The world not better off in 2008..

Period of inflation in 2008 then 2009 .. stagflation..

Easing monetary policy in US

 

US easing of monetary policy would mean cheaper US  dollars on par vis a vis with world currencies, esp ASIAN currencies.

Also coupling with the fact, FED does not publish M3 data.¹ We are not even sure of the circulation of dollars available in US right now. On top of that, $41 billions of dollars of emergency money pump were pumped to rescue investment banks of their credit crunch. ²

This will devalue the US currency even more.

This is evident with YEN rising to 110 a dollar as of yesterday. ³

Along side the credit crunch, estimated of 64 billions of value of investment bank holdings were written off. ⁴ This is the most likely the result of the failed launch of the superfund by the investment bank themselves.  ⁵  

^TBC…

 

¹ http://www.federalreserve.gov/Releases/h6/discm3.htm

²  http://biz.yahoo.com/ap/071101/fed_markets.html?.v=2

³ http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=62dee82a-ec77-4887-819b-a356513c5162

⁴ http://www.reuters.com/article/companyNewsAndPR/idUSN0823401520071108

⁵ http://www.marketwatch.com/news/story/failed-siv-rescue-plan-would/story.aspx?guid=%7B6078635E-F9BB-457E-8A4C-F054D3FAFF61%7D

 

 

US collapse.. p3

THE BUBBLES ARE ONLY SYMPTOMS

But there’s much more to it than that. These bubbles are symptoms.
They are
created because our wage and salary earners lack purchasing power due
to
stagnant incomes and various structural causes. These causes include
the
outsourcing of our manufacturing industries to China and other cheap
labor
markets and the super-efficiency of the remaining U.S. industry which
is
able to manufacture products with ever-fewer workers.

Also, our farming, mining, and other resource-based industries are in
a
long-term slide. This and the decline of hard manufacturing have been
going
on since our oil production peaked in the 1970s, followed by the
Federal
Reserve-induced recession of 1979-83. Next came the deregulation of
the
financial industry. It was all part of the economic disintegration
that led
to today’s “service economy.”

Now, for the first time in modern U.S. history, there are no new
economic
engines at all. The last real engine was the internet which has now
reached
maturity with marginal players being weeded out.

Our biggest sources of new private-sector jobs today are food service,
processing of financial paperwork, health care for the growing numbers
of
retirees, and menial low-paying jobs, like landscaping and building
maintenance. These are increasingly being performed by immigrants who
are
also underpricing U.S. citizens in many service jobs like childcare
and auto
repair.

Today the rank-and-file of our population must increasingly turn to
borrowing in order to survive. Only the banks and the credit card
companies
are the beneficiaries. The total societal debt for individuals,
businesses,
and government is over $45 trillion and climbing. This is happening
even
while the real value of wages and salaries is decreasing.

What I have just been saying is bad enough, but here’s where the real
lunacy
enters in.

A major factor connected to the decline in the value of employee
earnings is
dollar devaluation in the overarching financial economy due to the
proliferation of huge quantities of bank credit being used to keep the
stock
market afloat and to fuel the speculative games of equity, hedge, and
derivative funds.

In other words, while our factories continue to shut down, the Wall
Street
gambling casino-like its Las Vegas counterpart-is running full-bore,
24/7.
This, along with financing of the massive federal deficit, is what
critics
are talking about when they speak of the Federal Reserve “printing
money.”

The main growth factors for federal spending are Middle East war
expenditures and interest on the national debt. But within the private
sector it’s leveraged loans to businesses which The Economist recently
said
“mirror..interest-only and negative-amortization mortgages” in the
subprime
market. But here’s the big difference: in the leveraged business
economy,
the amount of assets at stake are even greater than with the housing
bubble.

The financial world, which Dr. Michael Hudson calls the FIRE
economy-Finance, Insurance, and Real Estate-has been producing
millionaires
and billionaires among those who know how to play the game.

The Wall Street hedge funds stand out as the most irresponsible
financial
scams in history. Unregulated and secretive, they account for a third
of all
stock trades, own $2 trillion in assets, and pay their individual
managers
over $1 billion a year. Think about this the next time someone you
know has
their job outsourced to China or when his adjustable rate mortgage
resets
and drives up his monthly house payment past the level of
affordability.

The hedge funds borrow huge sums from the banks which generate loans
under
their Federal Reserve-sanctioned fractional reserve privileges. Often
this
money is used by the hedge funds to “short the market,” thereby
earning
profits when stock prices decline.

In other words, the hedge funds and their banking enablers use banking
leverage to bet against the producing economy. In doing so, they may
actually drive stock prices down, causing ordinary investors to lose a
portion of their own wealth. Can this be called anything other than a
crime?

The livelihood of much of the U.S. workforce and perhaps half of the
rest of
the world’s population-maybe three billion people-is being threatened
by
such financial lawlessness. The justification that was first used for
financial deregulation and tax cuts for the rich was that the trickle-
down
effect of wealthy peoples’ earnings would spill over to the rank-and-
file.

The Reagan administration ushered in these policies in the 1980s under
the
heading of “supply-side economics.” But the opposite has happened. The
system has institutionalized an increasingly stratified worldwide
culture of
haves and have-nots.

US collapse .. cont p2

What did the White House know?

Amy Gluckman, an editor of Dollars and Sense, reported in the
November/December 2006 issue: “During the Clinton administration,
Greenspan
was relatively ‘unembedded’-averaging only one meeting per month at
the
White House..

“But when George W. Bush moved into 1600 Pennsylvania Ave. ,
Greenspan’s
behavior changed. During 2001, he averaged 3.3 White House visits a
month,
more than triple his rate under Clinton and much more often with high-
level
officials like Vice President Cheney. His visits rose to 4.6 a month
in 2002
and 5.7 in 2003.

“Whatever White House officials were whispering in Greenspan’s ear, it
worked: Greenspan abruptly changed his tune on tax cuts, lending
critical
support to Bush’s massive 2001 and 2003 tax giveaways, and he loosened
the
reins by cutting Fed-controlled interest rates repeatedly beginning in
January 2001, a gift to the Republicans in power.”

Along the way, the bubble caused housing prices to inflate
drastically,
which officialdom touted as economic “growth.” Even today, periodicals
like
Barron’s naively boast that this inflation boosted American’s
“wealth.”

But this source of liquidity for everyday people has been maxed out,
like
our credit cards, and there is nothing to replace it. There is no cash
cushion anymore, because years ago people stopped earning enough money
for
personal or household savings.

As purchasers lose their homes to foreclosure, the real estate is
being
grabbed at bankruptcy prices by the banks and by any other investors
with
ready money. Whole neighborhoods of cities like Cleveland or Atlanta
are
turning into boarded-up ghost towns.

What we are seeing are the results of an economic crime on a fantastic
scale
that implicates the highest levels of our financial and governmental
establishments. It spanned three presidential administrations-Bush I,
Clinton, and Bush II-though the worst of it came with the surge of
outright
lending fraud after 2001.

As usual when hypocrisy is rampant only the small fry are being called
to
account. Commentators, including a sleepwalking Congress, have
self-righteously railed at consumers who got in over their heads. The
Mortgage Bankers Association is even lobbying Congress to allocate $7
million more to the FBI to go after the supposedly rogue brokers
within
their own industry who are being scapegoated.

The MOTHER of all MYTHS

OVER and OVER the mainstream media mindlessly propagates the myth that the Fed ‘fights’ inflation by increasing INTEREST rates. It’s time to put this colossal fiction to rest, once and for all.

Let’s start by defining inflation:

[a] persistent increase in the level of consumer prices OR a persistent decline in the purchasing power of money

But, are they both the same thing? And what triggers them?

Demand-Pull Inflation – [is] summarized as “too much money chasing too few goods.” In other words, if demand is growing faster than supply, then prices will increase. This usually occurs in growing economies.

Cost-Push Inflation – When companies’ costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports. [of course, no one ever mentions interest]

This raises some KEY questions. First, does each type of inflation require a different monetary approach in response?

And if so, how does the Fed know which type of inflation the economy is suffering from?

To answer the second, there’s no indication that the Fed distinguishes between the two causes of inflation. In fact, it appears that regardless of its cause, the Fed has a ‘one size fits all’ method of dealing with inflation that comes in two favorite flavors: open market operations and the discount rate.

That makes the cause of inflation irrelevant, at least when it comes to the Fed’s response. But, we shall see that, as the aggregate level of debt accumulates in the economy, the underlying cause of inflation becomes increasingly important with respect to the effect the Fed’s response has on the economy.

Through open market operations, the Fed increases or decreases bank reserves by buying or selling securities, respectively. “The Fed buys securities when it wants to increase the flow of money and credit, and sells securities when it wants to reduce the flow.”

 

When the Fed sees that too much money is going through the economy and prices are rising too quickly (inflation), they put the brakes on by selling securities. This reduces the amount of reserves available to banks, causing interest rates to rise, and banks will not make as many loans because it costs more for consumers to borrow.

Or, the Fed increases or decreases the infamous discount rate, thereby setting “the interest rate that a regional Reserve Bank charges banks and financial institutions when they borrow funds on a short-term basis.”

 

Changes in the discount rate can affect:

• Lending rates (by making it either more or less expensive for banks to get money to lend or hold in reserve)

• Other open market interest rates in the economy (because of its “announcement effect”) [NOTE: it need not actually affect prices, but only threaten to]

Let’s ignore, for now, the glaring illegitimacy of a private banking cartel that allows member banks to create their own money from thin air and lend it out at interest!

By now, it should be fairly obvious that, by increasing the supply of money and credit beyond the level of productivity in the economy, the Fed (and its cohorts) cause demand-pull inflation.

(See, Why the Federal Reserve is Irrelevant for a compelling argument that banks wield unfettered control over the money supply through zero-reserve lending.)

In fact, the only other possible cause of demand-pull inflation is a decline in productivity, which the Fed (and its cohorts) bring about by contracting the money supply, making it more difficult to conduct business, i.e., be productive!

You see, even though increased dollars to goods ratio can cause the price of goods to rise, the inverse does not necessarily cause deflation – not for products whose marginal cost is relatively high, or whose price is inelastic.

In fact, in an economy like ours where control over capital and industry is concentrated in a handful of corporations, if push comes to shove, they are more likely to destroy or hoard their goods before selling them at below optimum price in our market.

So, when the Fed ‘tightens’ the money supply through open market operations it merely arrests the inflation that it caused!

BUT also, when the Fed ‘tightens’ the money supply, it slows down the economy (a.k.a. productivity) which in turn pulls on the dollars to goods ratio, keeping prices inflated!

But, hold on to your hats; it gets worse.

Next, we examine cost-push inflation and ask how does the Fed know when to act?

Basically, the Fed monitors consumer PRICES and the COSTS of doing business, focusing mainly on the cost of labor.

As I’ve already demonstrated, the inflated prices that you and I perpetually suffer from are different from the prices that the Fed relies upon to guide its monetary policy. While they worry about “core” inflation, we suffer from REAL inflation measured by an index of prices that include volatile goods (food and energy).

Why are they volatile? Because we need these products, so suppliers extort whatever price the market will bear.

Why does the Fed ignore volatile prices, and act only on changes in core, or elastic prices?

First, the Fed doesn’t care about us. But also, there’s NO risk that the price of necessary goods would deflate below desired price; every price is the desired price! Control over food and energy sectors is so concentrated that suppliers simply dictate prices, consumers either pay or do without the product.

Finally, the cost variable the Fed seems to monitor more closely than any other is Labor.

[L]abor accounts for roughly two-thirds of all business costs.

Is that really true? Not entirely.

 

The exact proportion varies according to the capital versus the labor, maintenance, administrative and other costs of the goods and services we buy. [see, Margrit Kennedy, PDF p.3]

For example, garbage collection is very labor intensive, whereas public housing is not. So, even though ours is primarily a service economy, it is also an economy saddled with DEBT, i.e., high financing costs, which may dramatically affect the ratio of capital to labor costs.

Nevertheless, the Fed focuses almost exclusively on labor. Consider the following formula used by a senior analyst to predict whether the Fed will tighten the money supply:

 

“This is a Fed tightening trifecta: strong economic growth (via payrolls), resource utilization pressures (via the unemployment rate) and inflation risks (via average weekly earnings).”

There are a number of things wrong with this formula. First, all these indicators are consistent with increased productivity. Companies certainly don’t hire more people unless they’re productive, and while lower unemployment and increased wages may indicate, as the Fed argues, a ‘tightened labor market,’ it’s still not inconsistent with productivity; ordinarily, where profits are the goal, companies would never dish out what they could not recoup.

What business does the Fed have stifling productivity???

Moreover, this formula focuses only on labor, to the exclusion of other costs, specifically, capital.

Nevertheless, this economist sees the following labor figures as clear evidence that the Fed will increase rates yet again in March of this year:

• The unemployment rate in the [US] dipped to 4.7 per cent last month, its lowest level since July 2001.

• Employers added 193,000 new jobs in January for the biggest addition since November; and

• Average hourly earnings also edged up in January, climbing by 0.4 per cent – matching December’s gain.

First, it is not clear that these estimates of fluctuations in labor (which are at best tenuous) can actually cause inflation. For example, a new technology or business process may improve productivity such that increases in labor costs would not (necessarily) increase the price of goods.

But also, the economy’s aggregate financing costs may already be so high that any effort to ‘fight’ the higher cost of increased wages with a further increase in interest rates could have disastrous consequences, like stagflation:

“the combination of high unemployment and economic stagnation with inflation.”

So, to sum it up, the Fed (and its cohorts) cause demand-pull inflation, after which they badly exacerbate cost-push inflation by raising interest rates in our already debt-ridden economy.

The TRUTH is that the Fed does NOT, and CANNOT ‘fight’ inflation by increasing interest rates.

If anything, the Fed fights de-flation and productivity, to the benefit of banks and their offspring corporations and to the detriment of American workers and consumers.

Andrew Jackson Bank Veto Message, July 10, 1832

The present corporate body, denominated the president, directors, and company of the Bank of the United States, will have existed at the time this act is intended to take effect twenty years. It enjoys an exclusive privilege of banking under the authority of the General Government, a monopoly of its favor and support, and, as a necessary consequence, almost a monopoly of the foreign and domestic exchange. The powers, privileges, and favors bestowed upon it in the original charter, by increasing the value of the stock far above its par value, operated as a gratuity of many millions to the stockholders….

The act before me proposes another gratuity to the holders of the same stock, and in many cases to the same men, of at least seven millions more….It is not our own citizens only who are to receive the bounty of our Government. More than eight millions of the stock of this bank are held by foreigners. By this act the American Republic proposes virtually to make them a present of some millions of dollars.

Every monopoly and all exclusive privileges are granted at the expense of the public, which ought to receive a fair equivalent. The many millions which this act proposes to bestow on the stockholders of the existing bank must come directly or indirectly out of the earnings of the American people….

It appears that more than a fourth part of the stock is held by foreigners and the residue is held by a few hundred of our own citizens, chiefly of the richest class.

Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? The president of the bank has told us that most of the State banks exist by its forbearance. Should its influence become concentered, as it may under the operation of such an act as this, in the hands of a self-elected directory whose interests are identified with those of the foreign stockholders, will there not be cause to tremble for the purity of our elections in peace and for the independence of our country in war? Their power would be great whenever they might choose to exert it; but if this monopoly were regularly renewed every fifteen or twenty years on terms proposed by themselves, they might seldom in peace put forth their strength to influence elections or control the affairs of the nation. But if any private citizen or public functionary should interpose to curtail its powers or prevent a renewal of its privileges, it can not be doubted that he would be made to feel its influence.

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society the farmers, mechanics, and laborers who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles.

Nor is our Government to be maintained or our Union preserved by invasions of the rights and powers of the several States. In thus attempting to make our General Government strong we make it weak. Its true strength consists in leaving individuals and States as much as possible to themselves in making itself felt, not in its power, but in its beneficence; not in its control, but in its protection; not in binding the States more closely to the center, but leaving each to move unobstructed in its proper orbit.

Experience should teach us wisdom. Most of the difficulties our Government now encounters and most of the dangers which impend over our Union have sprung from an abandonment of the legitimate objects of Government by our national legislation, and the adoption of such principles as are embodied in this act. Many of our rich men have not been content with equal protection and equal benefits, but have besought us to make them richer by act of Congress. By attempting to gratify their desires we have in the results of our legislation arrayed section against section, interest against interest, and man against man, in a fearful commotion which threatens to shake the foundations of our Union. It is time to pause in our career to review our principles, and if possible revive that devoted patriotism and spirit of compromise which distinguished the sages of the Revolution and the fathers of our Union. If we can not at once, in justice to interests vested under improvident legislation, make our Government what it ought to be, we can at least take a stand against all new grants of monopolies and exclusive privileges, against any prostitution of our Government to the advancement of the few at the expense of the many, and in favor of compromise and gradual reform in our code of laws and system of political economy….

source :  http://odur.let.rug.nl/~usa/P/aj7/writings/veto.htm

quoted ref: http://odur.let.rug.nl/~usa/P/aj7/writings/veto00.htm

FED no longer transparently reveal the level of the money supply

Discontinuance of M3

On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).

M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

source:http://www.federalreserve.gov/releases/h6/discm3.htm

In God We Trust–Not The Dollar

This is a quote from The Tipping Point at Bloomberg.com.

The Dollar’s Credibility

“Reaching the `tipping point’ where the U.S. for the first time since the second World War ceases to have a positive net return on its net assets could be seen by the market as a significant blow to the credibility of the dollar,” the economists say.

“In a context where the external net worth of the U.S. is negative and the return on its net assets also turns negative, market participants could start demanding a higher premium on their dollar assets.”

That the U.S. has been able to sustain financing for its international deficits up to this point is primarily due to the American dollar being the world’s principal reserve currency, the center of the global monetary system.

Once people around the world lose faith in the dollar, it becomes WORTHLESS.

BTW–”premium on their dollar assets” translates into INTEREST.

So, expect a steep increase in interest rates in a last ditch effort to keep capital investments in dollars.

Fed shaves quarter-point off interest rate U.S. central bank lowers benchmark to 4.5% but further cuts uncertain

WASHINGTON — The Federal Reserve cut its key federal funds rate by a quarter-percentage point to 4.5% on Wednesday, but a warning on inflation suggested further rate reductions are not guaranteed.

The Fed’s Open Market Committee said in a statement that although economic growth was solid in the third quarter, the pace of expansion was expected to slow in the near future because of the U.S. housing slump.

“Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time,” it said.

The decision, however, was not unanimous.  Thomas Hoenig, president of Federal Reserve Bank of Kansas City, voted against the cut, arguing to hold the rate steady.

“Recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation,” the Fed said. “In this context, the committee judges that some inflation risks remain.”

“After this action, the upside risks to inflation roughly balance the downside risks to growth,” it added.

Prices for U.S. interest rate futures contracts showed dealers were scaling back bets on further rate cuts on the back of the Fed’s announcement, implying a 50% chance the Fed will lower rates again in December down from 64% overnight.

“I think the Fed is sending a fairly clear signal that they’re not guaranteeing any further cuts at this stage,” said deputy chief economist at BMO Capital Markets, Douglas Porter, in a telephone interview. “If anything I think they are trying to dampen enthusiasm for further rate cuts.”

He also said he does not believe the weak U.S. greenback was a major factor in the Fed’s decision on whether or not to cut rates. That contrasts to the situation in Canada, where the surging loonie weighs more heavily on the
central bank’s thinking.

“The very strong [Canadian] dollar just slowly but surely increases the odds of the [Bank of Canada] cutting rates as well,” he said, although he believes that scenario is more likely to play out next year.

The Canadian dollar climbed against the greenback following the rate announcement, after an initial drop.

The rate cut to 4.5% puts the federal funds rate equal to the Bank of Canada’s overnight rate for the first time since early 2005.

Credit markets, which were roiled in August as concerns mounted over rising delinquencies in the U.S. mortgage market, have regained some stability since the Fed lowered rates by a half-percentage point on Sept. 18.
 Fed officials have said they expect the housing slump and the after-effects of tighter credit to weigh on the economy into next year.

U.S. stocks pared gains, while prices for U.S. government debt extended losses as traders saw the Fed’s statement as suggesting a lower likelihood of further rate cuts. 

 Members of the committee had offered few clues as to their course of action during the two-day meeting before the 2:15 p.m. announcement, but financial markets were betting that a spate of weak economic data would lead policy-makers to lower benchmark borrowing costs modestly.

But that view was not universally held. Some analysts thought the Fed would determine that housing woes were not crimping consumer or business spending and, therefore, decide the best course would be to hold rates steady.

The cut follows Sept. 18’s surprisingly large half-point reduction, a move Fed officials had hoped would put them out in front of any potential economic weakness.

“In an economic expansion that had already slowed, leading sectors continue to display surprising softness and further cautious policy action can help to contain a widening out of the damage,” Citigroup economist Robert DiClemente wrote in a recent analysis.

However, as policy-makers convened on Wednesday, a government report showed that growth in the third quarter was considerably stronger than most economists expected.

Third-quarter U.S. gross domestic product rose at a 3.9% annual rate, its fastest rate since the beginning of 2006.

Economists surveyed by Reuters had forecast that growth would slow to 3% partly in expectation that dispirited consumers hurt by falling house prices would trim spending. Surveys have shown that consumer confidence has suffered as a subprime mortgage crisis lingers on.

The job market also looked healthier than expected. U.S. private employers added 106,000 jobs in October, according to ADP Employer Services, well above analysts’ expectations for a gain of 60,000.

Treasury bond yields rose and the downtrodden dollar regained some ground after the strong GDP figure, while U.S. stocks looked likely to open higher.

Market bets on the chances of a rate cut slipped following Wednesday’s data, but they had risen in recent weeks as a parade of gloomy economic reports have suggested the economy will be weaker in coming quarters than anticipated by the Fed.

On Tuesday, data showed U.S. consumer confidence slipped for a third straight month in October, while home prices posted their biggest drop in 16 years during August.

Also on Wednesday, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 5%. 

source:http://www.canada.com/nationalpost/financialpost/story.html?id=4fc97655-a953-40cf-b697-552050fe0b83&k=25851

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