
H/T to Gabi for this one.
Chronicling the global debt excess since 2005
the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects."But on Monday Bloomberg scored a second goal against the Fed:
Manhattan Chief U.S. District Judge Loretta Preska rejected the central bank’s argument that the records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions. The collateral lists "are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression," according to the lawsuit that led to yesterday’s (Monday) ruling.The secretive Fed, a constitutionally questionable institution due to its hybrid public-private status has also come under fire
"When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know," he said "We`re gratified the court is defending the public’s right to know what is being done in the public interest."David Skidmore, a Fed spokesman, told Bloomberg the Federal Reserve Board’s staff was reviewing the ruling and declined to comment on it at this time.
VIDEO: Note that all empty standing sky scrapers represent billions and billions in investments gone bad.
GRAPH: First some bank macro. Except for The Czech Republic, Slovakia and Turkey loan/deposit ratios show a net indebtedness for all other CEE countries. Table courtesy of Unicredit. Click to enlarge.Anecdotal evidence tells me that credit will furher contract in a death spiral of an economy trapped in deep recession while banks stop lending. Pick the banking group of your choice if you intend to gamble on the CEE recovery.
GRAPH: Top banks by volume in CEE. Raiffeisen International has the biggest exposure and is active in Russia and the Ukraine, both contracting like - well, the rest of the earth. Chart courtesy Unicredit. Click to enlarge.Another decision helper concerning risks and rewards in CEE may be IMF commitments. As said, if the sky caves in on CEE Austria may face the biggest problem only in the future, contrary to the modest optimism banks put on their face these days.
GRAPH: The IMF's commitments to CEE engulf tiny Austria whose fate is highly dependent on a recovery in its former eastern territories. Chart courtesy Unicredit. Click to enlarge.If you are in the mood to have a few more pages of worthwhile CEE information, download this PDF from Erste Research Group.
Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.On a macro level there are no events that changed this picture since June 24 in either direction.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.Oil solidly over $70 a barrel may change this paragraph a little: Let's say like this:
The prices of energy and other commodities have risen of late despite ongoing sluggish economic activity. Given that oil holds up surprisingly well despite lower consumption forecasts the Committee nevertheless expects that inflation will remain subdued for some time.The big joker will be the last para from the June statement as the Fed had then announced to print another couple of hundred billions to prop up mortgage markets, monetizing the debt in this market segment. If the Fed announces still more liquidity for ailing markets, the long end may see a sharp uptick in yields, currently at 3.75%.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.Not much to add to this. We can also remain confident that the Fed will, as always remind us that they are watching markets day and night. Alas, this did not help them to avert the crisis we are in.
The government will not change its stimulus policies because it could derail its hard-won economic recovery, though record bank lending in the first half of the year has raised fears over credit risks and asset bubbles.China's economy is expected to slow to a growth rate around 6% this year. The government has to walk a fine line in its monetary policy: Facing imploding exports that may require to keep the Yuan on the hard side are contrasting with a domestic stimulus that may carry higher inflation in its pouch.
"The central bank is still committed to a 'moderately loose monetary policy'," said Su Ning, deputy governor of the People's Bank of China (PBOC), at a press conference in Beijing on Friday.
"When we say 'dynamic fine-tuning', we do not mean the monetary policy but the monetary policy operations. We will sharpen the focus and intensify the pace of the policies," Su said.
The country's banks have lent nearly 7.4 trillion yuan ($1.08 trillion) in the first half of the year - far higher than the initial full-year target of 5 trillion yuan.China may nurse a consumption bubble. Anecdotal evidence has it that "buy to let" condos in cities of China's dynamic Southeast lack renters. A property bubble plus bad credit reinvigorates pictures seen in the USA and Europe. Banking on a stable Yuan may prove to be as much of a Russian roulette as holding Federal Reserve Notes.
On the back of the unprecedented rise in credit, the Shanghai Composite Index has rallied about 80 percent this year and real estate prices have rebounded to record levels in some major cities.
Some economists say much of the country's massive $586-billion stimulus package and record lending in the first half may not have been spent on real economic activities and created asset bubbles.
"How far the bubble will go depends on the government's liquidity policy," said Xie Guozhong, board member of Rosetta Stone Advisors.
VIDEO: This 10-minute drive around Detroit tells me more about the chances that the US will descend into the 3rd millennium Depression (3MD) than any lagging indicators. Can anybody imagine a V-shape recovery here?This comes at a time when the Fed has run out of interest rate stimulants and president Obama nods off billions of Federal Reserve Notes (FRN) so his bookkeeper Geithner can continue to burn them at 4 times the speed as Paulson did a year earlier, nationalizing everything tabled to Obama on his way of change that looks increasingly different from his campaign promises. The next step? Geithner will ask to raise the debt ceiling of $12.1 trillion.
...the Treasury is romping up borrowing to unprecedented levels to fund stimulus and financial bailout programs and cope with a deep recession that has devastated tax revenues.Third Millennium Depression = 3MD
It is expected to issue net new debt of as much as $2 trillion in the 2009 fiscal year ended September 30 and up to $1.6 trillion in the 2010 fiscal year, according to bond dealer forecasts.
In the 10 months through July 2008, (fiscal) outlays rose by almost $530 billion (or 21 percent) and (fiscal) revenues fell by more than $350 billion (or 17 percent) compared with the amounts recorded during the same period last year.Depressed equity prices have shrunk America's wealth invested in the stock market from $22 trillion to $12 trillion. I am not very confident that those people who abandoned Detroit will show up as new consumers anywhere else. Now add the number nobody knows - total negative equity of US home owners/bank slaves - and yep, we can add another couple of $,$$$,$$$,$$$,$$$ (thats trillions) to the debt tab.
VIDEO: Popped bubbles: Hooverville in Fresno, California. This looks like a refugee camp from the so called 3rd world.Youtube does not yet have a category for European tent cities.
“It’s positive for gold,” John Reade, an analyst at UBS AG in London, said by e-mail. Having the agreement “removes the small chance that European central banks would have dumped gold onto the market in an unconstrained manner.”Central banks of China and Russia will probably be delighted to see their efforts to build up larger gold reserves helped by European central banks at low prices. China has overtaken India as the largest gold importer this year.
Central banks sold 73 percent less gold in the first half and full-year disposals may drop to the lowest since 1994, according to estimates from London-based researcher GFMS Ltd. The IMF wants to sell 403 tons from its reserves of 3,217 tons, the third-largest holding after the U.S. and Germany.
“The IMF has not signed and this leaves open the possibility that the Chinese, Russians, another central bank, could buy the 403 tons of IMF gold in one go,” Reade said.
China has the world’s sixth-largest holding at 1,054 tons and Russia is ranked 10th with almost 537 tons, World Gold Council data show...
The Swiss National Bank, one of the signatories to the new accord, in a statement today said it isn’t planning any gold sales in the near future, and that its gold is an important part of monetary reserves. Switzerland has 1,040 tons of gold, making it the seventh-largest holder.
Bullion sales under the current agreement total 140 tons in the current quota year, with France and the ECB leading sales, the World Gold Council said July 29. Central banks have sold about 3,867 tons since the first agreement, and failed to reach the allowed limit each year since 2005, its data show.
China's coal import hit a new monthly high in May, while coal export slumped to a 11-year low.In a further diversification move China begins - with the approval of its central bank - to buy direct stakes in foreign companies, swapping currency risk for profit/loss risk.
The latest statistics from the General Administration of Customs showed China's coal import reached 9.43 million tons in May, more than double that in the same period of last year. China's coal import and export amounted to 32.20 million and 10.53 million tons respectively in the January–May period, or a net import of some 22 million tons.
Industry insiders predicted a net import of more than 30 million tons of coal for the whole year of 2009.
"In the short term there has been a massive stockpiling of commodities by China," he said. "My concern is that China might have accumulated an inventory of commodities that is probably excessive to the growth of their own economy," (Roubini said.)Roubini only talked metals, but a quick look at MarketSkeptics blog reveals that this year's wheat harvest may decline dramatically due to a fungus. The US reports declining soybean and corn harvests this year, certainly a good support for world market prices in softs.
China went on a buying spree after the global collapse in demand for oil, metals and other industrial staples, bulking up its domestic government inventories and snatching up overseas assets from Australia to Africa to Canada to safeguard growth.
A state-owned Chinese firm bought most of the assets of one of Australia's largest mining companies, OZ Minerals, in a $1.4 billion deal earlier this year.
Another, Chinalco, came close in a failed bid to double its stake in global miner Rio Tinto, after Rio struck a separate deal with fellow Anglo-Australian miner BHP Billiton.
China's refined copper imports, at 1.8 million tonnes in the first half, were up 160 percent on the same period a year earlier, while primary aluminum imports rose a stunning 16-fold. Chinese buying has helped drive up both Shanghai and London Metal Exchange prices this year, by around 80 percent on both LME and Shanghai copper and 75 percent on LME lead, 40 percent on zinc and nearly 20 percent on aluminum.
As a result, there is a risk commodities prices will slump again as China now slows its buying spree.
"The risk in the second half of this year is that the rate of accumulation in China must slow down -- one of the factors that a downside correction in commodity prices, however modest, may occur," Roubini said.
The total population of China and India now exceeds two billion. Now that they are beginning to compete for resources with people in Europe, the U.S. and Japan, the world's wealth will be redistributed. The direction of the flow of wealth has begun to reverse itself after two hundred years.I presume regular readers of my blog do not need any additional explanation what this means. For those new to my blog I recommend to browse my archive or do a "China" label search.
In ancient times, production equipment had not yet been developed. Natural resources would not have been able to feed the entire population and wars among countries were usually battles for resources.
The competition for survival of the fittest encouraged scientific and technological progress, as well as the development of civilization.
The Industrial Revolution began in Europe. Over the course of two hundred years, every country in Europe took advantage of the Industrial Revolution to strengthen its military might. Europeans nearly conquered the entire world as their colonies grew and the world's resources were sent to Europe.
On the other hand, the Industrial Revolution tremendously expanded the scale of the economy and an enormous amount of capital was required for investment in factory equipment. Thus, a capital market was effectively born. Profits made in the capital market enabled large transnational enterprises to emerge. European countries lost control of their colonies and could no longer use their guns to gain access to resources. Instead, they began to use economic means to determine who would have access to resources. Transnational enterprises played an important role in this transition.
Thirty years ago, the economic growth rate of the European, American and Japanese economies far exceeded that of today's developing countries. The U.S., Europe and Japan acquired both resources and wealth.
Thirty years ago, Europe, the U.S. and Japan produced two thirds of the world's steel. Even today, the U.S. is home to only five percent of the world's population but consumes 25 percent of the world's available resources. Thirty years ago, I was studying in the northeast of the U.S. In winter, the temperature was minus ten degrees outside, but inside it was warm as summer. I had to wear short sleeved clothing.
Over the past thirty years, the poorer countries have begun to develop their economies. The overall standard of living needed to be improved. Therefore, additional resources were necessary. The world's wealth must be redistributed now that more than two billion people in China and India have begun to compete with the six hundred million people living in Europe, the U.S. and Japan for resources. Fortunately, this redistribution of wealth constitutes economic warfare rather than an all-out war of guns, and will be carried out according to economic laws.
In the competition for resources, prices will be responsible for redistributing resources. Cheap labor from developing countries replaces European and American labor, allowing developing countries to earn foreign exchange. Developing countries also compete for resources with Europe and the U.S. in the global market, leading to the price hikes of natural resources in the past few years. The world's wealth is gradually flowing to developing countries from Europe, the U.S. and Japan.
Wealth starts to reverse its direction of flow within two hundred years. Europe, the U.S. and Japan can no longer maintain the same standards of living as in the past and heat in winter will not be enough. However, no country will simply sit by and watch its standard of living deteriorate. Thus, frictions and conflicts among nations begins. In response to the huge trade deficit in the 1980s, the U.S. placed a limit on Japanese cars, making the dollar stronger than the yen and leading to economic stagnation in Japan for 20 years.
The best solution is that Europe, the U.S. and Japan utilize science and technology to assist developing countries with their own productivity and let them have experience economic growth even while these developed countries prosper.
However, the human history is one of constant competition for resources. The tidal wave of wealth redistribution has begun.
EXCERPT FROM THE US CONSTITUTION, Article I, section 10: No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts....
FROM THE US TREASURY WEBSITE: "Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. The notes have no value for themselves, but for what they will buy."
A LESSON FROM HISTORY BOOKS: The past 300 years have proven that ALL fiat money experiments ended in complete devaluation. From Rome to Britain: every empire vanished into oblivion soon after it went off the gold standard. It is time to recognize the obvious: Unbacked money has never worked.