EUROPE WON'T HAVE ANY PROBLEM, IF IT FOLLOWS ITS OWN ECONOMIC POLICIES BY DECLARING PROTIMISM ZONES
(clicking on the title we shall be redirected to the article The Secret World of Gold by cbc-tv canada)
US Treasury Bonds are Junk Bonds? Is America Defaulting on Its Sovereign Debt? Can You Trust the Wall Street Credit Rating Agencies?
Rating Agency Upgrades US Sovereign Credit Rating: Another Propaganda Attempt to Mislead the Public
Recently, I wrote an article explaining why US Treasury Bonds are junk bonds and why rating agencies cannot be trusted at all, because they have been up to their eyeballs in fraudulent activities.
I wrote that what I am stating may seem outlandish but it reflected reality – that the US as well as its ally in crime, the United Kingdom (UK) are bankrupt. Very few economists dare assert such a conclusion because it would be a death sentence for their careers.
So, who can you trust anymore?
But, does it require so much courage to expose the ugly truth when there are so much evidence to support what I have stated in my articles which can be gathered even from the mainstream media?
It was taboo to suggest before the Global Financial Tsunami that America was a bankrupt state and does not deserve an AAA rating. Yet, it took a rating agency from China in early 2011 to break the taboo,
China’s Dagong credit rating agency says the U.S has already defaulted. As AFP reports:
“‘In our opinion, the United States has already been defaulting… Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies – eroding the wealth of creditors including China, Mr Guan said.”
This follows on the heels of German credit rating agency Feri’s downgrade of U.S. bonds a full notch – from AAA to AA – saying:
“The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see that there is sufficient attention being paid to other measures,” said Dr. Tobias Schmidt, CEO of Feri Rating & Research AG. “Our rating system shows a deterioration in economic health, so the downgrading of the credit ratings of U.S. is warranted.”
I would suggest that Dagong and Feri were rather generous in their rating for obvious reasons (China being one of the largest creditor cannot afford to trigger an immediate collapse of US bonds). If a country has defaulted, its credit standing cannot be rated as AAA. It is a junk debtor, no two ways about it!
If Joe Six-Packs defaults on a loan, no banks, credit-card companies etc. would extend further credit facilities. Period!
In November, 2011, the Guardian reported as follows:
Dagong, which has maintained a pessimistic outlook on US fiscal policy, has been leading the charge to downgrade US debt over the last 12 months, lowering the US rating from AA to A+ a year ago.
In August it downgraded US debt again, to A. Days later, Standard & Poor’s followed in its wake, becoming the first western agency to downgrade US debt after the threat of a default was narrowly avoided following weeks of political squabbling in Washington over whether President Obama should be allowed to raise the US debt ceiling.
So, why are the so-called economists so reluctant to tell the simple truth? Why are these economists not writing articles to expose the ugly truth and save Joe Six-Packs from having their hard-earned money from being wiped out by inflation and confiscations etc.?
The reason is simple. They have sold their souls.
And this cowardice is unforgivable because the taboo has already been broken – two agencies have exposed the reality. So, is my article stating that US Treasury Bonds are junk bonds really that outlandish?? Even the S&P down- graded the US albeit not to junk status!
The above downgradings were made even before the massive QEs by Bernanke. The financial status has not changed for the better since the down- grades, in fact it has gotten worse and have caused panics and dissension within the ranks of the financial elites.
Bloomberg reported that,
Federal Reserve Bank of Dallas President Richard Fisher, one of the most vocal critics of quantitative easing by the central bank, called for a reduction in the $85 billion in monthly asset purchases while saying he sees an end to a three-decade bull market in bonds.
In an interview with Forbes, Alan Greenspan, former FED Governor said,
We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity… There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard.”
Given the fact that US cannot mathematically repay its debts at all in the next fifty years, how can any reasonable man and or economist not conclude that the US Treasury Bonds are indeed junk bonds?
If anyone still believes in the fancy economic fairytale dished out by presstitudes, financial harlots etc. they deserve to be wiped out.
The situation gets more absurd as only a few days ago, the S&P rating agency upgraded US from negative to stable because:
Under our criteria, the credit strengths of the U.S. include its resilient economy, its monetary credibility, and the U.S. dollar’s status as the world’s key reserve currency. Similarly, in our view, the U.S.’s credit weaknesses, compared with higher rated sovereigns, include its fiscal performance, its debt burden, and the effectiveness of its fiscal policymaking. We are affirming our ‘AA+/A-1+’ sovereign credit ratings on the U.S. We are revising the rating outlook to stable to indicate our current view that the likelihood of a near-term downgrade of the rating is less than one in three.
By what measure is S&P saying that the US economy is resilient?
By what measure is S&P saying that there is monetary credibility when even Alan Greenspan is calling for a scale back of QE?
How can there be any credibility when the US is paying for its imports with digitally printed money, which in turn is recycled back into US treasury bonds and other US$ assets and repays the outstanding debts with more digitally printed money? In crude terms, its pays for imports with US$ toilet paper money and repays its debts with more US$ toilet paper money. It still remains as the world largest debtor!
On the other hand, China being the largest creditor to the US has been downgraded by Moody’s. Reuters reported that,
Moody’s Investors Service affirmed China’s government’s bond rating of Aa3 but cut the outlook to stable from positive, the second pessimistic revision by a foreign ratings agency this month.
Yet, these US rating agencies have been involved up to their eye-balls in fraudulent activities which was one of the major factors that contributed to the Global Financial Tsunami.
So, why are people still relying on such rating agencies for their investment decisions especially when they have been charged for fraudulent activities as in the case of S&P?
In February, 2013, the Economist reported,
A complaint filed in a Los Angeles federal court charged S&P with intentionally making “limited, adjusted and delayed updates” to its rating criteria and analytical models during a key period stretching from 2004 and 2007. This footdragging, the complaint alleges, led to overly favourable ratings for structured debt securities, which in turn produced massive losses for those investors who bought the highest-rated securities, and in particular for the Western Federal Corporate Credit Union (WesCorp), which ultimately failed.
Huffington Post elaborated,
According to the lawsuit, S&P recognized that home prices were sinking and that borrowers were having trouble repaying loans. Yet these facts weren’t reflected in the safe ratings S&P gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations, the lawsuit alleges.
But, if proof is further needed that such US rating agencies are criminal enterprises, look no further than the illuminating article by Marshall Auerback, “Ban the Credit Rating Agencies”. He wrote,
Ban the credit ratings agencies!
Firms like Standard & Poor, charged with fraud by the DOJ, are criminally incompetent and serve no public purpose
Is Eric Holder’s “See No Evil, Hear No Evil” Department of Justice finally getting serious about investigating fraud on Wall Street? At first glance, it would seem so, given the news that the Department of Justice has filed civil fraud charges against the nation’s largest credit-ratings agency, Standard & Poor’s, accusing the firm of inflating the ratings of mortgage investments and setting them up for a crash when the financial crisis struck.
On the one hand, there is no question that without the credit rating agencies the Wall Street guys would not have been able to pull off this colossal heist against the American people, and the ratings agencies cannot be excused. In fact, Standard & Poor’s employees openly joked about the company’s willingness to rate deals “structured by cows” and sang and danced to a mock song inspired by“Burning Down the House” before the 2008 global financial collapse, according to the DOJ lawsuit.
On the other, the ratings agencies are simply the gift wrappers. DOJ has yet to go after the banksters who created these packages in the first place and who seem to be in the clear as a result of a series of unconscionably low settlements recently reached with the Justice Department.
I suppose we ought to be grateful for these baby steps in the right direction. The ratings agencies themselves have admitted to US government inquiries recently that they took money in return for ratings that were not based on any fundamental assessments other than the cash they were being paid. They have lied about the risk of default in many corporate cases and then marked down debt when the game was up further destabilizing the financial system. Hence, to say that their behavior was at the heart of the great crisis is absolutely correct.
Of course, that inevitably begets the obvious question: what took you so long and why leave it at S&P? As early as September 2004, the FBI warned that there was an “epidemic” of mortgage fraud and predicted that it would cause a financial crisis if it were not stopped. It was not contained. Everyone agrees that the mortgage fraud epidemic expanded massively after the FBI warning and still not one Wall Street figure of any note has gone to jail.
Under Treasury Secretary Geithner, and the Keystone Cops of the Department of Justice, led by Eric Holder and Lanny Breuer, we established a doctrine of “too big to jail” for the very institutions which perpetrated massive frauds on millions of Americans.
Those who called for regulations that would take even that most minimal of steps necessary to re-establish the rule of law and restore our nation’s democracy and financial stability were essentially ignored. Geithner’s express rationale was that the financial system’s extreme fragility made vigorous investigations of the elite frauds too dangerous, in effect giving the banksters a get-out-of-jail-free card and in effect enshrining crony capitalism and imperiling our economy, our democracy, and our national integrity.
So what’s changed? Well, obviously one has to ask if the departure from Treasury of Mr. Geithner, along with the ignominious resignation of the odious Lanny Breuer at the DOJ heralds a new approach, or are there are other motives in mind?
There is a school of thought which suggests that this lawsuit is an attempt by the US government to intimidate the ratings agencies against any further US debt downgrades. If so, it’s a pretty stupid shakedown. The truth is that sovereign governments like the US empower these agencies simply by listening to them, in the same way they listen to the IMF, and put the interests of these undemocratic and crooked agencies ahead of their own national interests.
In our economy, the Federal Reserve sets interest rates, not the bond markets, although the latter may impact on the prices and yields of longer-term investment assets.
But in general, the Bank of Japan showed in the period from the mid-1990s onward that they can keep interest rates very low (zero) and issue as much government debt as they wanted even in the face of consistent credit rating agency downgrades, by organizations of dubious ethics.
So when a government stands up to the agencies, the impact is likely to be minimal.
Here’s another idea: they can just outlaw them. This may seem draconian, but consider that the FDIC puts criminally run banks out of business all of the time. It’s hard to see why the ratings agencies, as their enablers, should be treated any differently. The reality is that the so-called Big Three – S&P, Fitch and Moody’s — were all criminally incompetent. They prostituted themselves in a pay-to-play scheme in which they would give to garbage securities any rating sellers desired, so long as the assessed fees were sufficiently high.
At a very minimum one would have thought we could introduce reforms that would align incentives, with buyers of rated securities paying for assessment of risk. The ratings agencies like S&P never actually looked at any of the mortgages that collateralized the securities they rated (it was all too pedestrian for them). As we now know from internal emails, they neither checked the loan tapes (the data provided by borrowers), nor the expertise in rating mortgages (all of their experience was in rating corporate and government debt), nor took the time to assess credit risk …
Sadly, Congress and the Obama administration, in their deliberations to “reform” our financial system via Dodd-Frank, did nothing then to reform the ratings agencies. They worried that somehow, by introducing widespread reforms to the ratings agencies, they would reduce business for the monopolies. Hence, the bill contains no significant changes required of ratings agencies, which are encouraged to continue pimping their ratings.
Perhaps this lawsuit signals a chance. In any case, it is time to wean the private financial markets off these agencies by eliminating their role as gatekeepers to the thousands of financial products on which they provide in their Papal-like declarations. It’s time to leave it to individual institutions themselves to do their own credit analysis. We should go further and simply make them illegal, and mandate that all financial institutions with access to the Fed’s lending as well as any financial institution with Treasury guarantees on liabilities (such as FDIC insurance) would be prohibited from selling or buying any derivatives. All assets would be carried on bank books through maturity — with full exposure to interest rate, currency and default risk. That provides the correct incentives to protected lending institutions as opposed to relying on some flimsy rationale provided by a highly conflicted rating agency.
If our pension funds, and financial fiduciaries truly think they need an objective third-party agency to rate Wall Street paper, then at a minimum Congress and the President should be required to purchase ratings services from arms-length professionals, with the top three monopolists specifically excluded because they have demonstrated their inability to provide unbiased ratings.
Furthermore, make ratings agencies liable for improper ratings, imposing a fiduciary responsibility to actually evaluate any instruments that are rated.
Better yet, prohibit banks and other government-protected institutions from buying this crap in the first place or prosecute them to the full extent of the law for using them to rip off millions of American consumers. If we’re going to go after the gift wrappers, we might as well go after the original source of the fraud in the first place as well. In that regard, one can hope that yesterday’s lawsuit signals a fresh approach by the Holder Department of Justice, but don’t hold your breath waiting for it.
There you have it!
The truth, the whole truth and nothing but the truth!
Still having doubts that US Treasury Bonds are junk bonds? If so, you are beyond redemption for you insist on burying your head in the sand.
Labels: macroeconomy
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Speed isn't everything except when you need to print papers
(BY CLICKING ON THE TITLE AN ARTICLE REGARDING CHINA'S ECONOMY COULD BE READ)
A)
rescue Cyprus model
Depositors and bank shareholders who are in financial difficulties, should in future help to pay for a bailout. That the German Finance Minister Schäuble said.
In an interview with the magazine Wirtschaftswoche Schäuble said that the rescue of Cyprus, last month, was a model. Then had to help pay depositors with a balance of more than 100,000 euro grant to the rescue of two major banks.
'Blueprint'
Dijsselbloem President of the Eurogroup left immediately after the adoption of the Cypriot bailout appears that now more banks and investors will be addressed. That came to his face, a lot of criticism because it would undermine confidence.'s Financial sector Schäuble find that criticism is unwarranted. According to him, a risk to savers the only way to prevent banks from taking risks on the backs of the taxpayers.
Schäuble also said that Cyprus does not have to count on. More money from the Eurogroup The island received 10 billion euro emergency aid and would itself 6 to 7 billion, but possibly not enough.
Schäuble thinks Cyprus higher debt can not wear. He therefore refused to provide more money to be made available.
GOOGLE TRANSLATED
B)Most EU bank union work can be done without law change: Eurogroup head
(Reuters) - The euro zone's top project to boost economic growth - banking union - will not be delayed for now by a row over whether it needs EU law changed because most of the work can be done before this is settled, a senior euro zone official said on Saturday.
Jeroen Dijsselbloem, the Dutch finance minister who chairs the monthly meetings of his euro zone colleagues, said the dispute on the legal requirements of the banking union can go in parallel with more technical work on how it would function.
"I am, in a sense, relaxed about it, because I know that we can push forward at least 80-90 pct of the project," Dijsselbloem told a news conference on the sidelines of the spring meeting of the International Monetary Fund.
The EU has already made the first step - it agreed the European Central Bank would take over the supervision of all banks in the euro zone from July 2014 in what is called the Single Supervisory Mechanism.
Dijsselbloem said the 17 countries using the euro can also move ahead with further harmonizing deposit guarantee programs, and creating rules on when the euro zone bailout fund, the European Stability Mechanism, or ESM, can buy a stake in a euro zone bank to boost its capital when no-one else can or wants to.
The euro zone will also create a network of national authorities responsible for closing down failing banks that will operate under the same rules.
It is the next step that becomes difficult.
The euro zone wants to transform the network of national resolution authorities into a single European institution that would decide which euro zone banks will be closed.
It would also have the ESM fund to pay for the process, until enough fees from banks accrue to cover any potential expense. The ambitious plan was for such a single resolution mechanism to be in place in 2014.
However, Germany, the euro zone's biggest economy, faces elections in September. It believes that to create such an authority, which could order the closure of a German bank, or use German taxpayers' money to pay for the closure of a bank elsewhere in the euro zone, EU laws have to be changed.
The European Commission, the executive arm of the European Union, says existing law provides sufficient basis.
"The crucial point is: can we have a single resolution authority - this is where the Germans feel a treaty change is needed to have a stronger legal basis," Dijsselbloem said.
A change of European Union treaties would substantially delay the launch of the banking union because apart from the time needed to negotiate the amendments it would also require time for parliaments of the 27 EU countries to ratify it.
There would also be a risk that the ratification fails in one or more countries and that some EU governments would use the opportunity to trade their support for concessions in other areas, opening the door to long and difficult negotiations.
But Dijsselbloem said the problem could be solved later.
"90 percent of the project can be pushed forward and there is a lot of work to be done there, so as far as I am concerned there is not going to be any delay," he said.
"We are going to work on these elements and in parallel have this debate if we need treaty change, what do we need to fix in this treaty change. We can do that in parallel while putting all the building blocks in place. So we might not lose any time."
(Reporting By Jan Strupczewski; Editing by Neil Stempleman)
C)IMF Reiterates Austerity Warning
The International Monetary Fund on Wednesday issued a warning against excessive austerity, singling out the United States and the United Kingdom as countries who can afford to slow the pace of what it described as “overly strong” belt tightening. According to the Fund, fiscal adjustment needs to proceed gradually, building on measures that limit damage to the economy in the short term.
In its latest
report, the biannual World Economic Outlook, the Washington-based organisation said advanced economy policymakers have successfully defused two of the biggest short-term threats to the global recovery – the threat of a eurozone breakup and a sharp U.S. contraction because of the “fiscal cliff –, but warned that economic growth will be compromised because of excessive fiscal adjustments in the middle of an already sluggish global recovery.
While it said there was no “silver bullet” that could simultaneously solve problems of deficient demand and high public debt in any country, it singled out the United States and the United Kingdom as countries that need to ease off austerity.
On the U.S. economy, it said “there should be both less and better fiscal consolidation now and a commitment to more fiscal consolidation in the future.”
On Europe, it called on countries with “sufficient fiscal space” – such as Germany – to ease further, while urging the United Kingdom to consider greater flexibility in its fiscal adjustment path in the light of lacklustre private sector demand.
It suggested the Chancellor, George Osborne, should consider reining back his austerity plan as the economy is dangerously close to a “triple-dip” recession.
The criticism is significant as the IMF had previously "stopped short of telling Osborne to change course",
said the Guardian. "The tougher line now being adopted presents a political headache for the chancellor, who until now has been able to rely on international support for his policies."
The IMF's latest report shows how much its policy prescriptions have shifted in recent years. The organisation came under heavy criticism during financial crises in Asia and Latin America for insisting on painful fiscal adjustment programmes as the solution to debt problems, which critics said made sick economies even worse.
Now, IMF officials say they underestimated the effect that government spending has on growth, particularly during a crisis.
The shift in official stance is even more pronounced after Harvard professors Carmen Reinhard and Kenneth Rogoff were accused by fellow members of the intellectual fraternity of shoddy research and selective data reporting in their widely influential 2010 pro-austerity paper.
Underlining the growth worries, the IMF cut its economic forecasts for virtually every major region in 2013. It sees the eurozone economy contracting by 0.3 percent in 2013, slightly more than it did in January.
Japan was the only developed economy to come out with a good prognosis from the IMF.
The IMF said that the country, which has been mired in recession for much of the last 20 years, would see growth both this year and next, of 1.4 percent and 1.6 percent respectively.
It also said consumer prices would notch up 0.1 percent this year and hit a rare high of 3 percent in 2014, thanks to the Bank of Japan's new bout of monetary easing announced earlier this month.
D)
The Netherlands Falls Prey to Economic Crisis
The Netherlands, Berlin's most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs.
Michel Scheepens is familiar with risk. The 41-year-old oversees the energy market for the Dutch bank ING, and it's his job to determine whether his employer should finance such projects as a wind farm in Cyprus or a gas-fired power plant in Turkey. Until now, it was always other people's money that was involved.
For some time, however, Scheepens has been experiencing what a poor investment feels like on a personal level. Six years ago, the father of three bought half of a duplex for his family in the commuter town of Nieuw-Vennep, near the North Sea coast. The red brick building cost €430,000 ($552,000), but the bank generously offered him a loan of €500,000, so that there was enough money left over for renovations, along with notary and community fees. Scheepens had intended to resell the house after a few years, as is common in the Netherlands. But then prices tumbled following the Lehman bankruptcy. If the family were to sell the house today, it would have to pay the lender €60,000. His house is "onder water," as Scheepens says.
"Underwater" is a good description of the crisis in a country where large parts of the territory are below sea level. Ironically,
the Netherlands, widely viewed as a model economy, is facing the kind of real estate crisis that has only affected the United States and Spain until now. Banks in the Netherlands have also pumped billions upon billions in loans into the private and commercial real estate market since the 1990s, without ensuring that borrowers had sufficient collateral.
Private homebuyers, for example, could easily find banks to finance more than 100 percent of a property's price. "You could readily obtain a loan for five times your annual salary," says Scheepens, "and all that without a cent of equity." This was only possible because property owners were able to fully deduct mortgage interest from their taxes.
Instead of paying off the loans, borrowers normally put some of the money into an investment fund, month after month, hoping for a profit. The money was to be used eventually to pay off the loan, at least in part. But it quickly became customary to expect the value of a given property to increase substantially. Many Dutch savers expected that the resale of their homes would generate enough money to pay off the loans, along with a healthy profit.
An Economy on the Brink
More than a decade ago, the Dutch central bank recognized the dangers of this euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it's almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.
Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.
The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Despite tough
austerity measures, this year the government in The Hague will violate the EU deficit criterion, which forbid new borrowing of more than 3 percent of gross domestic product (GDP).
It's a heavy burden, especially for Dutch Finance Minister Jeroen Dijsselbloem, who is also the new head of the Euro Group, and now finds himself in the unexpected role of being both a watchdog for the monetary union and a
crisis candidate.
Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014.
"Sticking the knife in even more deeply" would be "very, very unreasonable," Social Democrat Dijsselbloem told German daily
Frankfurter Allgemeine Zeitung, in an attempt to justify the delay. It's the kind of rhetoric normally heard from Europe's stricken southern countries. The adverse effects of living beyond one's means have become apparent since the financial crisis began. Many of the tightly calculated financing models are no longer working out, and citizens can hardly pay their debts anymore. The prices of commercial and private real estate, which were absurdly high for a time, are sinking dramatically. The once-booming economy is stalling.
Unemployment on the Rise
"A vicious cycle develops in such situations," says Jörg Rocholl, president of the European School of Management and Technology in Berlin and a member of the council of academic advisors to the German Finance Ministry. "Customers have too much debt and cannot service their loans. This causes problems for the banks, which are no longer supplying enough money to the economy. This leads to an economic downturn and high unemployment, which makes loan repayment even more difficult."
The official unemployment rate has already climbed to 7.7 percent. In reality, it is probably much higher, but that has been masked until now by a demographic group called the ZZP. The "
Zelfstandigen zonder personeel" ("Self-employed without employees") are remotely related to the German model of the "
Ich-AG" ("Me, Inc."). About 800,000 ZZPers currently work in the Netherlands.
One of them is Rob Huisman. The 47-year-old lives with his wife and son in Santpoort, near Haarlem. In 2006 Huisman, an IT specialist, left his position with a large consulting firm to start his own business. It went well at first, with Huisman earning €100 an hour. But over time many customers, both governmental and private, slashed the fees they were willing to pay. Sometimes jobs were simply deleted altogether. "For companies it's worthwhile to let their permanent employees go and then take on temporary work contracts," says the IT expert. "It saves them the social security costs."
There is cutthroat competition among the self-employed, who are undercutting each other to secure occasional jobs. "If you don't accept a job, someone else will snap it up," says Huisman. In addition, he is unable to pay contributions to his retirement fund at the moment. "We are living largely on our savings," he says.
No End in Sight
The Dutch have long been among Europe's most diligent savers, and in the crisis many are holding onto their money even more tightly, which is also toxic to the economy. "One of the main problems is declining consumption," says Johannes Hers of the Netherlands Bureau for Economic Policy Analysis (CPB) in The Hague, the council of experts at the Economics Ministry.
His office expects a 0.5-percent decline in growth for 2013. Some 755 companies declared bankruptcy in February, the highest number since records began in 1981. The banking sector is also laying off thousands of employees at the moment.
Because of the many mortgage loans on the books, the financial industry is extremely inflated, so much so that the total assets of all banks are four-and-a-half times the size of economic output.
In February, the government was forced to nationalize SNS Bank, the country's fourth-largest bank, because it had a large portfolio of bad loans for commercial real estate. The remaining banks only want to securitize a portion of their giant loan portfolios and resell the securities through a special mortgage bank -- primarily to the country's pension funds, where the Dutch have put away large sums for retirement.
Young families like the Scheepens, who have bought a home in recent years, are now hoping that they can at least keep their jobs. Although their duplex has lost value, they can still make the monthly payments.
But the cuts are getting closer. A neighbor recently lost his job, and well-educated people can no longer find jobs. "There is no end to the crisis in sight," says Scheepens.
By Christoph Schult and Anne Seith
Translated from the German by Christopher Sultan
E)
Quantitative and Qualitative Monetary Easing
Peter Schiff: Japan Steps into the Void
By Peter Schiff
In the years following the global financial crisis, economists and investors have gotten very comfortable with very high, and seemingly persistent, government debt. The nonchalance may be underpinned by the assumption that globally significant countries that can print their own currencies can't get trapped in a sovereign debt crisis. However, it now appears that Japan is preparing to put this confidence to the ultimate stress test.
For the better part of 20 years, successive Japanese governments and central bankers have been trying, unsuccessfully, to use quantitative easing strategies to pump up a deflated asset bubble. The economy has by and large not responded. The sustained and impressive growth that Japan delivered during the 45 years following the Second World War (which had made the country one of the most successful economic stories in world history), has never returned. For the last 20 years Japan has offered a "zombie" economy characterized by low growth, stagnation, and exploding government debt. The Japanese government now owes approximately $12 trillion, a figure representing more than 200% of GDP. The IMF expects that this figure will reach 245% by the end of this year. This gives Japan the unenviable title of having the world's highest government debt-to-GDP ratio. But Shinzo Abe, the newly elected Prime Minister of Japan, and Haruhiko Kuroda, his newly-appointed Governor of the Bank of Japan, feel much, much more debt needs to be issued to turn the economy around.
The hope that Abe would be a new kind of prime minister with a bold economic formula helped revive the long dead Japanese stock market. Between May and November of 2012, the Nikkei traded within a range of 8200-9400. As Abe's victory began to be expected, the Nikkei started moving up, reaching 10,000 by the time he was sworn in on December 26 of last year. The euphoria continued throughout the spring and by April 2 the Nikkei stood at 12,003 points. Then on April 4, BOJ Governor Kuroda made good on Abe's dovish rhetoric and announced a plan to end years of mildly declining prices by doing whatever necessary to create 2% inflation (in reality these price declines have been one of the few consolations to Japanese consumers). To achieve its goals, the government is prepared to double the amount of Yen in circulation. Stocks immediately rallied, and in less than a week the Nikkei had breached 13,000 points, taking the index to a 4 1/2-year high. It is rare that any major stock market can achieve a 50% rally in less than a year. But the rally will be costly.
The Japanese government already spends 25% of tax revenue to service outstanding debt (compared to 6% in the US). These costs become even more astonishing when one considers the extremely low rates Japan pays. Ten-year Japanese government bonds now pay less than 0.6%, and five-year yields are now a little more than 0.20%. How much will debt service costs increase if Abe succeeds in pushing inflation to 2.0%? Two percent rates would triple long term borrowing costs. Given the size of its debts, increases of such magnitude could hit Japan with the force of 10 Godzillas.
Japan has an aging demographic and as more time goes by, the pool of potential bond buyers continues to shrink. Unlike the United States, where individual savers are mostly irrelevant in the sovereign debt market, Japanese investors have largely set the market in their own country. There is evidence to suggest that Japanese savers are increasingly considering overseas sources of yield for protection from the inflation that Abe is so determined to create.
As the Nikkei has moved upward, the Japanese Yen has taken the opposite trajectory, falling more than 20% against the U.S. Dollar since the beginning of 2012, and nearly 12% since the beginning of this year (the decline has been even greater in terms of several other currencies). This steep drop, which has taken a huge bite out of the nominal gains in Japanese stocks is unusual in the foreign exchange markets, and has threatened to destabilize an already weak global financial system.
Earlier this year the falling yen issue sparked a full-fledged headline war. On February 16th, participating members of the G20 issued a statement, clearly aimed at Japan, warning against competitive devaluations and currency wars. A day later, Japan's Finance Minister stated flatly that Japan was not attempting to manipulate its currency. After some hesitation, the G20 seemed to accept this statement. For now it seems the international powers have fallen in behind Japan. Both IMF Chief Christine Lagarde and Ben Bernanke have praised Abe's policies. The prevailing opinion seems to be that weakening a currency should not be considered manipulation as long as it's done to revive a domestic economy, not specifically to harm competitors. Such an opinion qualifies as a great moment in rhetorical shamelessness.
In addition to his plans for inflationary monetary policy, Abe is also attempting to wage war from the fiscal side as well. His Liberal Democratic Party has called for over $2.4 trillion USD worth of public works stimulus over the next 10 years. This spending represents approximately 40% of Japan's current GDP and, adjusted for population, would be the equivalent of nearly $600 billion USD annually in the United States.
It should be obvious to anyone with even half a brain that Japan's prior experiments with ever larger doses of quantitative easing have failed. Leaders in both Japan and the United States, however, are following this path with reckless abandon. According to Abe, the entirety of Japan's economic problems can be blamed on the fact that consumer prices have been declining by one tenth of one percent per year. If only Japanese consumers were forced to pay two percent more per year for the things they need or desire, all would be well.
Abe's wish may already be coming true. McDonald's announced this morning that, for the first time in 5 years, the price of hamburgers and cheeseburgers in Japan will be rising by 20% and 25% respectively. No doubt the Japanese will be so excited by this development that they'll rush to the stores to consume all the burgers they were planning on eating in 2014 before prices go up again. Of course there is no official concern that low-income Japanese will now have to pay more for low cost food.
The idea that informs Abe's plan, that rising prices entice consumers to buy before the prices go up, is clearly suspect as economic law dictates that demand increases when prices fall. Any store owner will tell you that cutting prices is the best way to move merchandise. Apart from this problem, how does Abe expect consumers to buy more when their currency is losing purchasing power and more of their incomes will be needed to pay interest on the national debt?
The boldness of Abe's plans should provide the rest of the world with a crash course in the ability of debt accumulation to jumpstart an economy. The good news is that the effects should not take too long to be seen. I believe that we will be treated with a stark lesson on the limitations of inflation as an economic panacea.
Hopefully, failure of this latest Japanese experiment will help convince leaders in the U.S. and Japan that the only true path to prosperity is free market capitalism. Rather than trying to reflate busted bubbles and micro-manage Keynesian style recoveries, politicians and central bankers should recognize their respective roles in creating the problems and get out of the way.
Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.
MORE AT THE BANK OF JAPAN
http://www.boj.or.jp/en/announcements/release_2013/rel130404a.pdf
PHOTO SOURCE http://www.amazon.fr/After-The-Cold-War-ebook/dp/B005UA424K
Labels: macroeconomy
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ILLUSIONS AND REALITY - BONNE ANNEE
(clicking on the title another article concludes our attempt to present a rather holistic point for the subject in a summarized way)
Forecasts Second Crisis to Hit Around 2013
The Solution: “You know, rather than the recession being resisted, it should be embraced, because the disease is all this debt-financed consumption. The cure is that we stop consuming and start saving and producing again, and that’s a recession. And sometimes, you know, medicine tastes bad, but you’ve got to swallow it.”
So what do you do when one of the very few economic analysts to predict the financial crisis would strike in ’07 or ’08 says another, even more catastrophic economic collapse will hit the United States economy in 2013 or 2014?
If you’re smart, you’ll listen– at least to hear him out.
Forbes reported this spring that the ever-bearish and independent Schiff is forecasting another economic crisis that will strike at the very heart of the U.S. economy, sweeping through the monetary system itself and precipitating a massive U.S. dollar and Treasury bond crisis. His analysis of the underlying economic problem and solution is essentially the same as it was when he predicted the 2007-2008 financial crisis.
Again, Schiff has a view on what the problem is: “We consume more than we produce and we borrow abroad, but we are never going to be able to pay them back.” Not only that, but Schiff says when the economic crisis hits, your money might not be safe.
While most major banks have passed the Federal Reserve’s strenuous stress tests to ensure their viability in the event of another economic catastrophe, Schiff says those tests are predicated on another massive decline in home equity and real estate prices, which was the last bubble to pop, not the next one: “The Fed didn’t ask the banks to stress test a big drop in the bond market because that’s what coming, and the banks would fail that.”
His solution? “The more you delay it, the bigger it will be, so we need to raise interest rates during the recession to confront the inefficiencies.” It’s not just unconventional, it’s the exact opposite of what most analysts on both sides of the partisan divide would recommend and flies in the face of the Federal Reserve’s management of the crisis by frantically holding interest rates down to what is functionally a zero percent rate.
Schiff argues the easy money policies and the debt-based economy is what caused the problem in the first place and more of the same will only make it worse. Instead, Schiff believes a recession is a necessary transition of the economy from a debt and consumption-based economy to a production-based economy that creates real wealth and real jobs. He even suggests that the bad medicine doesn’t have to be all bad: “In a deflation[ary recession], real wages will rise because the cost of goods will fall faster.”
Peter Schiff’s advice may be unconventional, but his record of remarkable economic prescience makes him an independent voice worth listening to and he isn’t shy about saying so:
“All of the people who were 100% wrong [back in ‘08] are saying that everything’s OK [now]. I am telling them they didn’t solve the problem and are making it so much worse. I didn’t get lucky, I just understood the problem, and we are going to get another big one coming soon.”
SOURCE http://ivn.us
The World Economy 2013
When the economic history of the recent period is written, it may well be that the year 2012 is regarded as having been almost as important as 2008.
The collapse of Lehman Brothers four-and-a-half years ago was the trigger that set in motion the breakdown of the global capitalist system. But the past year has made its own mark. It has seen the destruction of a series of fictions assiduously promoted by the spokesmen of the ruling elites in the wake of the onset of the global financial crisis.
First of all, it has exposed the claim that the world economy would somehow right itself through the operations of the business cycle, and that the “magic of the market” would come to the rescue. But well into the fifth year of the global breakdown, the financial system is being sustained only by the activities of the world’s major central banks, which are providing hundreds of billions of dollars to the major banks and finance houses through various forms of “quantitative easing”—a euphemism for printing money.
Far from creating the conditions for “recovery,” however, these operations are simply financing the accumulation of profits through speculation—the very thing that led to the collapse of 2008—and setting the stage for another crash.
Writing in Monday’s edition of the Financial Times, Mohamed El-Erian, the chief executive and co-chief investment officer of the giant bond trader Pimco, noted that “several asset classes now have highly manipulated prices due to experimental bank activities, both actual and signaled,” and that “this situation is reminiscent of 2006-07.”
The past 12 months have also put paid to the illusion that after a period of financial turbulence, “recovery” was just around the corner. All the data on the world economy point to continuing low growth or recession in all the major countries.
In its report on the world economy issued last month, the United Nations pointed to “weaknesses in the major developed economies” as being at the root of continued “global economic woes,” with most of these economies, particularly in Europe, being “dragged into a downward spiral” as high unemployment, reduced consumption spending, continued bank risk, fiscal tightening and slower growth “viciously feed into one another.” Reports from all other major international financial institutions highlight the same processes.
According to the UN, the euro area is expected to grow by only 0.3 percent in 2013 and just 1.4 percent in 2014, after a contraction of 0.5 percent in 2012. The growth rate for the US is predicted to fall to 1.7 percent in 2013 after reaching just 2.1 percent—well below the level experienced during every other “recovery” in the post-World War II period. Japan, which experienced a contraction last quarter, is expected to grow by just 0.6 percent in 2013, after growth of 1.5 percent in 2012.
The UN report also pointed to trade figures that highlight the underlying contractionary processes in the world economy. World trade fell by 10 percent in 2009, but then rebounded significantly in 2010. However in 2011, the growth of exports started to slow and then decelerated sharply in 2012, “mainly due to declining import demand in Europe… and anemic aggregate demand in the United States and Japan.”
The British economy is set to move into a “triple dip” recession this year, after activity in the services sector, which compromises around 75 percent of the British economy, experienced a sharp decline in December.
The manufacturing-based German economy is headed down the same road. According to the latest report published by the Kiel Institute for World Economy, Germany is now facing “pronounced economic slowdown” after experiencing “decelerating growth” throughout 2012. Aggregate output is expected to fall by 1.2 percent in the fourth quarter as a result of “sluggish exports” and a “significant decrease in enterprise investment spending.”
Economic events in 2012 also exposed the fiction that, notwithstanding the stagnation of the advanced capitalist countries, the so-called BRIC economies could provide a new base for the expansion of global capitalism. The claim that “emerging” markets would be able to “decouple” from the major economies has been shattered, as their dependence on the major markets is revealed in falling growth rates.
Last year, the growth rate in China dropped from 10.4 percent to 7.7 percent. Brazil, where growth reached 7.5 percent in 2010, recorded a rate of just 1.3 percent last year, while India’s growth has fallen from 8.9 to 5.5 percent.
A recent report published by the McKinsey Global Institute (MGI) makes clear that the world capitalist economy is not passing through a conjunctural downturn, but a breakdown comparable to that which began in 1914 and continued for the next three decades. This analysis, which was advanced by theWorld Socialist Web Site more than four years ago, is being confirmed by hard facts and figures.
The McKinsey report found that underlying the deepening recession in Europe was a collapse in private investment. Between 2007 and 2011, private investment in the 27-member European Union fell by more than €350 billion, “larger than any previous decline in absolute terms.” This represented more than 20 times the fall in private consumption and four times the decline in real gross domestic product.
Private investment is now 15 percent lower than in 2007, meaning companies will not generate some €543 billion in revenues between 2009 and 2020 that they otherwise would have. The MGI report noted that European companies had excess cash holdings of €750 billion for which they could not find profitable outlets. The piling up of cash points to a breakdown in the basic dynamic of capitalist production, in which investment leads to the accumulation of profit, which then results in further investment and economic expansion.
The same process is at work in the US economy, where companies are piling up cash while profits are increasingly being accumulated through speculation in financial markets.
The objective logic of the profit system is the driving force behind the austerity programs being implemented by the ruling classes in the US, Europe and the world over. They are seeking to resolve the crisis through the impoverishment of the working class, reducing its conditions to those of the 1930s and worse.
The international working class must respond with its own independent strategy based on the overthrow of the bankrupt profit system and the establishment of socialism. The worst mistake it could make is to believe that half-measures will suffice or that the capitalist economy will eventually right itself. The events of 2012 have shattered that illusion as well as laying the basis for major social struggles in the coming year.
Nick Beams
source http://www.globalresearch.ca
Labels: macroeconomy
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