I write each editorial under the impression that a major event is going to prevent me from drafting the next one. My fear almost came true. This one was scheduled to be released early October then delayed due to an avalanche of scary news unseen before in my lifetime. The threat of 'monetary terrorism' has only one remedy called 'financial detoxification'. However, thanks for taking the time to read this column, which could have easily been much longer. As you will read, nobody can stop this freight train.
The story of the upcoming world crash is hidden in plain sight. Even mayor Bloomberg has jumped in the gloom and doom bandwagon: a global economic downturn was looming, triggered by the "lunacy" of public debt, he declared last month. Meanwhile denial continues. Although nearly 70% of the Americans do fear a recession, the possibility of a major crisis is not considered. A crisis? Not in my backyard, most of them think. It all boils down to faith. To be fair, the 'empire mentality' was born with history. Eventually people wake up to the harsh reality that the empire lied to them. The only successful government programs are wars and economic crises. When two or three decades of prosperity end with a crash and geopolitical crisis, what does this mean - frankly? Once again, the numbers tell a very different story than that we are being told. Yes dear Readers, you're not hallucinating. There is currently at least a $1,000 trillion dollar black hole in the world economy. To get the full picture, please keep on reading.
We have 600 trillion in world liabilities plus more than a 400 trillion-derivatives neutron bomb, all of which will go off when the Westerners (from EU and US) will no longer be able to borrow. The credit crisis could be just beginning according to, the Calcutta-born Australian Satyajit Das , a derivatives specialist who speaks of nearly $500tn. Das doesn't chew his words:
In America, the clock is dangerously ticking for consumers: the party's over, they are are truly tapped out. While it is difficult to make sense of mega-digits such as 1,000 trillion, this amount doesn't include consumers' debts. Although it is kind of tricky to say when the credit soufflé will flatten, those grasping the dangers of a negative savings rate are already taking action. Well, the smartest and they are a strict minority at this stage. Some among the most 'cash-strapped' Americans are raiding their 401(k)s . Not knowing what is really going on, many might be prompted to turn to the 2 trillion already in pre-approved when times were booming, in the form of credit cards. To give you an idea of the dire situation, last May and June saw spikes in the amount of revolving debt, 12.2% and 8.4% respectively. The consumer credit 'is' the next bubble without a doubt. There are a growing number of debt-laden homeowners preferring to save plastic first.
Delusions, survival and credit. People want to keep accessing credit when they cannot stretch it financially instead of cutting down spending drastically or do whatever it takes to find an extra job. Talking of jobs, did you know that in 1972, wages reached their peak. Today, real wages are nearly one-fifth lower - inflation adjusted!
Beyond the climax:
Now even an infusion of cash doesn't propel the market anymore. The Dow Jones behaves irrationally. Thanks to the PPT (Plunge Protection Team). The economy as a whole has been rather stagnant in the West. Major European economies are on life support. They cannot overcome their costly social programs and the flood of (clandestine) immigration which is as bad as in the U.S. In a Forbes article we read that France has been in chronic deficit for 15 years. In 2005, Standard & Poor's said it may downgrade the credit ratings of Germany and Italy, two of Europe's largest economies, unless their governments rein in spending and cut debt. In 2007, German unemployment remains stuck at 16.5% and in 2006 Berlin was reported as bankrupt. Further Italy was described as the real sick man of Europe by The Economist in 2005 whatsoever. The credit crunch has also taken hold in Australia where personal debt is worse than during Great Depression. The situation is equally dire in Britain, where house prices are even more overvalued (than in the US). A spectacular crash cannot be ruled out, the IMF warned last month.
It is going to get worse before it gets better: the latest report by Goldman Sachs makes it crystal clear, the global economy hits a 'crunch'. As if this weren't enough, the IMF spreads gloom on 2008 by confirming that impact would be worse in 2008. The IMF and Sachs were seconded by the US Treasury Secretary acknowledging that we must prepare for a prolonged turmoil. Debt deflation is a nasty beast.
Forget about the Dow 14,000 and ask yourself frankly if you feel today better off than last year, or two years ago. That consumers must now resort to their credit cards to pay their monthly bills while banks are tightening their standards is a bad omen. As to wonder why the heck they have preapproved two trillion in the first place? On one hand they try to appear wary about further credit deterioration, on the other hand they continue their reckless marketing tactics. Their brand new targets are minority homeowners on the brink of foreclosures and college students, which they recruit as credit-card pushers to circumvent the restrictions banning credit card solicitations on campuses. Meanwhile the sin of usury continues to bankroll Congress. the US Senate Panel okayed $850 billion debt increase, ignoring the remark of 'Bubble Man Greenspan' himself, when he said that the demand for U.S. debt may be at 'limit'. Cynicism knows no boundaries: the same man who warned Congress has in fact denied that regulators failed to foresee the problems which caused the global credit crunch. Though this didn't preventing him from applauding the performance of the housing market-bubble! On the top of that, and this is absolutely sickening, 'he' declared early October 07 that the fate of world economy lies with US housing... He should be jailed for the rest of his life. Period.
As foreclosures skyrocket across the US and threaten to bring down real estate prices by 50% in some cities according to Yale University professor Robert Shiller, more and more everywhere we read about the world credit-liquidity crisis unfolding. Truth to be told, central banks face a liquidity trap. Only some anchors and a minority of sound economists see the bad 'Omen' coming our way as Goldman announced this very week that to cut back their lending by as much as $2 trillion. We are so debt-inflated that such a move is going to contract and strangle the economy for good. We may thank the bankers for taking care of our wallets.
Just a question before I continue: did you hear about the British the Northern Rock-bank run by any chance? If you did you're lucky because it was not a major issue on any of the channels I am used to watching. Whether we'll be witnessing bank runs in America remains to be seen. As of 9/2/07, in the Financial Times the following headline could be read: The ongoing credit turmoil has the hallmarks of a bank run
The current turmoil in the financial markets
has all the characteristics of a classic banking crisis,
but one that is taking place outside the traditional banking
sector, Axel Weber, president of the Bundesbank, said at
the weekend... Some Federal Reserve policymakers also
privately see comparisons between the current distress
in credit markets and the bank runs of the 19th century,
in which savers lost confidence in banks and demanded
their money back, creating a spiraling liquidity crisis
for institutions that had invested this money in longer-
term assets... His comments came as Frederic Mishkin, a
Fed governor, argued for a rapid and aggressive monetary
policy response to any fall in house prices. His diagnosis
of the financial crisis was echoed by other experts...
Paul McCulley, managing director of Pimco, said there was
a “run on the shadow banking system”. He said the shadow
banking system held $1,300bn of assets that now had to be
put back onto the balance sheets of the banks...
Sorry but weren't we told the Federal Reserve was created in order to avoid that type of moral hazard? Where is the point now to go back to square one and find out that we're in worst shape than before the inception of the bank, in 1913. Yes back then panics were a reality, although the common man was unaware that they were linked to the competition between bankers and their reckless speculation. The same unethical behaviors occurring today on Wall Street, Danny Schechter exposes. Blaming the 'gold standard' was a myth invented for the ignorant masses, which embraced the Fed like a savior. What should have been implemented is putting Congress in charge of regulating the money supply, just as stipulated by the US Constitution. Inflate or die. There is no other choice, my friends. The Fed has pumped over $47 Billion into financial system several days ago.
Irrationality plagues debt-based economies since they are backed by consumers 'confidence. The willingness to take on debt goes along with the optimism that one will be able to repay. This explains why the moral hazards linked to paper money are enormous. Most of the people think that printing more money is the solution, and so are bailouts. But what the heck can a bailout achieve when the interbank lending business itself has broken down almost completely? In the Financial Times as of 9/04/09, we could read the scary headline: Sense of growing Crisis over interbanks deals.
Unicredit analysts say: 'The interbank lending business
has broken down almost completely.... it is a global phenomenon
and not restricted to just the euro and the dollar markets...
if this situation continues, it could potentially have very