Grant Montgomery - The Path of Weakness

Tottering on the edge of a “disastrous economic collapse.”

2009-07-10T15:46:00.002-03:00

Well, I don’t know if I can agree with the whole statement made by President Obama today but at least we have a major world leader acknowledging that the world has been/is tottering on the edge of a “disastrous economic collapse.”

AP reports, “Lasting worldwide recovery ‘is still a ways off,’ President Barack Obama declared Friday, but he also said at the conclusion of a global summit that a disastrous economic collapse apparently has been averted.”

"’Reckless actions by a few have fueled a recession that spans the globe,’ Obama said of the meltdown that began in the United States with a tumble in housing prices and drastic slowing of business lending. The downturn now threatens superpowers and emerging nations alike.”

India joins Russia and China questioning U.S. Dollar dominance

2009-07-06T02:03:00.004-03:00

Now India has joined Russia and China in questioning U.S. dollar dominance. Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

"The major part of Indian reserves is in dollars--that is something that's a problem for us," Tendulkar, chairman of the Prime Minister's Economic Advisory Council, said in an interview as he prepared to join leaders from the Group of Eight (G-8) industrialized nations at meetings to tackle the global economy.

Tendulkar said that big dollar holders face a "prisoner's dilemma" in terms of managing their holdings.

The fourth branch of the U.S. Government

2009-07-02T03:02:00.002-03:00

Most people assume we have three branches of government: The Judicial: the Supreme Court - The Executive: the President - The Legislative: Congress.

Almost unnoticed by most Americans, the US Federal Government introduced a fourth branch to its political structure in 2006.

Who is entirely devoted to dealing with the US’s fiscal house? Some make the argument that a bunch of greedy crooks were appointed, intent on stealing as much of the public’s money as possible with no consequences whatsoever. And Goldman Sachs provided most of the lead characters: Hank Paulson (former Treasury Secretary), John Thain, (former CEO of Merrill Lynch), Robert Rubin (the Chairman of Citigroup), Robert Steel (the head of Wachovia), Ed Liddy (who Paulson put in charge of the nationalized AIG), Mark Patterson (the current Treasury Chief of Staff), Neel Kashkari, (the guy in charge of allocating TARP funds) and let’s not forget Treasury Secretary Tim Geithner.

For details on this fourth element of government, see Rolling Stone article “The Great American Bubble Machine” by Matt Taibbi.

The Future of the U.S. Dollar

2009-06-04T15:00:00.003-03:00

America

’s trading partners do not have large enough trade surpluses to finance a federal budget deficit swollen to $2 trillion by gratuitous wars, recession, bailouts, and stimulus programs. Moreover, concern over the dollar’s future is causing America’s foreign creditors to seek alternatives to US debt in which to hold their foreign reserves.

Russia’s central bank now holds a larger proportion of its reserves in euros than in US dollars.
China has increased its gold reserves by 75% in recent years.
The governor of China’s central bank is calling for the abandonment of the dollar as reserve currency, using the International Monetary Fund’s Special Drawing Rights in its place.
China and Brazil are considering bypassing the dollar and conducting their mutual trade in their own currencies.
Chinese officials [indicated] that neither China nor the entire world has enough spare money to purchase $4 trillion of US Treasuries over the next two years.
[Meanwhile] War, bailouts, and stimulus plans have pushed the Obama administration’s annual operating budget 50% into the red.
Federal Reserve Chairman Bernanke thought he could push down interest rates on Treasuries by purchasing $300 billion of them. However, the result was to cause a sharp drop in Treasury prices and a rise in interest rates.
Every sector of the US economy is in trouble.

As monetization of federal debt goes forward, US interest rates will continue to rise, worsening the problems in the real estate sector. The dollar will continue to lose value, making it harder for the US to finance its budget and trade deficits. Domestic inflation will raise its ugly head despite high unemployment.

The next shoe to drop will be the dollar’s loss of the reserve currency role.

[Excerpt of a review by Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration]

U.S. Debt details at your fingertips

2009-06-01T02:07:00.005-03:00

This running chart maps it all out, and it ain't pretty!

Watch as --second by second-- we go further into debt.

National debt, the interest on that debt, the budget deficit; the state of Social Security and Medicare, and more. The information is right here at your fingertips.

You owe your life to the bailouts

2009-05-20T02:51:00.003-03:00

The nation’s gross domestic product was $14.2 trillion in 2008.

The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year!

Every American household is on the hook for $109,887 for these bailouts.

[Bloomberg]

China's yuan 'set to usurp US dollar' as world's reserve currency

2009-05-16T15:06:00.000-03:00

Professor Nouriel Roubini, of New York University's Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan's ascendance.

Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces. He also predicts that Beijing will soon want to see the yuan included in the International Monetary Fund's special drawing rights "basket", as well as seeing it "used as a means of payment in bilateral trade."

[The Telegraph]

The Bankers 'Own' the US Congress

2009-05-02T12:42:00.005-03:00

Sen. Dick Durbin blurted out on a local Chicago radio station an obvious truth that is rarely spoken:

"The banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."

The blunt acknowledgment that the same Wall Street banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme the institutional corruption is.

[Salon]

IMF warns of still 'deeper recession’ ahead

2009-04-29T02:32:00.006-03:00

The global economy is set to decline by 1.3% in 2009, the International Monetary Fund (IMF) says. However, the major economies are predicted to shrink even more. (See chart below) The prospects for the advanced economies are not any brighter in 2010, with an overall forecast of zero growth.

The IMF says this represents "by far the deepest post-World War II recession" with an actual decline in output in countries making up 75% of the world economy. After 60 years as the engine of world growth, the sharp fall in trade is now hitting many of the leading exporting nations, particularly in Asia.

At the heart of the crisis is the continuing overhang of losses in the financial sector, which the IMF now estimates at $4 Trillion, four times higher than it projected just one year ago.

And it warns that the current outlook is "exceptionally uncertain, with risks still weighting on the downside."

[BBC]

World Bank and IMF: Human calamity erupting from economic crisis

2009-04-28T13:17:00.003-03:00

The IMF and World Bank have warned that the global economic crisis is turning into a "human calamity". The two Bretton Woods institutions told their 185 member countries that the worst global slump in generations had already driven more than 50 million people into extreme poverty.

"The global economy has deteriorated dramatically ... Developing countries face especially serious consequences as the financial and economic crisis turns into a human and development calamity," the International Monetary Fund and World Bank joint development committee said in a statement.

How to help the developing world cope with the worst global slump since the 1930s Great Depression was top of the agenda for the bank's steering committee meeting that wrapped up the sibling institutions' two-day gatherings.

World Bank president Robert Zoellick also told the news conference, "No one knows how long this crisis will last."

[AFP]

Fed up with the FED (Federal Reserve)

2009-04-07T18:56:00.004-03:00

The one villain that has escaped public outrage over the financial crisis is the Federal Reserve.

"The very people who devised the policies that produced the mess are now posing as the wise public servants who will show us the way out," writes Thomas Woods in "Meltdown."

"The Fed was the greatest single contributor to the crisis that unfolds before us," Woods writes, and "more dollars were created between 2000 and 2007 than in the rest of the republic's history."

Already in its sixth week on the New York Times best-seller list, this eminently readable book traces the Fed's role in every financial crisis since this creature was spawned on Jekyll Island in 1913.

Obama is repeating the failed policies of Hoover and FDR, by refusing to let prices fall. Obama, with his intervention to prop up housing prices and Bernanke with his gushers of money to bail out bankrupt banks and businesses are creating a new bubble that will burst even more spectacularly.

[Patrick J. Buchanan, writing in Human Events]

The best way to rob a bank is to own one

2009-04-04T21:59:00.004-03:00

Ever wonder about the major conflict of interest in that Henry Paulsen had just been CEO of Goldman Sachs before becoming Treasury Secretary, which means it was his job to regulate the banking industry? And later to investigate it.

On April 3^rd, PBS broadcast an interview with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black addresses the trillions of dollars that are now being given to the banking industry and answers the question "How do they get away with it?” His response: Fraud!

He ascertains that CEOs of some of these banks and mortgage firms deliberately set out to make bad loans, as a means to increase their own personal income. And this was possible because the Bush Administration essentially got rid of regulation, so nobody was looking. Among the facts he presents:

- Complex instruments were deliberately created so swindlers could exploit them.

- Liars’ Loans were assigned triple-A ratings, which is supposed to mean there is zero credit risk.

- Rating agencies never looked at a single loan file. Fitch, the smallest of the rating agencies, stated "the results [of an investigation] were disconcerting, in that there was the appearance of fraud in nearly every file we examined."

- Secretary of the Treasury Geithner is covering up the fraud, just like Paulsen did before him.

China calls for new international currency reserve to replace the dollar

2009-03-24T13:36:00.002-03:00

In another indication that China is growing increasingly concerned about holding huge dollar reserves, the head of its central bank has called for the eventual creation of a new international currency reserve to replace the dollar. Russia recently made a similar proposal.

Zhou Xiaochuan, governor of the People’s Bank of China, said a new currency reserve system controlled by the International Monetary Fund could prove more stable and economically viable. A new system is necessary, he said, because the global economic crisis has revealed the “inherent vulnerabilities and systemic risks in the existing international monetary system.”

China’s bold idea, released more than a week before world leaders are to meet in London for a global economic summit, also indicates that Beijing is worried that its huge dollar-denominated foreign reserves could lose significant value.

The New York Times

Options for a failed U.S. Economy

2009-03-21T04:37:00.003-03:00

A recent Pravda article spells it out:

1. The United States is the largest borrower in the world, the US national debt now exceeding 11 trillion dollars, and continuing to avalanche.

2. With the government taking on the debts of corporations, the corporate debt crisis has thus become the American governmental debt crisis.

3. According to experts, there is high probability of default on US treasury bonds. Some project that the USA has already started on a plan to refuse the dollar in order to avoid debt payments.

4. One analyst concludes that a US default is likely, only after the world finds an alternative to the US dollar. The dollar’s immediate collapse is unacceptable simply because 63 percent of world reserves are saved in dollars, and that would result in a global economic collapse.

5. Analyst Dmitry Abzalov believes that the current situation with the US national debt may end with a new war. The war will destroy excessive liquidity and the current debt. A war boosts the nation’s industry, with recovery based on defense orders.

A planned program of U.S. financial concentration

2009-03-20T03:11:00.008-03:00

Paul Craig Roberts, a former Asst Secretary of the Treasury , poses the question “Is the whole point of the bailout to supply taxpayer money for a program of financial concentration?”

Roberts agrees that Professor Michael Hudson (CounterPunch, March 18) is correct that the orchestrated outrage over the $165 million AIG bonuses is a diversion from the thousand times greater theft from taxpayers of the approximately $200 billion “bailout” of AIG.

Eliot Spitzer, the former New York Governor who was set-up in a sex scandal to prevent him investigating Wall Street, pointed out that the real scandal is the billions of taxpayer dollars paid to the counter-parties of AIG’s financial deals. These payments, Spitzer writes, are “a way to hide an enormous second round of cash to the same group that had received TARP money already.”

Meanwhile CNN reports that “Veterans Affairs Secretary Eric Shinseki confirmed that the Obama administration is considering a controversial plan to make veterans pay for treatment of service-related injuries with private insurance” . And you may recall that the Washington Post reported that the Obama team has set its sights on downsizing Social Security and Medicare.

So let's watch the plan unveil.

What of the $10 Trillion stimulus bailout?

2009-03-04T09:59:00.006-04:00

As a result of the nation's largest corporations and banks hitting up and continuing to hit up the U.S. government for trillions in taxpayer dollars, the government is on the hook for close to $10 trillion in assorted bailouts.

As they say on the Hill, "a billion here, a billion there ... pretty soon you're talking about real money."

How real? That $9.7 trillion is more than the U.S. government spent on the Louisiana Purchase, the New Deal, World War II, the Marshall Plan and the Vietnam War -- combined.

Imagine if the government had focused on committing 90% of this toward bailing out ordinary Americans instead, in economic help or loans, and “only” gave a trillion or so to the banks and corporations: Uncle Sam could have sent every single U.S. household a check for $80,000. Now that would have stimulated the economy.

Economic Outlook not looking good for 2012 and beyond

2009-03-01T11:23:00.004-04:00

The US government under Bush spent close to one trillion dollars, and now the Obama administration is promising to spend trillions in the years to come to stimulate the economy.

Meanwhile, the official US debt is close to 11 trillion dollars and climbing fast. The debt interest alone is becoming untenable. Last year (2008) US government paid $451 billion dollars interest on its debt. Add to this the Medicare and social security obligations and suddenly things look a lot worse than they appear.

In early February, the International Monetary Fund’s chief Dominique Strauss-Kahn said the world's advanced economies -- the U.S., Western Europe and Japan -- are "already in depression”. Gordon Brown, the UK’s Prime Minister also used the word "depression" to describe the global economy, although his aides quickly said it was a slip of the tongue.

Japan’s economy, the second largest in the world, contracted by 12.7 per cent on a seasonally adjusted annualised basis in the fourth quarter. All South East Asian economies are reporting severe slow down or outright contraction. Many believe that China is hiding the extent of the economic contraction of its economy.

Middle Eastern countries have also been severely affected by the financial crisis. Every country has slashed its expenditure with the accompanying slowing growth. Iranians, Saudis, Iraqis, Kuwaitis and others have also been forced to slow down or freeze many projects. One must not forget that many of these countries’ petro-dollars would otherwise be re-circulated back into the US and European economies.

U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs

2009-02-16T01:16:00.002-04:00

The U.S. government’s commitment to solving the financial crisis comes to about $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

Forget about the “measily” $787 billion Stimulus package just passed. The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years, and pledged up to $5.7 trillion more.

Only the latest approved stimulus bill, and the $700 billion Troubled Asset Relief Program passed four months ago, and $168 billion in tax cuts and rebates enacted in 2008 have been voted on by lawmakers. The remaining $8 trillion is in lending programs and guarantees, almost all under the Fed and FDIC. Recipients’ names have not been disclosed. The Federal Reserve so far has also refused to disclose loan recipients or reveal the collateral they are taking in return.

$9.7 trillion would be enough to send a $1,430 check to every man, woman and child alive in the world. It is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.

[Bloomberg]

Predicted 15 year impact from worst financial downturn in 100 years

2009-02-11T00:51:00.006-04:00

In an extraordinary admission about the severity of the economic downturn, the British PM's closest ally predicted that its effects would still be felt 15 years from now. His comments carry added weight because he is a former chief economic adviser to the Treasury.

He added: "The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years, as it will turn out. … These are seismic events that are going to change the political landscape. I think this is a financial crisis more extreme and more serious than that of the 1930s, and we all remember how the politics of that era were shaped by the economy."

He warned that events worldwide were moving at a "speed, pace and ferocity which none of us have seen before" and banks were losing cash on a "scale that nobody believed possible".

The minister stunned his audience at a Labour conference in Yorkshire by forecasting that times could be tougher than in the depression of the 1930s, when male unemployment in some British cities reached 70 per cent.

[The Independent]

New reserve currency and bankrupt U.S. States?

2009-02-06T01:40:00.007-04:00

In his speech at the opening of the World Economic Forum in Davos, Vladimir Putin reminded the that “just a year ago, American delegates speaking from this rostrum emphasized the US economy’s fundamental stability and its cloudless prospects. Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years.”

With another swipe at America’s failed economic leadership, and greeted with a roar of applause, Putin also said it is time to get rid of virtual money, false financial reports, and dubious credit ratings. Putin proposed a new reserve currency system to “replace the obsolete unipolar world concept.”

Meanwhile, in the United States, there are currently 46 states of the 50 U.S. States with high budget deficits, many of which could file for Chapter 9 bankruptcy.

Many States are already scurrying to cut State-funded programs, raise taxes, not issue tax refunds to their citizens, and borrow money just to survive in 2009. And unfortunately, many of the same banks the Fed bailed out are refusing to loan money to the States and their Treasury agencies.

It’s very possible we’re about to experience the end of the United States as we know it.

[Source: CNN and Center on Budget and Policy Priorities]

The Billion and Trillion Dollar numbers make us numb-er

2009-02-04T18:26:00.003-04:00

Everyone is tossing around the words million, billion and trillion. In that strange intersection of economics and politics, there is a new fashion: Trillion is the new billion.

A billion is a thousand million, and a trillion is a thousand billion.

To provide some perspective on just how big a trillion dollars is, think about it like this: A trillion dollars is the number 1 followed by 12 zeroes. Or you can think of it this way: One trillion $1 bills stacked one on top of the other would reach nearly 68,000 miles (about 109,400 kilometers) into the sky, or about a third of the way from the Earth to the moon.

Americans have become desensitized to just how much money that is. "To put a trillion dollars in context, if you spend a million dollars every day since Jesus was born, you still wouldn't have spent a trillion," McConnell said.

"A million dollars a day for 2,000 years is only three-quarters of a trillion dollars,"adds Temple University math professor and author John Allen Paulos.

Here's another way to look at it.

"A million seconds is about 11½ days. A billion seconds is about 32 years, and a trillion seconds is 32,000 years," Paulos said. "People tend to lump them together, perhaps because they rhyme. But if you think of it in terms of a jail sentence, do you want to go to jail for 11½ days or 32 years or maybe 32,000 years? So, they're vastly different, and people generally don't really have a real visceral grasp of the differences among them."

Perhaps a better way to get a "grasp of the numbers," Paulos said, is to use them to describe the budgets of government programs.

"The [Environmental Protection Agency's], for example, annual budget is about $7.5 billion. So, a trillion dollars would fund the EPA in present dollars for 130 years -- more than a century. Or the National Science Foundation or National Cancer Institute have budgets of $5 or $6 billion. You could fund those for almost 200 years," he said.

Wall Street bailouts estimated to be $6 Trillion

2009-01-18T06:40:00.004-04:00

In hopes of stanching the bleeding, the federal government has now spent or put at risk approximately $6 trillion. True, a big part of that number reflects the government's purchase of securities that may actually yield a profit one day.

The best-known aspect of this epic spending spree is the U.S. Treasury's $700 billion Troubled Assets Relief Program, whose remit has included purchasing so-called toxic securities, giving banks cash and helping Detroit automakers avoid bankruptcy.

The Treasury also gave $300 billion in guarantees for struggling Citigroup, poured $200 billion into Fannie Mae and Freddie Mac, and granted an additional $50 billion in temporary guarantees to keep investors from pulling out of money market funds.

The Federal Reserve has also been busy. Central bankers have said they could purchase as much as $1.3 trillion of commercial paper from nonfinancial companies to make sure businesses have the working capital they need in an environment where banks are hesitant to lend. The Fed has committed an additional $1 trillion to a variety of credit facilities designed to encourage banks to loosen up.

Among other federal rescue measures we have the Federal Deposit Insurance Corp.'s decision to guarantee as much as $1.4 trillion in interbank loans, $300 billion for the Federal Housing Administration to insure mortgages in danger of foreclosure and a $150 billion aid package for insurance giant AIG.

The federal government is on the hook for $5 trillion of debt that Fannie Mae and Freddie Mac underwrote. The two companies themselves hold only a third of that debt, so it's unclear what the taxpayer's ultimate liability will be there.

[MSN]

Happy New Year? Certainly not economically!

2009-01-01T13:47:00.006-04:00

What can we expect in 2009? Among other things, more financial revelations amongst the results of the IMF’s rigorous assessment of the U.S. financial system.

Under its bylaws, the International Monetary Fund (IMF) is charged with the supervision of the international monetary system. Officials with the IMF however informed Ben Bernanke of a plan that would have been unheard-of in the past: The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.

For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition: The review could only begin in Bush's last year in office.

Roughly two-thirds of IMF members -- but never the United States -- have already endured this painful procedure. As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team.

The final report on the risks of the US financial system is to be released by 2010 -- and it is likely to cause a stir internationally.

The Great Crash of 2008 turning into the Global Depression of 2009

2008-12-29T15:23:00.005-04:00

Several major U.S. firms have declared bankruptcy or begun liquidation, and it's expected that the list of casualties will mount as the final results of 2008 come in.

The Wall Street Journal quoted Mary Delk, a director in the retail practice at consulting Firm Deloitte LLP, confirmed, "This will go down as one of the worst holiday sales seasons on record."

Earlier this week, the top economist at the International Monetary Fund, Olivier Blanchard, warned that continued declines in consumer spending will set off a global depression.

Blanchard told the French newspaper Le Monde, "Consumer and business confidence indexes have never fallen so far since they began. …. It is imperative to stifle this loss of confidence, to restart household consumption, if we want to prevent this recession developing into a Great Depression."

A third of G8 banks bankrupt, closed or merged in 2009?

2008-12-25T01:49:00.001-04:00

Financial analyst Ralph Silva of TowerGroup told CNBC that he expects no less than one third of banks to fail in 2009 and that anything up to a thousand could collapse if they don’t merge.

“In 2009 we’re gonna see one third of the banks in the G8 countries disappear, either being merged, forced or not forced, or completely disappearing,” said Silva.

The analyst predicted that rather than letting banks fail, governments will force them to merge, which would lead to “very few banks owning quite a bit more.”

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