USA and the Global Systemic Crisis 2008-2010 ~ A Collective Discussion

[101Armorer]

credit crunch and stupidity in the f.i.r.e. segment. personal spending and confidence down. energy/organic chemistry resource issues. worldwide fear/derision about the u.s. and food, water and overpopulation.

mankind has never been accused of being willing to think. it is much easier to wallow in sentimentality or invoke "god will provide" "inshallah" or technology will save us as opposed to truly examining what causes the problems that we have and formulating solutions.

imo, the two major issues that all others proceed from are overpopulation and fossil fuels. they are related as the first is only possible because of the second. the logical result will be a large scale population die-off in the next 100-200 years. africa will lose the large cities it has with the exception of south africa possibly. china will experience social upheaval as environmental problems as well as energy problems will cause havoc. the north american union (my term) will experince die-off in the sw, mountain regions with little arable land and in the large cities. Europe may actually experience fewer problems as they have not overly suburbanized themselves.

On top of your list of stupid human thinking, man's thirst for war was not included this time. As you have stated, all the above will feed into our coming collpase. The big conversion to a Fallen Rome in this US performance. Amazing how little 'concern' is taking place on Capitol Hill. Oh sure, they bring it up and talk about it now that it's too late. But the best they can really do is a Gooberistic stimulus plan.... I & II. More debt... less filling. That's how patch work is handed out by our great political thinkers as they themselves rake in ridiculous earmarked profits in our bills.

Lets count the ways that the Iraq War alone is killing us economically. Experts don't want to believe it tho. That would be wrong to put blame where blame belongs. I think this article below echoes what you pretty much stated bird.




http://www.gulf-times.com/site/topics/a ... rent_id=26


The war in Iraq is playing havoc with American economy

Published: Sunday, 13 April, 2008

NEW YORK:
Some say there are two issues in the coming American Some say there are two issues in the coming American elections: the Iraq war and the economy. On days when the war seems to be going better than expected, and the economy worse, the economy eclipses the war; but neither is faring well.

In some sense, there is only one issue, and that is the war, which has exacerbated America’s economic problems. And when the world’s largest economy is sick – and it is now very sick – the entire world suffers.
It used to be thought that wars were good for the economy. After all, the First World War is widely thought to have helped lift the global economy out of the Great Depression. But, at least since Keynes, we know how to stimulate the economy more effectively, and in ways that increase long-term productivity and enhance living standards.

This war, in particular, has not been good for the economy, for three reasons. First, it has contributed to rising oil prices. When the US went to war, oil cost less than $25 a barrel, and futures markets expected it to remain there for a decade. Futures traders knew about the growth of China and other emerging markets; but they expected supply – mainly from low-cost Middle East providers – to increase in tandem with demand.
The war changed that equation. Higher oil prices mean that Americans (and Europeans and Japanese) are paying hundreds of millions of dollars to oil exporters in the Middle East and elsewhere in the world rather than spending it at home.

Moreover, money spent on the Iraq war does not stimulate the economy today as much as money spent at home on roads, hospitals, or schools, and it doesn’t contribute as much to long-term growth. Economists talk about “bang for the buck” –- how much economic stimulus is provided by each dollar of spending. It’s hard to imagine less bang than from bucks spent on a Nepalese contractor working in Iraq.

With so many dollars going abroad, the American economy should have been in a much weaker shape than it appeared. But, much as the Bush administration tried to hide the true costs of the war by incomplete and misleading accounting, the economy’s flaws were covered up by a flood of liquidity from the Federal Reserve and by lax financial regulation.

So much money was pumped into the economy and so lax were regulators that one leading American bank advertised its loans with the slogan “qualified at birth” –- a clear indication that there were, in effect, no credit standards. In a sense, the strategy worked: a housing bubble fed a consumption boom, as savings rates plummeted to zero.

The economic weaknesses were simply being postponed to some future date; the Bush administration hoped that the day of reckoning would come after November 2008. Instead, things began to unravel in August 2007.
Now it has responded, with a stimulus package that is too little, too late, and badly designed. To see the inadequacy of that package, compare it with the more than $1.5tn that was borrowed in home equity loans in recent years, most of it spent on consumption. That game – based on a belief in ever-spiralling home prices – is over.

With home prices falling (and set to continue to fall), and with banks uncertain of their financial position, lenders will not lend and households will not borrow. So, while the additional liquidity injected into the financial system by the Fed may have prevented a meltdown, it won’t stimulate much consumption or investment.

Instead, much of it will find its way abroad. China, for example, is worried that the Fed’s stimulus will increase its domestic inflation.

There is a third reason that this war is economically bad for America. Not only has America already spent a great deal on this war – $12bn a month, and counting – but much of the bill remains to be paid, such as compensation and health care for the 40% of veterans who are returning with disabilities, many of which are very serious.

Moreover, this war has been funded differently from any other war in America’s history –- perhaps in any country’s recent history. Normally, countries ask for shared sacrifice, as they ask their young men and women to risk their lives. Taxes are raised.

There is a discussion of how much of the burden to pass on to future generations. In this war, there was no such discussion. When America went to war, there was a deficit. Yet remarkably, Bush asked for, and got, a reckless tax cut for the rich. That means that every dollar of war spending has in effect been borrowed.
For the first time since the Revolutionary War, two centuries ago, America has had to turn to foreigners for financing, because US households have been saving nothing. The numbers are hard to believe. The national debt has increased by 50% in eight years, with almost $1tn of this increase due to the For the first time since the Revolutionary War, two centuries ago, America has had to turn to foreigners for financing, because US households have been saving nothing. The numbers are hard to believe. The national debt has increased by 50% in eight years, with almost $1tn of this increase due to the war -– an amount likely to more than double within ten years.

[bird]

101armorer,

war was not included deliberately as it, in and of itself, is not necessarily a problem. it is a but a tool that is far too often poorly applied and thereby a symptom of the underlying inability to successfully analyze problems and develop solutions. of course it is a terrible thing at all times but history shows that arguments can be made for war at certain times as being unavoidable from one standpoint such as ww2. naturally, the war could have been avoided had japan not attacked the u.s. and had hitler not engaged in his deplorable actions although the japanese had historical precedent for war of aggression in the form of the spanish-cuban-american war. be that as it may all conflicts up to and including ww2 were unique for the u.s. as your post states taxes were raised and sacrifices demanded of the populace especially in ww1 and ww2. korea was the first instance of the containment policy put forward after ww2 that any and all areas of direct contact between the ussr and the u.s. were to be considered strategically important. the end result of that containment policy which was formulated without complete or transparent honest analysis of the threat presented by the ussr was small regional conflicts that ended in stalemate (korea)and defeat (vietnam). our unwillingness to look at situations other than with a manichaeanistic worldview has resulted in pushing the u.s. to the verge of collapse. the truly wasteful part of this is that the resources of the u.s. would have been better served in finding ways, if possible, in which the stresses of population and limited fossil fuels could have been diminshed or limited. that ship sailed because we lacked vision. of course we are not alone but the u.s. has been in the unique position of being the leading imperial power at the exact moment in history when imperial power needed to be abandoned. we chose not to do so. by so doing our actions, along with those in nations such as the ussr, china and much of the so-called developed world remained inward focused on self-destructive policies that served little purpose other than hurrying the date of collapse.

sadly, the last several presidents have been especially symbolic of the stupidity and short-sightedness of the u.s.

one doesn't see, with the qualified exception of obama, much hope for the current crop of candidates.

what was the line? paranoia did destroy ya.

[101Armorer]

101armorer,

war was not included deliberately as it, in and of itself, is not necessarily a problem. it is a but a tool that is far too often poorly applied and thereby a symptom of the underlying inability to successfully analyze problems and develop solutions.



sadly, the last several presidents have been especially symbolic of the stupidity and short-sightedness of the u.s.

one doesn't see, with the qualified exception of obama, much hope for the current crop of candidates.

what was the line? paranoia did destroy ya.

Hard to imagine that we still may call this worldwide fiasco..... a the tip of the iceburg, isn't it? Down right scary. Some might believe that a war with Iran would help to boost our drowing economy. Some would not include me.

To the list of harsh reality pains, we may note that our housing bubble is still rapidly deflating. Crude oil hits over $113 a barrel today..... and as reported below, foreclosures are on it's horrid march. I still have not hear of any Fed Emergency Plan when the collapse is declared. Even if Goober presented one, I'd not hold any stock in it. Our country has been misguided by deliberate morons for over 7 years, therefore any plans are untrusting and meaningless.

If some are fortunate to hold onto their homes, sadly, the values of such poperties will sink as fast as our US dollar has.



http://www.msnbc.msn.com/id/24115651/

Foreclosures continue to soar, worst is not over


updated 5:12 a.m. ET April 15, 2008

The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.

And the worst isn’t over: The wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that’s expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.



The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.

The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.

That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back.

Lenders took possession of homes at a sharply higher rate, up 129 percent over last year, as more homeowners relinquished their homes, said Sharga. Banks repossessed 51,393 properties nationwide, many of them without a public foreclosure auction.

“In a lot of cases, banks worked something out with the owner in advance and took back the keys and deed. For a homeowner, it’s not as embarrassing and it’s a little less of a blemish on their credit record compared to a foreclosure,” Sharga said.

He estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.

Declining home prices and stricter lending requirements have exacerbated the foreclosure environment. Homeowners stuck in unmanageable mortgages aren’t able to sell their homes or refinance into cheaper loans before their mortgage payments reset higher.

[bird]

ah, the fallacy of a self-correcting system.

since the system is gamed from the start by all players it is incapable of self-correction. adam smith's invisible hand just smacked us in the back of the head. while its mat be impossible to legislate morality legislation to try and limit theft, fraud and the rigging of the game is something else. we are slowing watching the unravelling that the dereg kings said would not happen when there was a "free" market. of course anything that's free is worth what you paid for it.

the saddest thing about the credit/housing nightmare is that people were told to treat their homes as atm's. the financial institutions then proceeded to make loans that they knew they should not make to people they knew should not have the credit. we normally think of speculators as people driving the dollar up or down or the precious metals market up or down. the truth is the financial giants were the real speculators. the bet the bank on bad loans and then tried to limit their risk by structured investments that literally had no backing because they were beyond understanding.

as the invisible hand continues to slap us around eventually there will be a tipping point. when that happens look for big bank/financial institution failures.

[101Armorer]

the saddest thing about the credit/housing nightmare is that people were told to treat their homes as atm's.

Amen to that. O how those banks loved that action!!! Next to blowing one's homes equity are the millions upon millions of ppl abusing their credit cards.... by those same bankers who licked their chops locking ppl into 'everything' purchased via credit card(s) while they raised their rates and fees. Real America turned into Plastic America overnight. The Piper has arrived and it's very hungry.

[101Armorer]

GEAB has announced its April findings in which it discusses the 4 big trends in what to expect from now until 2013. I again warn that even these predicted reports are NOT inclucing additional wars such as Syria and Iran and the global affects that it would cause on our economy.

Below is only the 1st out of the four published for the public without subscription to their reports.


http://www.leap2020.eu/GEAB-N-24-is-ava ... a1561.html

Global systemic crisis: Four big trends over the 2008-2013 period
- Public announcement GEAB N°24 (April 16, 2008) -



As we approach the climax of the global systemic crisis (which should be reached in the second half of 2008 according to LEAP/E2020), it becomes easier to grasp the big trends about to affect foreign exchange rates, global trade and regional dynamics over the next five years. Indeed some of the characteristics of the so-called “decanting” phase of the crisis (1) are beginning to emerge. In this 24th issue of the GEAB, LEAP/E2020 therefore decided to introduce its first anticipations on big trends between now and 2011/2013. These anticipations are of course meant for the use of private investors willing to enhance their mid-term visibility. They are also relevant for exporting companies and for the economic and financial authorities in need of a similar visibility to make their strategic decisions, at a time when all the landmarks and beliefs which used to found the global economy and finance in the past decades are collapsing altogether.

In the past weeks, the world's economic and financial operators appeared utterly disoriented, while the institutions in charge of dealing with market regulation and of supervising global economic trends display sheer powerlessness.

In this 24th issue of the GEAB, we describe four trends particularly illustrative of the global systemic crisis' impact phase as it is about to unveil between mid-2008 and 2011/2013. It is the first time that our team is able to provide some accurate indications (completed in the “Strategic recommendations” section, P. 17) about the next 3/5 year-period.


Global financial crisis – Savers and investors trapped into USD 10,000-billion worth of « ghost-assets »

USD-denominated asset crisis – End of 2008: The US Federal Reserve and its network of « Primary Dealers » fight for their institutional and financial survival

Foreign exchange crisis - Horizon 2011/2013: Sustainable changes in the hierarchy of foreign currencies

Global social crisis – From hunger riots worldwide to the 25 million unemployed of the Very Great US Depression

Each of these sector-based crises both illustrates the historic scope conveyed by the ongoing global systemic crisis, and indicates that we are just at the beginning of the phase of impact, indeed as protections disappear one after the other, the situation automatically gets worse. This is the specific “spiralling” process of development of the present global systemic crisis, described by LEAP/E2020 in the previous issues of the GEAB.



Global financial crisis – Savers and investors trapped into USD 10,000-billion worth of « ghost-assets »

If your banker managed to convince you to invest in the USD 10,000-billion worth of ghost-assets currently haunting the financial planet, then you have most probably lost everything even if you do not know it yet (2).

And neither G7-finance ministers nor IMF governors (who met last April 11, 12 and 13) can do anything about it. All of them are totally helpless in the face of the ongoing crisis. With staff cuts and gold sales in order to fill its deficit, the IMF today embodies the sinking of all the institutions created after WWII to regulate the world economy. The outcome of the mid-April meeting clearly reveals how incapable of working together are the various players gathered within the IMF and its various branches: on the one hand, public institutions longing for greater supervision over banking activities in order to prevent further financial catastrophes; on the other hand, banks quite satisfied with pledges of better behaviour. The only tangible result is near-to-mid-term inaction: the current crisis will continue to worsen while debates will go on at the IMF. As a matter of fact, the very concept upon which the IMF is based is outdated.

In any event, according to our experts, the estimated USD 1,000-billion worth of assets lost in the current crisis is largely underestimated (3). It is probably closer to 10,000-billion of USD (4) that are about to be lost over the coming two years (5). In other words, several large international banks will be swallowed up in the maelstrom, and along with them many companies, too fragile or depending too much on the US consumer (6).

Indeed, LEAP/E2020 would like to insist once more on this aspect: the nature of the current financial problem is both very simple to define and extremely difficult to grasp properly. There are today approximately 10,000 billion of fictitious US dollars (7) circulating on the planet which large banks are now trying to get rid at any cost in order to limit their own losses (8). But even at a reduced price, these assets remain dangerous traps because they are not worth anything and will not recover any value (9). They are “ghost-assets” no longer capable of being “embodied” in real assets.

Most of these « ghost-assets » are made of US mortgage loans, US dollars, and more generally US dollar-denominated assets, as well as British Pound Sterling-denominated assets (10). They were created from nothing in the financial euphoria of the past decade by the “sorcerers' apprentice” of Wall Street, the City and the other major financial places of the world (11). Remember! Those were the times when every one raved about the “miracle” of this new finance which permitted to create a “financial economy” 1,000 times worth the real economy (12). Well, for some months now, the happy beneficiaries of these infinite virtual riches have been striving to find them some tangible incarnation (13). But derivative markets altogether are either collapsing or giving birth to new bubbles always more fragile and transient: real estate, US T-bonds, stocks, food commodities,... these enormous virtual financial masses are spinning around the world at an increasing pace in search of some profitable investment, of some sustainable incarnation… in vain! This quest generates fast tectonic up and down movements (over a few weeks) of asset bubbles (knowing that in the past decades bubbles used to last a few years at least), causing a general rise in prices and bringing the world each day closer to the ultimate outcome: galloping inflation... at a time when fear of a collapse in the value of all assets (including the benchmark currency) is the only thing that prevails.

The « fabulous » reserves in US currency or T-bond of China, Japan, UK, etc… are part of this cohort of « ghost-assets », and for many years to come they shall continue to haunt bank balance sheets, investors' losses and central bankers' nightmares. The favourite shape collectively taken by these “ghost-assets”, when they can be embodied, is called inflation. Therefore, according to LEAP/E2020, real inflation (food and energy included) will reach a yearly 10 percent average in the US, starting in the second semester of 2008 (14); it will go above 5 percent in Europe; and approach 20 percent in China. In developing countries, which depend a lot on the rate-variations of the US currency, inflation will surge as a result of different strains: energy, food, currency weakness… (complete article available in GEAB N°24 - on subscription)

-----------
Notes:

(1) According to the sequencing established by LEAP/E2020 as early as May 2006 in GEAB N°5. About our sequencing of the global systemic crisis, see also GEAB N°6 and N° 18.

(2) Cases of savers trapped by their own bank into « risk-free » investments are multiplying. Source: New York Times, 04/13/2008

(3) Sources: Bloomberg, 03/31/2008 & Turkish Daily News, 04/10/2008

(4) It is on purpose that LEAP/E2020 uses the « billion » as benchmark unit for the enormous amounts at stake on global markets. Indeed the word « trillion », overwhelmingly used in the financial media, does not mean the same thing according to the country. In the United States, United Kingdom and Brazil in particular, a « trillion » refers to one million million, 1012 ; but elsewhere in the world, it refers to one million million million, 1018. Source: Wikipedia. The current crisis could nearly find its explanation in an unfortunate misunderstanding: the rest of the world thought that Wall Street was trading “big trillions” (1018) of USD-denominated assets when in fact it was “small trillions” (1012 ), i.e. one million times less. A good enough reason to start a global systemic crisis! Ultimately, History is settling the question between defenders of the short scale and defenders of the long scale (source: Wikipedia), between those who see more billions in a trillion and those who see less of them.

(5) All those who are surprised by such an enormous figure may remember the first estimations of the subprime crisis-related losses: last summer 2007, only nine months ago, anticipated losses reached a maximum of USD 100 billion. Over less than a year, the “official” estimation was multiplied by 10. It is high time to understand once and for all that, in the coming period, worse is more likely than better, contrary to the rule that prevailed in the past ten years.

(6) The great victim of this crisis, as already explained by LEAP/E2020 in the previous issues of the GEAB.

(7) With 45,000 billion worth of CDS (Credit Default Swap - see GEAB N°19) losing value day after day, 10,000 billion only means a 25 percent drop in value. Therefore, according to LEAP/E2020, this estimation is extremely reasonable. As a matter of fact, Citigroup illustrates this situation with its recent sale of USD 12 billion of leveraged loans and bonds at an average price of 90 cents on the dollar, with a guarantee for the purchaser that Citibank will cover up to 20 percent of any further drop in the value of the loans (i.e. an anticipated drop reaching up to 70 cents on the dollar: already a 30 percent drop in the value of the financial assets of America's largest bank). Knowing that, in the light of the past months, it is very unlikely that Citigroup was completely honest about the situation. For an increasing number of operators, these assets could be worth 10 to 30 cents on the dollar only in a few months; that is why derivative markets are frozen. Source: Reuters, 04/09/2008

(8) After Citigroup, Deutsche Bank and Goldman Sachs have also began selling off their dubious assets. Source: Reuters & MarketWatch/DowJones, 04/14/2008

(9) Worth reading: « Banks : Bleeding value and Hiding Desperation », Financial Sense, 03/24/2008

(10) In the past two years, on various occasions, LEAP/E2020 warned that the British currency would certainly collapse against the other main currencies (except the US dollar) and that the British economy, which depends completely on the US economy on the one hand and on international finance on the other hand, would be sucked up into the global systemic crisis affecting in particular those two components of the global economy. It is now obvious, even to the British authorities, that the British pound and economy are free falling. But it is only in the coming months that the negative impact of the collapsing British pound-denominated assets will combine with the negative impact of the collapsing US dollar-denominated assets. From Hong-Kong to Scandinavian countries (thus two times exposed), the shock will be hard.

(11) Worth reading: an interesting article by the Institutionnal Risk Analyst dated 04/14/2008 illustrates how « ghost assets » in fact pullulate inside financial institutions' balance sheets.

(12) It is always enlightening to review the learned analyses produced by those institutions in charge of regulating the development of regional or global economies, such as this enthusiastic contribution published by the European Central Bank in 2005 about the evolution of financial markets by 2015. Source: ECB, 10/28/2005

(13) Senior officials from international accountancy institutes today acknowledge that bank off-balance sheet accounting rules (off-balance sheet assets accounted for a large part of the last decade's financial growth) were « irretrievably broken ». This confession, quite surprising coming from high-level international accountants, indicates clearly that no one has the faintest idea what these assets are worth. Source: Financial Times, 04/09/2008

(14) Asia today exports its inflation towards the US. Source: New York Times, 04/08/2008

[kath]

Thanks, 101. It sucks, but it sucks worse to not know; knowledge is power, at least in a small way. Even worse, too many dear friends refuse to acknowledge it (however they define "it") could happen to them. Yet same said friends will want to trade their electric pumpkin for our food, hello . There is such a knowledge divide...holy fuckin cow, some asshole on the radio is even saying that Obama doesn't belong in Amerika. Fine, let's all of the good guys leave, and let these mofos try to eat. Hahaha, catch and cook the grubs, slice up the children. Jaysus!!!!

Back to your points: when the dollar is worse than a pittance, perhaps then the (non-elite) people will revolt. Should that happen, anyone who challenges TPTB will be tased, poisoned, imprisoned, extradited, tortured and/or disappeared. Then when most of us are gone, the elite will go after the rest. In the end, while the earth and its peoples and animals and plants and resources are left for dead and only the rich, selfish scum are left standing (because they'll need SOMEONE to wipe their ass and fuck), what will God/Gawd/Goddess/name-your-diety think of their evil? Snap them straight to hell, I'd say. Or let a Ceiling Cat with claws at them. Or let them stay on the earth they poisoned....hmmm.

Thank you for the links. I got me some reading to do!

[101Armorer]

Back to your points: when the dollar is worse than a pittance, perhaps then the (non-elite) people will revolt. Should that happen, anyone who challenges TPTB will be tased, poisoned, imprisoned, extradited, tortured and/or disappeared. Then when most of us are gone, the elite will go after the rest.

You're welcome kath.

At the time that ppl finally revolt, I think we'll be in a serious chaos in which may bring many of us to turn on each other. I had always thot when younger, that when times got bad, ppl would come together to help each other like never before. I'm not sensing that brotherhood amongst ourselves today. There's so much lost that used to exist 40 years ago btween neighbor to neighbor. Our drive for extreme self independence but dependency on commercialism has us being so out of touch with how to coordinate and cooperate in teamwork during times of survival. We'll be faced with younger generations who have very little respect for mankind. It will get extremely ugly out there. Sadly, the richest of the rich will have the money and resources to provide the most protection from any revolution. 'Tis a shame, because it's those rich bastards who brought this on in the first place. I just wished that when the crap hits the fan, and revolt takes place, that the bastards selfishly on top would be on the receiving end of it.

I do have more to report later about the projected dollar, euro and gold, when I get a chance out of my busy schedule this week.

[101Armorer]

accidental double post.

[101Armorer]

http://www.kuna.net.kw/NewsAgenciesPubl ... anguage=en

Euro/dollar volatility has only limited impact on Euro economies
4/23/2008 3:38:00 PM

Economic feature by John Keating PARIS, April 23 (KUNA) -- Despite the sharp and unremitting appreciation of the Euro against the US dollar since late 2005, the real impact of this evolution on growth in the Euro zone has been relatively limited and this zone is being more affected by slowing economic activity in other areas of the world, economists say.
The Euro, which went above the record USD 1.60 level on Tuesday, has been hovering at barrier level for several days now. The Euro has thus risen above twice its original trading band of just around US 0.80 cents when it was first introduced. While there has been volatility between the two currencies before, such a sustained fall in the dollar has not before been witnessed. The most marked surge in the Euros value, economists maintained here, has been since the end of 2005 when the Euro started to move above USD 1.20. "The currencys appreciation from USD 0.80 to 1.20 dollars was an alignment that was fairly normal given adjustments to the relative growth in Europe and the United States," said Adrien Pichoud, Economist at Global Equities in a KUNA interview.

"At USD 0.80 cents the Euro was in a particular situation that reflected capital flight in the search for external growth in the United States," he remarked. "Since we passed the USD1.20-1.25 level at the beginning of 2006, we went into a zone of overvalue for the Euro," he added. Pichoud, who has been monitoring the evolution of the Euro and the dollar, said that he felt the Euro also firmed up in line with a bolstering of interest rates at the European Central Bank, which governs interest rates in the Euro zone.

"ECB rates went from 2.0 percent to 4.0 percent between December 2005 and June 2006," he remarked, noting that the dollars decline also coincided with an opposite policy by the Federal Reserve Bank in the United States, where rates have been drawn down to 2.25 percent, with two successive and large cuts of 0.75 percent and 0.50 percent since the US housing and credit crisis emerged this year.

The dollar could further weaken, Pichoud said, as the "Fed is expected to drop rates by at least another 25 basis points on April 30, and maybe even 50 basis points, meaning half a percent." The economist said that the larger figure is less likely as "the market expects a 0.25 percent rate drop and the Fed generally likes to give the market what it is expecting." On the other hand, the ECB is committed to fulfilling its basic mission of containing inflation and this leaves it less flexible on interest rates and is resisting political pressure from some European countries to adopt a softer rate policy.

The dollar could weaken some more, therefore, but Pichoud doubts it will drop beyond the Euro to USD 1.65 barrier and he even said that he would not be surprised if there is a turnaround in the declining trend of the US currency sometime this summer, if there is a pick up in the US economy and even an uptick in US interest rates and once the credit crisis is absorbed. "The summer will be a pivotal time. I dont think the Euro will rise above USD 1.65 dollars, and if it does, it will be brief," the economist told KUNA in the interview.

The currency evolution, while having an impact on the US economy, making its exports much cheaper but making imports more expensive, is affecting European economies to a lesser extent and in a varied way. Clemente de Lucia, an economist at BNP-Parisbas Bank here, said that for every 10 percent drop in the value of the dollar, about 0.4 percent is shaved off of potential Gross Domestic Product (GDP) growth in the Euro zone. GDP is the broadest measure of the vitality and evolution of an economy. "It takes about a year to see the impact of the change," de Lucia indicated, noting that external trade factors played an even more important role than currency exchange rates between the Euro and the dollar. "We have to see the impact of exports and external demand on European economies, more than the effect of currency rates," he said. "The situation with exports has been quite good because of the dynamic in emerging markets and there is still buoyant demand for capital goods," manufactured in the Euro zone.

This view was echoed by the Global Equities economist, who noted that Germany, for example, had done very well out of the strong Euro because the goods it produces are in strong demand. Germanys trade balance is very strong and its surplus continues to grow, despite the high value of the Euro, he said. "German goods cannot often be substituted by other goods manufactured on local markets, so the price must be paid no matter what the strength of the Euro," Pichoud said. Italy, on the other hand, does not have the same export profile and its manufactured goods are not seen as irreplaceable therefore a strong Euro hits its export market much more than in Germany, Pichoud pointed out.

France, he said, is "somewhere between the two," but for the Europe, overall, he said the "balanced level of the Euro to the dollar should be around USD 1.20-1.25." For his part, de Lucia from BNP-Parisbas also remarked that "activity in the Euro zone is more service dependent" and less likely to be affected by fluctuations.
However, several major European industries that are paid in dollars are feeling the pinch.

Airbus, the major aircraft manufacturer, which prices its planes in dollars but repatriates profits to Europe after converting the dollars to Euros, said the drop in the dollar value had hurt it over the past two years.
The company announced Thursday that it was hiking prices for its single-aisle planes by USD 2.0 million and by USD 4.0 million for largest planes to compensate for the low dollar and higher metal prices. Airbus has also previously said it is considering relocating some of its manufacturing plants to dollar zones to offset the drop against the Euro.

Thursdays prices increases come on top of a 2.74 price hike for 2007, a percentage considered as a normal "escalation." Airbus said in a statement that "the price increase is mainly triggered by the weak US currency and the overall increase of world markets raw material prices especially with regards to metal. It is the first time since 2003 that Airbus applies a price increase above escalation." It was further noted that "the US dollar is at its lowest rate in 20 years. Over the last 12 months the Euro vs. US Dollar exchange rate moved from 1.35 to almost 1.60, which translates into a devaluation of more than 15 per cent." Obviously for companies like Airbus, the dollars weakness is having a strong impact, as it is for companies working in the energy sector and paid in dollars.
Nonetheless, economists here do not see growth plummeting in the Euro zone this year because of the currency issue.

Pichoud pointed out that GDP could progress by a respectable 1.8 percent, given the turmoil on credit markets and the slowing growth outside of the Euro zone which is negatively affecting demand for European exports. In 2006 and 2007, the growth rate in the Euro zone was just above 2.0 percent.

Nonetheless, the action of the two major central banks "the Fed and the ECB" will be crucial to the direction of the Euro/dollar parity in the coming months. Despite hints by some ECB sources, a hike in European rates is "absolutely impossible," according to Pichoud, because this would further harm sluggish Euro economies. He said that maybe the ECB is "missing some pragmatism" and that a drop in rates might provide a boost to Euro economies, as long as inflation remains contained. (end) jk.rk

[bird]

101 armorer,

one does not share their optimism re: the potential appreciation of the dollar vs the euro. or more interest is the potential for pricing oil in euros as opposed to dollars. this could also lead, potentially, to the creation of the north american directorate (my term) as a block similar to the eu. the resulting currency would be the amero. this would be done in an effort to fim up the position of the cominant north american currency as the reserve currency due to its position of beeing the oil benchmark. the asian nations should be jittery, imo, as the dollar keeps collapsing since they hold much paper as well as many dollars in reserve for trade transactions.

as interesting as all of this is of greater import long term is peak oil and the ripple effects of it. since it will not be able to be seen except after it has passed it is more imperative now to plan strategies to address economic/social/political impacts of peak oil. peak natural gas is also a major part of this as it is the major feedstock for many plastics as well as the fertilizers that make large scale agribusiness possible.

but don't worry, we can count on most politicans to do exactly what they are good at.

nothing.

[101Armorer]

the resulting currency would be the amero.

bird, do you have any information to share with us the prospect of the amero? I am interested in reading professional/financial projections/structuring of such. Thanks

[101Armorer]

Here's an update on the global food crisis and it's far reaching effects on us all. I believe now that the period between 2008 and 2012 is extremely crucial on many accounts..... food, of course, being one of them. I also feel that we'll witness approx 30%-40% of our population in the US who will by affected by a serious food crisis here in the states between now and 2010 and then another increase of at least 20% -30% by 2012. The question now is, will our govt put forth the efforts and money to increase our own farming of food by at least 50% before 2010 to help offset such a food crisis??



http://www.news.com.au/perthnow/story/0 ... 61,00.html

Food prices are 'global crisis'
Article from: Reuters


From correspondents in Vienna

April 25, 2008 09:25pm

RISING food prices have developed into a global crisis, United Nations Secretary-General Ban Ki-moon said today.
Concerns about food security mounted this week as rice prices hit records in Asia and the United States warned that staples for the world's hungry were getting much more expensive.

"This steeply rising price of food has developed into a real global crisis," Ban said.

Anger over high food and fuel costs in recent months has sparked protests in several countries.

Governments of several food-growing countries, worried about domestic shortages, have imposed export curbs, spooking markets at a time when world inventories are down sharply.

Ban said the crisis would be discussed at a meeting of UN agency heads on April 28-29 in Berne, Switzerland.

"The United Nations is very much concerned as all members of the international community (are)," he said.

Ban said the international community needed to take immediate action and that world leaders should discuss ways to improve food distribution systems and production.

Japan announced $US100 million ($105 million) in emergency food aid today and the World Food Program's executive director said yesterday the cost of feeding the world's hungry had jumped nearly 40 per cent amid spiralling food costs and oil prices.

[kath]

[color=#400080]The question now is, will our govt put forth the efforts and money to increase our own farming of food by at least 50% before 2010 to help offset such a food crisis??

Uh, no, unless they need more toy soldiers to die while the bomb-makers profit. Our government HATES the governed. Decent governments would assassinate these criminals when they try to relocate. I can grow the damn popcorn before that will happen.

[101Armorer]

Lets take a page out of the UK news. Yes, much like what is now being reported by US wall streeters, UK is also trumping up 'happy times are back again' tunes that should not fool the wise. This is long from over and just as a reminder, the comment below in the Guardian spells that fact out.


http://www.guardian.co.uk/commentisfree ... ndgovernor

Credit crunch

The end of the beginning


This article appeared in the Guardian on Friday May 02 2008 on p44 of the Leaders & reply section. It was last updated at 00:05 on May 02 2008.

Gordon Brown might well have enough grim news to digest this morning, but for a cheering distraction from the local election results he could do worse than turn to a little-known publication called the Financial Stability Review. Produced by the Bank of England and heavier on graphs than gags, it is never going to trouble Wodehouse as popular light reading. Besides, the very phrase "financial stability" has of late seemed something of an oxymoron.

Which makes yesterday's Review something of a tonic. "Prices in some credit markets ... overstate the losses that will ultimately be felt by the financial system and the economy", it begins, before predicting that "market conditions should improve as confidence returns and market participants recognise that some assets look cheap". So there you have it: some of the financial products formerly known as dodgy are now, officially, a bargain.

Bold statements, made all the more surprising given who is making them. For the past couple of years the Bank's pronouncements on financial stability have sat somewhere between worrying and downright scary. And as the past few months have shown, officials called it right. So is this a buy recommendation from a blue-chip source? Not quite. After repeated efforts to shore up confidence in the banking system, culminating in last month's swap of mortgage debt for government-issued bonds (duly mentioned in the report as one of the reasons to be cheerful), officials are now trying an old-fashioned pep talk, exhorting market participants to regain some confidence, to get out there and play, and so restore some semblance of normality. This is what you would expect from the institution in charge of the stability of the banking system. And indeed the Bank's estimate of total losses from the sub-prime affair ($150bn) is large, but a fraction of the $945bn forecast by the International Monetary Fund. The difference between those two figures is this: the IMF's assessment is of losses that would be realised if all those unsellable assets lurking on banks' books were suddenly offloaded at current rock-bottom rates; the Bank assumes this doomsday will not come.

And the Old Lady of Threadneedle Street may be right. For a few weeks now, market players have been talking about an end to the first act of the crisis. They point to signs of life in some of the bombed-out corners of markets, and banks finally finding buyers for some of their stinkiest assets. Not only that, but policy-makers have put in place a bunch of remedies for banks: forcing them to admit the scale of their losses; leaning on them to tap up shareholders for extra cash; and providing emergency loans. Much of this is what this newspaper and others have been calling for - and it appears to be working. If (and it is a big if) a major bank does not make another shock confession of bad news too soon, this really could be the end of the beginning.

That still leaves a lot more bad news to come. The credit crunch has to date been largely about the institutions that sold all these assets based on sub-prime mortgages (and just happened to have some on their books). But now the focus is bound to move on to the institutions that bought the dodgy debt. These investors are not central to the financial system, so should not cause as much of a fuss. But banks still do business with them - and besides, a hedge fund blowing up can be a hell of a sight.

But the major player in act two is going to be the rest of us. The UK economy was always due a reckoning - we could not keep on borrowing and spending too much for ever - but the credit crunch has both accelerated and exacerbated that process. And there will be casualties, especially in the housing market. Even while reforming the banking system, policy-makers will have to devise containment strategies to deal with this mess. And the economic news for Mr Brown will get a whole lot worse.