
that anything has changed significantly. To the extent that sovereign
wealth funds are talking to desperate-for-capital bankers in the U.S. —
and, as Gao's trip shows, they are talking — the terms of the
discussions, one senior Hong Kong–based banker said today, are likely to
be very harsh for any potential recipient of capital: "You're basically
looking at structuring a deal at this point in which there is no downside
— none. Even if a company goes under, like Lehman, you're first in line to
get paid a return on your assets. Take it or leave it."
That's more or less the deal secured by Temasek, a sovereign wealth
fund in Singapore, when it invested in Merrill Lynch. It dumped $4.4
billion into Merrill last December at $48 per share, but a downside
protection clause meant the firm would make money even if the stock
plunged to $24. It did — and then some. By late last week, Merrill traded
at just over $17 a share, increasing the pressure on CEO John Thain to do
a deal. Over the weekend, he sold the firm to Bank of America in an
all-stock transaction worth about $29 per share for Merrill shareholders —
which means Temasek could walk away with about a 20% return should it sell
it shares. The Temasek deal last December, banking sources say, taught
everyone in the region a lesson: If you're talking to Wall Street, drive
as hard a bargain as you possibly can — or walk. They need you much more
than you need them.
Now, moreover, even if valuations in the U.S. financial sector get
more appealing should the market rout intensify, there's another factor in
play: governments in East Asia and the Gulf want their funds to help
domestic companies, not foreigners.
On Thursday, for example, Beijing's
CIC announced it would make investments in three of China's biggest
commercial banks — Industrial and Commercial Bank of China, Bank of China
and China Construction Bank — that themselves are getting hurt by an
economic slowdown and a real estate slump at home.
"This is a significant
policy initiative aimed at supporting China's leading financial
institutions at a time of global turmoil," says Jing Ulrich, chairman of
China securities at JPMorgan in Hong Kong. It's another way of saying to
CIC's Gao Xiqing, If you come home from New York having increased our
stake in Morgan Stanley, it had better be the sweetest deal anyone in
Beijing has ever seen. |
Twice shy sovereign funds eye home marketsReuters, Thursday September
25 2008
By Thomas Atkins
DUBAI, Sept 25 (Reuters) - Capital-hungry Western firms waiting for
the Gulf cavalry to come charging over the hill will be disappointed, as
sovereign wealth funds in the Middle East turn their attention, and
billions of dollars, closer to home.
Stocks in the Arab Gulf have plunged in recent weeks as fears of
fallout from the credit crisis spread. Tensions in the financial sector
have mounted, with the UAE central bank opening an emergency facility to
prevent lending from seizing up.
Even some of the biggest and sure-footed firms have seen shares hit
lifetime lows, such as DP World, the world's fourth-largest container port
operator, whose shares have fallen 43 percent so far this year despite
growing business.
As a result, leaders in the multi-trillion-dollar sovereign wealth
sector have rallied at home, saying they have unlimited funds to spend in
support of weak shares.
"We are not responsible for saving foreign banks ... We have social
and economic responsibilities towards our own country," said Bader
al-Saad, managing director of the Kuwait Investment Authority (KIA), this
week.
Saad speaks for a large part of the sovereign sector, which has seen
share prices in the Gulf plummet to 16-month lows in recent weeks despite
robust growth ensured by energy exports.
The KIA, one of the most outspoken funds, has said it has unlimited
money to invest at home where economic growth is booming, but it will be
highly selective in the United States and Europe, which are flirting with
recession.
LONG WAITAs Western growth shudders to a halt, economies in the
energy-exporting Gulf are roaring ahead on a five-fold increase in oil
prices since 2002. The credit crunch won't pass unnoticed but it's likely
to be more of a scratch than a head-on crash.
The combined size of Gulf Arab economies is set to surge by almost a
third to more than $1 trillion this year, surpassing India, with GDP
growth in each country seen between 5.7 percent 10.9 percent, economists
say.
Sophisticated Wall Street investment banks tripped up on complex
instruments but Gulf banks are, for the most part, too small and
undeveloped to get into similar trouble.
Professional investors, such as Frah Foustok, Chief Investment
Officer at ING Investment Management Middle East, predict that domestic
buying by sovereign funds will help drive big increases in stock prices in
the Middle East.
"They are now repatriating much of that wealth into the region," she
said.
The real estate sector is likely to need support as well, experts
say.
Property prices in Dubai, for example, have risen 79 percent so far
this year, with most experts predicting weakening as the global credit
crunch limits lending and overbuilding dampens price pressures.
But the landing is expected to be soft, in part because sovereign
funds are expected to prop up the sector.
"Real estate and tourism projects are the most vulnerable," said a
Gulf-based banker involved in project finance. "I expect sovereign funds
and central banks will need to buy a few more of these projects.
"But they are in a strong position to do so and I think if they
manage it well we should see a soft landing for the Gulf," he said.
The threat of new regulations has also dampened the zeal sovereign
funds once had for the West and turned their attentions toward home.
Before the credit crisis, Western nations were alarmed at the thought
of rich Gulf Arabs buying up swathes of industries with newfound riches,
saying they feared meddling by foreign governments.
The result was a deal brokered by the International Monetary Fund in
Santiago this month, where the biggest funds agreed to abide by 24
principles, which have yet to be published.
But if the rules go too far, they might dissuade sovereign funds from
expanding in developed economies at just the time when they might be
missed most.
(Editing by David Holmes) |
By The Nation
Published on October 2, 2008 Establishment of the Asian Monetary Fund could provide a regional financial security netLast month, while Lehman Brothers was filing for bankruptcy and
Merrill Lynch sought a merger with Bank of America, Supachai Panitchpakdi,
the secretary-general of the United Nations Conference on Trade and
Development, proposed that Asia move ahead to establish the Asian Monetary
Fund to mitigate the global financial crisis.
"Global emerging markets should work together to avert a global
crisis," Supachai told the Vietnam Economic Conference in Hanoi. "In the
short run, actions should be taken including injecting funds and keeping
interest rates from going up."
The Asian Monetary Fund, once established, would represent the
hallmark of regional financial cooperation that could reshape the global
financial architecture.
As the deputy prime minister between 1997 and 2001, Supachai has
fresh memories of the Asian financial crisis, which was sparked off after
the baht's devaluation.
One of the main problems then was the lack of a global lender of last
resort. When Thailand faced a balance of payments crisis and lost almost
all of its foreign-exchange reserves from the baht attack in 1997, it
could not find any institution willing to provide credit to shore up its
reserves.
The International Monetary Fund was not acting as lender of last
resort, nor did the G-7 pay any attention to the Thai and Asian crises.
In Hong Kong in 1997, on the sidelines of the World Bank/IMF annual
meeting, Japan pushed for the setting up of the Asian Monetary Fund as an
institution to help prevent a future financial crisis. It was afraid of
the contagious effect of the financial meltdown. Once the crisis hit one
country, it could spread, like flu, to others. With its huge investment in
Asia, Japan was concerned that a regional financial crisis could hurt its
plants and investment.
But the United States shot down this Asian Monetary Fund proposal,
fearing that it could rival the IMF, over which it has influence. Thanong
Bidaya, the then finance minister, sought help from Alan Greenspan, the
chairman of the Federal Reserve, and Robert Rubin, the US Treasury
secretary. They told Thanong to work with the IMF programme.
Eventually, Asian governments came to Thailand's rescue, with the
participation of the IMF and the World Bank. The US was only pulling the
strings behind the IMF, without providing any financial assistance to
Thailand. Eventually, the US$17.2-billion (now Bt584 billion) rescue
package was wrapped up quickly. Thailand had to go through the painful IMF
programme, which required it to close down insolvent financial
institutions, keep interest rates high to defend the baht, protect
creditors' rights, employ international banking standards and open up the
financial markets for further foreign participation.
Indonesia and South Korea followed Thailand by asking for the bitter
bail-out pill from the IMF.
In the US, with financial institutions running out of liquidity and
facing insolvency, the Federal Reserve is now acting as a lender of last
resort by handing out dollars to keep them afloat. It has also gone so far
as to act as a safety net by bailing out the whole financial system. The
US financial institutions are going broke, but the Fed still has the
resources to bail them out.
But at the country level, there is no lender of last resort in the
event of a country facing a liquidity crisis. The IMF, for all its
bureaucracy and limited resources, is not a lender of last resort in the
true sense.
If there were a lender of last resort, or the Asian Monetary Fund, in
Asia, then the crisis could have been handled more smoothly. As it turned
out, Washington dictated the conditions under the rescue packages, as it
is doing now, clumsily handling the Wall Street debacle.
After the 1997 crisis, Japan and other countries came together to
work on the building blocks to create the Asian Monetary Fund anyway. The
member countries are the 10-nation Asean, plus Japan, China and South
Korea.
They started off with the Chiang Mai Initiative, under which member
countries would create bilateral currency-swap agreements to help each
other in times of liquidity crisis. Currently these countries and Thailand
are in the process of transforming the bilateral agreement into a
multilateral one. The members would create a pool of reserves and allow
them to borrow during times of abrupt, massive capital outflows.
The Asian bond market has also followed suit by deepening the
regional capital-market development. This will help keep financial
resources or excess reserves within the region to help finance projects.
So far the reserves have been used to subscribe to US Treasury or OECD
bonds.
Olarn Chaipravat, deputy prime minister in charge of economic
affairs, is one of the champions of regional financial cooperation. He has
been working on the building blocks for the Asian Monetary Fund for the
past several years. With the US financial crisis threatening to spread
globally, Olarn has suggested that Thailand expand its economic
cooperation with other Asian countries.
The new government will seek closer financial cooperation with
neighbouring countries in response to the turmoil in the global financial
markets. Cooperation has already been implemented through the Asian bond
initiative, he said.
So far, the Asian countries have reached step three or four in the 10
steps needed to create the Asian Monetary Fund, which will rival the role
of the IMF. Asia is holding huge foreign-exchange reserves, with sovereign
wealth funds from South Korea, Singapore, China and Middle East buying
into assets in the US and Europe.
Going forward, the sovereign wealth funds from Asia and the Asian
Monetary Fund will reshape the global financial system.
|
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