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Tuesday, July 05, 2011

It's coming prepare thyselves

(CLICKING ON THE TITLE WE ARE DIRECTED TO AN ARTICLE WRITTEN BY  Gerald Celente
Collapse: It's Coming! Are You Ready? )

  EUROPEAN CITIZENS,FELLOW READERS,HELLO,
IT CAN EASILY BE UNDERSTOOD ,EVEN TO THE UNFAMILIAR WITH ECONOMICS THAT THE GLOBALIZATION'S  ECONOMIC AND SOCIETAL  ,CAPITALISTIC OR COMMUNISTIC PROPOSALS  AREN'T FUNCTIONING ANYMORE.
NEW YORK'S POLICIES,WHICH  BASIC PRINCIPLES WERE POSED AND IMPLEMENTED AT THE BEGINNING OF 20TH CENTURY ,STILL  IT IS BELIEVED THAT THEY CAN RULE THE WORLD UNPUNISHED AND BY HAVING PROFITS EVEN IF CITIZENS ARE STARVING.
WITH THEIR MAIN PRINCIPLE BEING PRINTED UNDER THE TERM  "in the god we trust",THEY
PRINT PAPERS IN ORDER TO MAINTAIN BY FAKE POLICIES THEIR  INJUSTICE GOVERNANCE,forgetting the letter L from god.
IT CAN BE READ FROM THE  ARTICLES ,LAID HERE,BUT ALSO FROM THE LINKED TITLE ,THAT UK, USA ARE IN A VERY BAD SITUATION.
PARADOXICALLY EVERYBODY STANDS AND IS BEING FOCUSED ON EURO-ZONE AND  IN  EXPERIMENTAL  AUSTERITY  POLITICAL  TRIES OF NEW YORK'S HEADQUARTERS OVER NATIONS LIKE GREECE,IRELAND AND PORTUGAL (BEING PREPARED TO FOLLOWING  FOR GREEDY HANDS SPAIN,ITALY AND BELGIUM).THE CAREFUL OBSERVER MIGHT EASILY UNDERSTAND THAT THESE COUNTRIES HISTORICALLY ARE THE MOST REBEL AGAINST INJUSTICE.
EUROPEAN UNION AND ITS EUROPEAN ZONE'S PARTNERS ARE  CONSISTING  A VERY STRONG ENTITY,APART FROM THE FACTOR OF A HUGE POPULATION ,WHICH HAS A HIGH LEVEL OF CONSUMPTION POSSIBILITIES  EVEN TO THE POOREST COUNTRIES OF THE UNION.
UNFORTUNATELY THE EUROPEAN OLIGARCHIC GLOBALISM SYSTEM OF ALMOST ALL TODAY  PARTIES,IS SUPPORTING THE  CROOKED  POLICIES OF THE ABOVE MENTIONED CENTRE,MAINLY BY KEEPING A STRONG EURO,WHEN THERE IS NO REASON FOR THIS,APART FROM ASSISTING USA , UK,PLUS UNRELIABLE BANKS AND MULTINATIONAL COMPANIES ,BUT SURELY NOT THE CITIZENS ON BEHALF OF WHOM THE  PARTIES NOMENCLATURE CLAIM THEY ARE  SPEAKING FOR .
OUR OECOUMENIC PROPOSAL IS BEING PREPARED STEADILY ,SO THAT IN THE FUTURE OUR KIDS AND GRANDCHILDREN TO LIVE IN A HARMONIC,NATURAL AND LOVABLE GREAIAN (GEAIAN,EARTHEAN )   ENVIRONMENT.

THANK YOU ALL FOR YOUR ATTENTION
A.CH.


Bank warns of prolonged weakness

Bank of England’s interest rate setting committee voted 7 to 2 in favour of holding down interest rates at record low levels but raised fears the recovery could be longer than expected.

“The current weakness of demand growth was likely to persist for longer than previously thought,” said the minutes of the Monetary Policy Committee’s June meeting.


The minutes also hint that measures urged to increase the purchases of gilts from the current level of £200bn, may be gathering support. Previously Adam Posen had been the lone supporter of the move to extend the asset purchase programme known as quantitative easing but the minutes, released on Thursday, said for “some members” an extension of the programme was an option if inflation fell in the medium term.

The pound came under pressure after the release of the minutes which were more dovish than expected. Expectations for a rise in UK interest rates were pushed further back, weighing on gilt yields and sterling.

The pound fell against all the major currencies as investors adjusted their expectations of a rate rise.

Although Mr Posen has been arguing that the UK economy is so sluggish that further quantitative easing is needed, he has been a lone voice on the subject, with other members pointing to very mixed economic data. He has recently been joined on the committee by Ben Broadbent, an external member and former managing director at Goldman Sachs, who is more dovish on the need for interest rate rises in the UK.

Mr Broadbent replaced Andrew Sentance who consistently voted for an increase in interest rates, most recently he urged members to raise rates by 50 basis points from the current 0.5 per cent.

“A key development is that the hawks have lost ground within the MPC with new member Ben Broadbent joining the ‘no change in interest rate’ ranks and boosting their membership to 7 from 6,” said Howard Archer of IHS Global Insight.

“With the minutes appearing appreciably more dovish due to heightened concerns over the economy, it is looking ever more likely that the Bank of England will hold off from raising interest rates until 2012,” he said.

“The key risk was that demand would prove insufficient to eliminate the current margin of spare capacity, leading to inflation falling below the target in the medium term,” the minutes said, with concerns about economic growth and consumer spending particularly strong.

Separately, the Bank’s monthly report from its network of agents who monitor economic activity around the country described the growth rate of nominal spending on consumer goods and services as “sluggish”, although on some other measures – employment intentions, export orders and business investment intentions – prospects for growth are improving.

The minutes show an MPC that is deeply divided on the nature of the inflation that the UK is currently experiencing.

“For two members, the argument for removing some of the monetary stimulus at this meeting remained strong, although both acknowledged that the data on the growth outlook during the month had been weak,” the minutes say.

Moreover, some members are now contemplating the possibility that consumer price inflation inflation in the near term could be even higher than that in the central projection in the May Inflation Report – 5.03 per cent – a rate well above the MPC’s 2 per cent medium term target.

By Norma Cohen, Economics Correspondent

Published: June  2011

 source  The Financial Times Limited















 







(A free offered e-book  to be downloaded
http://ebook.web-koe.com/2011/05/a-colossal-failure-of-common-sense-the-inside-story-of-the-collapse-of-lehman-brothers-by-lawrence-g-mcdonald.html )




What If the U. S. Looks Like Defaulting?


On Monday, the US government hit the statutory limit on the amount of money it can borrow, ($14.29 trillion) the so-called "debt ceiling". That means that Treasury Secretary Timothy Geithner has started to implement an emergency plan to keep the government running and pay bondholders while the White House and Congress hammer out the details on a final budget deal. But Geithner's accounting maneuvers will only work for a short time. If a budget compromise isn't reached by early August, then "the borrowing authority of the United States will be exhausted" and the US will default.

Some Republican congressmen believe that a default will be "no big deal", and that bondholders and Social Security recipients will just get their checks a little later than usual. But these people really don't understand the way the system works or what is at stake. As The Economist's Greg Ip says,  "Treasury debt underpins a vast and complex web of financial relationships around the world which would all be thrown out of whack by even a technical default."  The mere suggestion that the US might delay payments to bondholders would roil markets and cause irreversible damage to the Treasuries market. That, in turn, would put the dollar into a nosedive and, perhaps, end its role as the world's reserve currency. Here's an excerpt from a post by economist Menzie Chinn who sums it up perfectly:

"....what would be key to causing a crash in the dollar's value would be a failure to raise the debt ceiling in a timely fashion. In almost any model I can think of, that would either cause a flight from US government debt, or -- even if we only go to the brink -- elevating the risk premium, and hence total interest payments, on US Treasury debt indefinitely. Thus, it's the height of irresponsibility to make unrealistic demands for deficit reduction based solely on spending cuts, thereby risking a crisis. ("What Would Really Bring about a Dollar Dive?, Econbrowser)

Nearly every other economist says the same thing. Congress is playing with dynamite.

What's obvious in the budget negotiations, is that the Republicans haven't the foggiest idea of how the financial markets work.  Of course, the Dems aren't much better, but at least they (occasionally) consider the advice of the experts . Not the Republicans. They seem to take great pride in their boneheadedness.  They think that threatening to blow up the economy is a sound strategy for forcing cuts to entitlement spending. They don't realize that their little game of chicken could backfire and change the perception that the US is a safe place for investors to park their money. In fact, the thought never seems to enter their mind.

Here's an excerpt from a letter by Geithner (to Senator Michael Bennet) warning of "catastrophic economic consequences" if the debt limit is not raised soon:

"The unique role of Treasuries securities in the global financial system means that the consequences of default would be particularly severe. Treasuries securities are a key holding on the balance sheets of virtually every major insurance company, bank, money market fund, and pension fund in the world. They are also widely used as collateral by financial institutions to meet their day-to-day cash-flow needs in the short-term financing market."

Geithner is explaining how the "shadow banking system" works and how it relies on "risk free" Triple A collateral. If the world's premier asset class--US Treasuries--suffers a downgrade because of default or falling public confidence, that would lead to widespread haircuts that would trigger another financial crisis.

Geithner again:

"A default on Treasury debt could lead to concerns about the solvency of the investment funds and financial institutions that hold Treasury securities in their portfolios, which could cause a run on money market mutual funds and the broader financial system--similar to what occurred in the wake of the collapse of Lehman Brothers. As the recent financial crisis demonstrated, a sudden and severe blow to confidence in the financial markets can spark a panic that threatens the health of our entire global economy and the jobs of millions of Americans."

Geithner is not exaggerating. This WILL happen. Why?  Because this is what happened in 2008 and, unfortunately, nothing has changed. If the US defaults, then the risk premium on US Treasuries will rise and their price will fall. That means that the trillions of dollars that have been exchanged for UST's in the repo market --where financial institutions exchange cash deposits for high-grade collateral--will be revalued causing massive losses for the holders of UST's. Those losses will ripple through the money markets and commercial paper markets knocking down the same financial dominoes they did when Lehman Brothers failed.  Bottom line: None of the Dodd-Frank reforms have increased financial market stability at all. The system is as vulnerable to meltdown as it was in September 2008.

Geithner again:

"Treasuries securities enjoy their unique role in the global financial system precisely because they are viewed as a risk-free asset....A default would call into question the status of Treasuries securities as a cornerstone of the financial system, potentially squandering this unique role and the economic benefits that come with it."

This such an important point, it might help to use an analogy.

Let's say I need some cash to finance some other business operations I have going. So, I go down to the local pawn shop with my custom-built Jaguar, my original Vermeer oil painting, and my collection of Renaissance gold coins. The pawnbroker takes one look at my trove and says he can lend me $25,000 for a week, but I'll have to pay him $26,000 to get my stuff back. I say, "Okay", and borrow the money. This allows me to keep my other business operations running. Then, a week later, I return to the pawn shop and repay the money I borrowed.

Okay, so far?

So, next week I go back to the pawn shop and try to get the same deal. Only this time, the dealer has done a little research and discovered that my custom Jaguar is actually a late-model Yugo with a flashy paint job; my original Vermeer is actually a paint-by-numbers fake I picked up at a flea market, and my collection of Renaissance gold coins, is actually a scattering of slot-machine slugs with a pyrite finish. So the dealer gets all huffy and says he'll only lend me half of what he had before, ($12,500) But that's a big problem for me, because now I don't have the money to fund my other operations or pay my employees. So I have to dig into savings (bank capital), which makes it harder for me to lend money to anyone else.  As time goes on, I am forced to sell more of my personal belongings (assets) just to stay afloat.

This is precisely what happened to the banks during the financial crisis.  Financial firms that had been providing full-value for securitized bonds (my Jaguar) got worried that those bonds might contain toxic subprime loans (my Yugo). So they reduced the amount of money they would lend on the bonds.  These so-called "haircuts" set-off a slow-motion panic that lasted for over a year, draining nearly $4 trillion from the shadow banking system. The problem was compounded by the fact that no one knew which bundles held the worst mortgages or which banks had the biggest pile of bonds. So, interbank lending began to freeze, LIBOR skyrocketed, and the credit markets ground to a standstill. When Lehman Brothers defaulted on September 15, 2008, the downward spiral accelerated and the entire financial system crashed.

If the US defaults on its debt, Treasuries will be repriced, the country's biggest banks will discover they've got less capital than they thought, and the financial system will suffer another meltdown. Only this time, it will be much worse, because Treasuries will no longer be regarded as the premier risk-free financial asset upon which all other financial assets are measured. That means the US will have to pay higher rates to meet its obligations which will make it harder to dig out of recession.

Wall Street and Big Business understand the gravity of the situation which is why they've tried to discourage GOP brinkmanship. But--to their credit--congressional members of the Tea Party have shrugged off the arm twisting and stubbornly stood their ground. The idea is that eventually, Obama will see that they have him over a barrel and he'll cave in. Isn't that the way that power works?

There's a lesson here for political activists. The Tea Party has stumbled upon a perfectly-legal "asymmetrical" strategy for effecting change, that is, locate the vulnerabilities in the system and exploit those weaknesses to shape policy. There's no reason leftists couldn’t play the same sort of game, provided they were  willing to get their hands dirty.

Mike Whitney lives in Washington state.
He can be reached at fergiewhitney@msn.com

SOURCE   http://www.counterpunch.org

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