IMF warns over parallels to Great Depression

The International Monetary Fund has warned of "worrisome parallels" between the current global crisis and the Great Depression, despite the unprecedented steps already taken by central banks and governments worldwide.

This recession is likely to be "unusually long and severe, and the recovery sluggish," said the Fund, releasing two advance chapters from its World Economic Outlook. However, it warned there is a risk that it could spiral down into a full-blown slump unless further action is taken to stop "feedback effects" gathering force.

Dominique Strauss-Kahn, head of the IMF, said millions of people risk being pushed back into poverty as the economic storm ravages the most vulnerable countries. "The human consequences could be absolutely devastating. This is a truly global crisis, and nobody is escaping," he said.

"The free-fall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today."

Mr Strauss-Kahn called for a urgent action to "cleanse banks" of toxic assets and for further fiscal stimulus beyond the 2pc of global GDP already agreed. The snag is that high-debt countries may have hit the limits already.

"The impact becomes negative for debt levels that exceed 60pc of GDP," said the Fund.

While no countries were named, this would raise questions about Japan, Germany, France, Italy and ultimately Britain and the US after their bank rescues.

The IMF said the US is at the epicentre of this crisis just as it was in the Depression, setting the two episodes apart from normal downturns. However, the risks are greater this time. "While the credit boom in the 1920s was largely spec­ific to the US, the boom during 2004-2007 was global, with increased leverage and risk-taking in advanced economies and many emerging economies. Levels of integration are now much higher than during the inter-war period, so US financial shocks have a larger impact," it said.

The IMF said the global financial system is still under acute stress, with output tumbling and inflation falling towards zero in key nations. "The risks of debt deflation have increased," it said.

Abrupt halts in capital flows can have "dire consequences" for emerging economies, it said. Eastern Europe has already suffered the effects, with a 17.6pc fall in industrial production in February. The region is highly vulnerable to the credit crunch since it owes more than 50pc of its GDP to Western banks.

Synchronised world recessions striking all major regions are "historically rare" events, the Fund said. They last one and a half times as long typical downturns, and are followed by painfully slow recoveries.

Source: Telegraph

Is This the Bottom? (Jim Rogers Video)

Jim Rogers is a legendary investor known for his ability to predict major long term trends in financial markets. Jim trades and invests in commodities, stocks, futures and currencies in stock exchanges in 5 continents.

Jim Rogers discusses the state of the world economy and looks ahead in this April 13th interview with Bloomberg.

Part 1 of 3


Part 2 of 3


Part 3 of 3

Five Hundred Russian Banks to Go Bust in 2009

Professional bankers expect a quick liquidation of hundreds of banks at the end of forthcoming summer. Most of the banks will be closed due to their small capitals and because of the clients that will not be able to pay off their debts.

Alexander Turbanov, the head of the Deposit Insurance Agency, said that the number of banks will decrease in Russia during the second half of the year.

The number of banks, which received no profit as of January 2009, tripped in Russia, a review of the Bank of Russia said.

Specialists of the Association of Russian Banks also said that some 200 banks will not be able to see the year 2010 in: they will not be able to meet the net worth requirements of the Bank of Russia.

Bankers say that there are about 50-100 zombie banks in Russia, which either service the interests of only several companies, which own those banks, or exist only on paper. Their liquidation under the conditions of the crisis is inevitable.

The government may lose up to one trillion rubles as a result of the process. Banks may need these funds by the end of the year, if the amount of bad loans will make up ten percent of all loans. If it is going to be 20 percent, the price to maintain the surviving banks will skyrocket to two trillion rubles.

Source: Pravda

Willem Buiter: "Non-Negligible" Risk of Default by US and UK

Willem Buiter takes no prisoners, In his latest post, "The green shoots are weeds growing through the rubble in the ruins of the global economy", he dispatches the idea that recovery is around the corner (citing Carmen Reinhart and Kenneth's latest paper on the resolution of financial crises) and points out that the fiscal state of affairs in the US and UK will become sufficiently strained (even making the usual allowances for Keynesian stimulus) so as to make default a possibility (but recognize that Buiter is not saying it is likely). The easiest way to default, however is via inflation, but that also has the nasty side effect of "taxing" all domestic savers, not just the unfortunates who owned government paper. So the fact that Buiter even mentions explicit default is telling.

Buiter also believes that the imbalanced nature of stimulus measures – more than is optimal from countries under financial stress like the US and UK, too little from countries with balance of payment surpluses (China, Japan, Germany) means growth once the acute phase of the crisis is past will be lower than it would be with a better response. He is also critical of the Fed's version of quantitative easing and is dubious that the commitments at the G20 to provide $1 trillion to the IMF will come through.

He also, in passing, says (without mentioning his name) that Simon Johnsom may be correct in his view that the government is captured by the finance sector, not merely by subscribing to their world view, as he has argued before, but in the mercenary sense.

From Buiter:

Willem Buiter

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Source: Naked Capitalism

Collapsing Commercial Real Estate Could Snuff out Economic Recovery

Stock prices have rallied for much of last month. The housing market has shown some early signs of life. And some of the latest economic reports haven't been the disasters that many experts feared.

While this is hardly a portrait of an economy on a roll, there are enough bright spots to nurture a feeling that the U.S. economy is finally on a path to recovery - especially given the upbeat response the latest elements of the Obama administration's fix-it plans have received.

But there's a dark cloud in this picture. And it's big - big enough, in fact, to potentially finish off the U.S. banking sector, blotting out the U.S. economy's new dawn.

That dark cloud is the commercial real estate sector. With rent prices falling and vacancies rising due to the recession-weakened economy, delinquencies on commercial mortgages are already escalating steeply. And the credit crunch bred from the recession is often making it impossible for property owners to avoid deeper trouble by refinancing.
"It's a one-two punch combination: First, soaring vacancies take the wind out of positive cash flow; then the credit crisis hits like a rabbit punch, snapping off the main arteries to refinancing," says Money Morning Contributing Editor Shah Gilani, a retired hedge-fund manager and expert on the U.S. credit crisis who predicted the implosion of the commercial real estate sector several years ago. "This is like Samson hitting the ground. The giant asset class we call commercial real estate is not going to get up any time soon."

Here in the U.S. market, commercial real estate is worth about $6.5 trillion, and is financed by an estimated $3.1 trillion in debt.

And that debt is going bad at an escalating rate. In March, the delinquency rate on about $724 billion in securitized debt reached 1.8%. As percentages go, that's a pretty small number. In fact, it's less than a quarter of the housing market's record-breaking mortgage-delinquency rate of 7.88% for the fourth quarter , according to the Mortgage Banker's Association.

But don't let that 1.8% rate fool you: The delinquency rate on commercial-real-estate debt has more than doubled just since September, according to a new Deutsche Bank AG ( DB ) report called " Commercial Real Estate at the Precipice ."

With that increase, experts say the delinquency rate on commercial real estate has already almost equaled the rate achieved during the last U.S. economic slump, which took place at the beginning of this decade. And forecasts now call for the current downturn in the commercial real estate market to rival - and perhaps even exceed - the plunge of the early 1990s, when nearly 8% of all commercial real estate loans went sour. Banks and thrifts took nearly $50 billion in charges, and nearly 1,000 lenders failed, The Wall Street Journal said.

The fallout this time could be much worse - for three key reasons:

Commercial Real Estate is a Heavyweight Sector : Although soaring defaults on student loans, auto loans or credit cards certainly won't help a nascent economic recovery, those slices of the debt market are dwarfed by their commercial real estate counterpart. What's more, the $3.1 trillion that makes up the commercial real estate debt market is three times the size it was during the early 1990s - meaning the potential for losses is steeper than ever before.

Commercial Real Estate is Closely Tied to Employment : The second factor is jobs. In the housing market, a loan default essentially affects a single family. In commercial real estate, a default typically signifies big problems at the company that owns or occupies the building or property that the loan finances. And those "big problems" typically translate into reduced jobs. This is debt that's backed by the mostly vacant downtown high-rise where your neighbor worked before his employer downsized; by the neighborhood mall that shoppers avoid after it lost its Starbucks ( SBUX ), Circuit City (OTC: CCTYQ ), Linens ‘N Things and Mervyns retail locations; or by a factory of a now-bankrupt supplier of parts for the General Motors Corp. ( GM ) passenger car that's been cancelled.

A Nosedive in the Commercial Real Estate Sector Could Torpedo any Improvements the American Banking Sector Has Seen : Since 2007, 47 lenders have failed, of which one quarter had an exceptionally high exposure to commercial real estate loans. Until recently, the U.S. banking sector has been an economic "black hole," whose unending appetite for capital left nothing for actual economic stimulus efforts. That black-hole syndrome seemed to have been resolved recently, allowing the Obama administration to enact other stimulus plans. But many experts fear that a severe downturn in the commercial real estate sector might be enough to reopen this interstellar capital chasm, blunting all other rebound initiatives. Foresight Analytics LLC estimates that - as a result of the ongoing downturn - the U.S. banking sector could incur as much as $250 billion in commercial real estate losses, enough to cause another 700 banks to fail.

" Any bank that has a sizable book of commercial real estate loans could have serious problems in 2009 ," Jamie Peters, a bank analyst at Morningstar Inc . in Chicago, told The Minneapolis Star-Tribune .

This time around - compared to the early 1990s - banks left themselves no margin of safety in the form of " Tier I Capital " - a measure of how well a lender can navigate serious levels of losses. The higher the ratio, the less likely a lender will be able to work its way through a stretch when loans start going bad.

In 1993, less than 2% of U.S. banks and thrifts had an exposure to commercial real estate that was more than five times their Tier I capital. By the end of last year, that ratio had spiked to 12%, involving about 800 banks and thrifts.

As Money Morning reported, the U.S. Treasury Department and the U.S. Federal Reserve are working on a program that would induce private investors to buy into debt backed by such income-producing commercial properties as office buildings, retail stores and hotels. The program - the Term Asset-Backed Securities Loan Facility (TALF) - is seen as a way of breaking the toxic-asset logjam , and to bring capital to debt that can't be refinanced because of the ongoing credit crisis.
This is an attempt to avoid the [dangerous] "repeat of what happened on the residential side: A complete choking up, foreclosure disasters and increased stress on the banking system," Jeffrey DeBoer, chief executive of the Real Estate Roundtable, told The Journal .

What has real estate executives really worried is the looming surge in commercial real estate loans coming due. Until now, delinquencies on commercial real estate loans have stayed below historical levels (due mostly to the limited amount of speculative construction that's taken place in recent years. But delinquencies are now surging - in a big way - just as the volume of loans coming due is also spiking - and just as the few remaining lenders willing to make the kind of loans needed to refinance this debt are exiting the market.

"The credit crisis has got so bad that refinancing of even good loans may be drying up," says Richard Parkus, head of commercial-mortgage-backed securities research at Deutsche Bank, and the author of the afore-mentioned "Commercial Real Estate at the Precipice" report.

Commercial real estate loans differ from their residential-loan counterparts, which borrowers repay after a set period of time - usually 30 years. Commercial mortgages usually are underwritten for five, seven or 10 years with big "balloon" payments due at the very end. At that point, the property owner usually turns the loan over and refinances it. A borrower's inability to refinance could force it to default.

All of a sudden, scores of experts are warning federal lawmakers that hundreds - or even thousands - of resort hotels, retail malls and shopping center properties and commercial complexes of all sorts are headed for, on the verge of, or are already in default, a Memphis Daily News report stated. The reason: About $530 billion of commercial mortgages will be coming due for refinancing in 2009-2011 - with about $160 billion maturing this year - even as credit for refinancing remains non-existent, and cash flows from rents and leases are way down due to the recession, property researcher Foresight Analytics concluded.

What's not clear is how soon the crunch will come - or if it will come at all.

The Real Estate Roundtable, a key trade group for the industry, late last year predicted that more than $400 billion of commercial mortgages will come due through the end of 2009. Foresight Analytics estimates that $160 billion of commercial mortgages will mature next year.

"Unfortunately, the commercial real estate market is even more vulnerable to economic cycles, and here I'm talking about deep recession, than residential real estate," Money Morning 's Gilani says.

The current recession - which started in December 2007 - could be the wild card, Gilani says. If the U.S. economy continues to improve, as it seems to be, and as many experts predict will continue to, cash flows from properties won't keep declining, and defaults won't escalate. Unfortunately, there's an inertia that takes hold during a downturn: Companies continue to slash jobs, shutter plants, close stores and otherwise cut expenses - often even after the broader economy shows early signs of new life. This inertia could be enough to keep commercial real estate vacancies to rise and defaults to escalate.

If that happens, it's possible the commercial real estate sector becomes the "tipping point" that could keep the U.S. economy ensconced in its current recession, or if the recovery is truly under way, push the U.S. market into a "double-dip" downturn.

Time will clearly tell.

Source: Shah Galani @ Money Morning

G20: SARKOZY, "FRANCE AND GERMANY UNSATISFIED''

France and Germany are not pleased yet with the draft formulated in view of tomorrow's G20, said French President Nicolas Sarkozy. He explained that ''France nor Germany are pleased with the proposal''. France has asked for stricter rules for global finance, against tax havens in particular. ''I dissociate from a meeting'' he said ''which leads to false compromises without dealing with the real problems we have''.

Bailout Economics: The Politics of Self Destruction

This article, written by Alex Merk, takes the American perspective of Government bailouts. Given that Gordon Brown has gone down the same road, this piece also reflects the situation of the UK as well.

Bailout Economics

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Geithner's ‘Dirty Little Secret' Transfer Trillions to Bankrupt Mega Banks

US Treasury Secretary Tim Geithner has unveiled his long-awaited plan to put the US banking system back in order. In doing so, he has refused to tell the ‘dirty little secret' of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction.

The Geithner Plan, his so-called Public-Private Partnership Investment Program or PPPIP, as we have noted previously ( Obama's Rettungsplan für die Banken: keine Lösung, sondern legaler Diebstahl ), is designed not to restore a healthy lending system which would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets without demanding they change their business model. Yet, one might say, won't this eventually help the problem by getting the banks back to health?

Not the way the Obama Administration is proceeding. In defending his plan on US TV recently, Geithner, a protégé of Henry Kissinger who previously was President of the New York Federal Reserve Bank, argued that his intent was ‘not to sustain weak banks at the expense of strong.' Yet this is precisely what the PPPIP does. The weak banks are the five largest banks in the system.

The ‘dirty little secret' which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called Credit Default Swaps.

In 2000 the Clinton Administration then-Treasury Secretary was a man named Larry Summers. Summers had just been promoted from No. 2 under Wall Street Goldman Sachs banker Robert Rubin to be No. 1 when Rubin left Washington to take up the post of Vice Chairman of Citigroup. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century , to be released this summer, Summers convinced President Bill Clinton to sign several Republican bills into law which opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some $5 billion in lobbying for these changes after 1998 was likely not lost on Clinton .

One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act that prohibited mergers of commercial banks, insurance companies and brokerage firms like Merrill Lynch or Goldman Sachs. A second law backed by Treasury Secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US Government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called Over-the-Counter (OTC) derivatives like Credit Default Swaps, such as those involved in the AIG insurance disaster, (which investor Warren Buffett once called ‘weapons of mass financial destruction'), be free from Government regulation.

At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary. Today, Geithner's old boss, Larry Summers, is President Obama's chief economic adviser, as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.

The ‘Dirty Little Secret'

What Geithner does not want the public to understand, his ‘dirty little secret' is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet' or Over-The-Counter derivatives issuance.

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere' $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain 's HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG's Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.' In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers' coup d'etat. It definitely is not healthy.

This is Geithner's and Wall Street's Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. Ooohh. Uh Huh?

This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.

This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode. That is pre-programmed as worsening economic recession mean corporate bankruptcies are rising, home mortgage defaults are exploding, unemployment is shooting up. This is a situation that is deliberately being allowed to run out of (responsible Government) control by Treasury Secretary Geithner, Summers and ultimately the President, whether or not he has taken the time to grasp what is at stake.

Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to ‘federalize' the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.

Source: William Engdahl

Ireland downgraded as world markets fall

Ireland's reputation as the "Celtic Tiger" of the 21st century economy has been shattered after its sovereign debt was downgraded, sparking fresh fears about the possibility that it may default as it battles the crisis.

Standard & Poor's has announced that it is removing Ireland's coveted AAA rating and replacing it with a AA+ rating, capping a day of misery in global markets.

The decision will raise suspicions that the UK may soon find its own debt downgraded. The ratings agency said it had taken the decision after examining the prospects for the country's public finances. The country's finance ministry insisted that it was determined to keep its debts under control in the coming years, saying: "The government is committed to restoring order to the public finances by bringing the deficit below the three percent limit by 2013."

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Stock Market Rally and China

Larry Edelson`s article from Market Oracle on March 26th.

Investing in China and Dow 10,000

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Economic Stimulus Packages — The Hidden Threats

Following the American lead, lunched by President Barrack Obama, almost all governments, including China, India, Kuwait, the UAE and several other countries have either introduced or are on the process of introducing economic or financial stimulus packages to make an early recovery from the global economic crisis, that they prefer to call ‘Recession’. But they are forced to admit that it is more severe than the Great Depression of 1929. Then, of course, it must be the Great Depression II of 2009, lasting several years to recover. A series of global summits to deal with the crisis are under way.

Basic Assumptions

However, almost all packages are based on the following assumptions:

1. The present crisis is a recession to disappear within one year or at the maximum two years, as it is only a short term phenomenon.
2. It is basically a problem of credit crunch.
3. The market is flooded with unsold industrial and consumer products.
4. Speedy recovery could be made by injecting more funds either by debt or deficit financing.
5. By ensuring easy credit and supporting banks and also one or two major industries, the crisis could be averted and recovery could be made soon.

Over Simplification

The present Global Economic Crisis has been over simplified or presented as a mere financial meltdown or recession and it could be dealt by making available more funds to the consumers so as to create new demand for all the unsold items and thereby revive the market and ultimately bring back the boom. The required fund could be raised by either deficit financing or public debt, besides borrowing from other sources that could form the basis of further credit. All the assumptions are wrong with out any basis.

Wrong Diagnosis

But the very assumptions of all these recovery packages are conceived without the backing of any sound theory and strategy or even history. Both the experts and rulers ignore the truth that the basic problem is not of the credit but of income and earning of the people to create a sustained demand and ensure reasonable saving and investment. If the newly created funds are flooded to the market, of course, most of the unsold items will be sold out and after that people may not have any more money or credit with them to make further purchases. That leads to another great catastrophe to appear more rigorously than ever.

Boom: Real or Illusion?

It is high time to re-examine the very truth and foundation of the so called boom that the global economy had undergone with the unbelievable availability of free credit for all. Almost all banks had offered unlimited credit, ten or twenty times over their liquidity or reasonable limit, that too without bothering the repayment capacities of the borrowers. For amassing very huge amounts as bonus, the bank men and CEOs had prepared inflated or fabricated statements about their assets, liquidity and profit without any basis by cleverly manipulating accounts, e-banking, e-credit and e-commerce. On the strength of the easily available credit cards and e-money, consumers had rushed to the market to buy even unwanted items, without bothering much about their real income and repayment capacity. That had made an illusionary boom, without the backing of real earning and actual purchasing power. In other words, the boom was not a real one.

Simple Economic Truth

No economy can survive long with mere credit based purchases without the backing of the real income and earning besides adequate saving and investments. Income and earning are very much related to resource allocation efficiency, over all productivity and competitiveness. Profitability depends upon demand and cost of production as savings depend upon thrift, earning, cost of living and taxation. Without a reasonable savings, no investment and innovation could be made.

It is equally important for a healthy economy to keep its cost of production and cost of living at the bottom. Further, there must be inter-sector balance with regard to growth and earning between various sectors, as all the sectors are equally important for the healthy survival of the global economy. The greatest blunder that we committed was giving dominance of Service Sector over Agricultural and Industrial Sectors that lead to the collapse of agriculture and then industries. The very reason for the present global crisis that has grown to the extent of the Great Depression II is the deliberate denial or rejection of the basic economic truth committed by all the economic and business players, including governments and international agencies.

Consumerism

The rate of consumption is not a true index of the soundness of an economy. Some times it shows the intensity of illness of a weak economy. If there is no hope or future, people or nations may spend every thing at the height of desperation's, including for defense expenditure and terrorism . It can be seen that in the entire history of mankind, the west and the newly rich regions spend trillions just for consumption for the last five years on the wrong belief that spending or consumption's lead to economic boom. This is the basis of Consumerism and Modern Marketing.

The unlimited spending on consumption drains away the entire saving and even dwindles the wealth of nations and individuals and turned everybody debtors. If governments thrive on deficit financing and individuals and families live lavishly and spend on credit, an economic collapse or a Great Depression is inevitable, as nobody can prevent it. In short, Consumerism has emerged as the greatest threat of humanity in the twenty-first century, as it begets Materialism and Terrorism besides Greed, Corruptions and Frauds.

The Hidden Threats

The stimulus packages so far announced are based on wrong or improper assumptions without taking into account the simple economic truth. Credit and banking have no existence or future if the whole economy is weak and sick. No stimulus package is effective or successful if it rejects the basic economic truth. The package must be aimed at improving the very foundation and health of the economy. Other wise, the packages with shorter objectives of selling out the unsold items in the market that too based on credit, will be self-defeating and bring out further crisis more rigorously, making the entire world suffer more and making future generations more debtors.

Global Strategy

There is no short cut to solve the crisis other than putting the economy on a sound basis by improving the income and earning of the people besides their productivity and efficiency. In other words, the actual purchasing power of the people, even without the backing of credit, must be improved tremendously along with cutting the cost of production and cost of living, so as to ensure sustainable saving and investment. In other words, consumerism must be buried down at any cost for the very survival of humanity. Inter-sector and inter-regional imbalances must be rectified. It is a blunder to give too much faith or emphasis on Information Technology, Modern Management Techniques and the Service Sector. Since the problems are global in nature, their solutions too must be global. No country or people should be left in the efforts from a speedy recovery of the illness of the global economy.

It is high time to adopt a mature and balanced approach towards consumerism, marketing, credit, e-banking and e-commerce besides minimizing oil or energy consumption, development based on tour and travel and automobile. The world has more cars than it actually needs; we are burning more oil than our environment could afford and people are traveling more than what is needed for the wrong or mistaken logistics of their stay and work. Because of aggressive consumerism and marketing, just 8 % of the world population spend and consume as much as the rest of the world.

The wage and salary structure, including bonuses must be restructured so as to ensure some reasonable balance between agricultural, industrial and service sectors and between industries and services. Unreasonably high salary, bonuses and profits in some sectors or firms lead to greed, extravagance and the associated crimes that would affect their own very efficiency and survival.

UN and other intergovernmental and non-governmental agencies must come together to chalk out global strategies and policies to deal with the Great Depression II. The major religions of the world must play a pro-active role in minimizing the sufferings of the world population rather than spreading hate and revenge leading to terrorism.

Source: Dr. Raju M. Mathew http://www.ifkt.net/

China in threat to shatter hopes of G20 summit deal

China may scupper hopes of a landmark deal at the G20 summit in London by opposing new rules for the world's financial system designed to prevent a repeat of the current crisis.

As the Prime Minister played down differences between the United States and Europe over whether EU nations should spend more to combat the recession, China emerged as a possible stumbling block to an agreement at the 2 April meeting.

One proposal – backed at yesterday's summit of EU leaders in Brussels – is for tougher global financial regulation including a crackdown on tax havens, hedge funds and private equity firms and an end to pay and bonuses which encourage excessive risk-taking. But Jose Manuel Barroso, president of the European Commission, said: "The main problem will come from other countries, like China for example, that don't have the culture of a common setting of rules."

Mr Brown insisted China was playing a constructive part in the G20 negotiations. "Any suggestion that China does not want a positive outcome for the G20 discussions is wrong," he said. But he admitted he would need further "private discussions" with Premier Wen Jiabao before the meeting. British officials were puzzled by Mr Barroso's intervention, pointing out that China had showed it could abide by international rules by joining the World Trade Organisation.

The Prime Minister said the EU talks had "laid the foundations" for a successful London summit after its 27 leaders closed ranks to avoid sending a negative signal to the financial markets. He said: "We have also agreed on the importance of doing what is necessary to restore jobs and growth by the fiscal actions we take.

"We are agreed on the importance of maintaining vital public investment at this time as we respond to the current crisis and strengthen our economies for the future."

Although the EU rebuffed US calls for a further economic stimulus now, some leaders made clear in private talks they have not ruled out action in future if necessary. They do not want to be seen by voters as being "bounced" into policy changes by demands from Washington, the EU or the G20.

The EU meeting agreed to call on the G20 nations to double to £344bn the emergency funds made available for the International Monetary Fund (IMF) to bail out countries during the crisis. EU leaders pledged to contribute an extra £69bn in loans to the IMF.

Source: The Independent

US is Already Bankrupt: Analyst

Technically, the U.S. is already bankrupt because it has a debt that is almost four times the size of its economy, says Puru Saxena, CEO of Puru Saxena Wealth Management. He tells CNBC’s Amanda Drury & Sri Jegarajah that the U.S. is at risk of hyperinflation.

UK Economy to Contract in 2010

BRITAIN is the only major country whose economy will SHRINK next year, a damning forecast said last night.

The International Monetary Fund predicts a 0.2 reduction. But it expects the US economy to grow by the same amount, the Eurozone by 0.1 per cent, Asia by 5.8 per cent and Latin America by 2.3 per cent.

The forecast is a blow to PM Gordon Brown. But Ministers will say it shows the UK recovering from this year’s estimated 3.8 per cent shrinkage.

Shadow chancellor George Osborne said: “This forecast is further evidence that Gordon Brown’s economic model is fundamentally broken and his policies on the recession aren’t working.”

Source: GEORGE PASCOE-WATSON

The Federal Reserve is Bankrupt - And BTW So is the Bank of England

How Did It Happen and What are the Ugly Consequences?

The Federal Reserve is bankrupt for all intents and purposes. The same goes for the Bank of England! This article will focus largely on the Fed, because the Fed is the "financial land-mine".

How long can someone who has stepped on a landmine, remain standing – hours, days? Eventually, when he is exhausted and his legs give way, the mine will just explode!

The shadow banking system has not only stepped on the land-mine, it is carrying such a heavy load (trillions of toxic wastes) that sooner or later it will tilt, give way and trigger off the land-mine!

In a recent article, I referred to the remarks of British Prime Minister Gordon Brown and President Obama calling for the shadow banking system to be outlawed.

Even if the call was genuine, it is too late. The land-mine has been triggered and the explosion cannot be averted under any circumstances.

The only issue is the extent of the damage to the global economy and how long it will take for the world to recover from this fiasco – a financial madness that has no precedent. The great depression is "Mary Poppins" in comparison!

The idea of a central bank going bankrupt is not that outlandish. I am by no means the first author who has given this stark warning. What underlies this crisis (which I initially examined in an article in December 2006) is the potential collapse of the global banking system, specifically the Shadow Money-Lenders.

Nouriel Roubini, the New York University professor said:

"The process of socialising the private losses from this crisis has moved many of the liabilities of the private sector onto the books of the sovereign. At some point a sovereign bank may crack, in which case, the ability of the government to credibly commit to act as a backstop for the financial system – including deposit guarantees – could come unglued."

Please read the underlined words again. "Sovereign bank" means central bank. When a central bank "cracks" i.e. becomes insolvent, "all hell breaks lose", because as the professor correctly pointed out, "any government guarantees will ring hollow and will be useless".

If a central bank goes belly up, it is as good as the government going bankrupt. Period!

Read Entire Article Here

Source: Matthias Chang - Market Oracle

Max Keiser on 5 Live with Rachel Burden ; G20 meeting

Max Keiser discusses the upcoming G20 and the implications for us in the UK should they agreee on creating a global "Bad Bank".

Credit Card Cancer Spreading Through the Economy

We in the UK share the same disease as we also face massive credit card debt!

Peter Schiff writes:

This week, with his pronouncement that "credit is the lifeblood of a healthy economy," President Obama reiterated what has been one of his most common themes in diagnosing our economic problem. The president has relied on this bedrock belief to propose policies that place the restoration of credit as the highest priority. However, despite his seemingly earnest intentions, the president and his economic advisors have misdiagnosed the ailment. Savings, not credit, is the lifeblood of a healthy economy. When not used properly credit can be like a cancer that sickens an otherwise healthy economy.

What everyone seems to have forgotten at this point is that credit does not come from thin air. Even in a system in which bank reserves are leveraged many times, someone has to put savings in a bank for the bank to turn around and make a loan. As a result, the bedrock is the savings, which allows for the credit to flow. Credit extended without adequate savings inevitably leads an economy into disaster.

The primary mechanism that has injected credit where it does not belong is the massive credit card industry that has developed in the United States over the last generation. The ease with which these cards may be obtained and the degree to which Americans now rely on them for routine purchases has created a culture of credit that simply has no precedent in a healthy economy. Until this culture has been reformed, America's fight to restore economic vitality will be a lost cause.

However, this week a much discussed opinion piece in the Wall Street Journal by top banking analyst Meredith Whitney, indicated that many Americans besides the president are still looking toward credit as the means of economic salvation. In her piece, Ms. Whitney writes,

"...Undeniably, consumers look at their unused credit balances as a "what if" reserve. "What if" my kid needs braces? "What if" my dog gets sick? "What if" I lose one of my jobs? This unused credit portion has grown to be relied on as a source of liquidity and a liquidity management tool for many U.S. consumers. If credit is taken away from what otherwise is an able borrower, that borrower's financial position weakens considerably. With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively."

In order to keep the economy functioning, Ms. Whitney asks the credit card providers and the federal government to keep credit lines open, so that millions of Americans can keep on spending. However, while such actions would certainly keep our phony economy propped up a while longer, it would further weaken the very foundation upon which a real economy will eventually have to be rebuilt.

Without a doubt, Americans, and all other people for that matter, benefit from having access to "rainy day money." But Americans should be saving for a rainy day, not adopting the attitude that if it rains I'll whip out my credit card. If Americans need to pay for a suddenly ill dog, to straighten their kid's teeth, or to pull them through a period of unemployment, they should save some of their present earnings.

But saving money requires a reduction in spending, and that is something that modern economists, within and without the Administration, cannot abide. A drop in spending will create a sharper contraction in our economy - which is now comprised of 70% consumer spending. But this is no reason to discourage the process. The option to go into debt in the event of an emergency is no substitute for building personal savings for such events. Not only does such a strategy jeopardize the solvency of individuals or families when they are at their most vulnerable, but it deprives society of badly needed savings.

Currently, with so many financially strapped Americans looking to draw on their credit lines, the fallacy of this 'savings substitute' is easily revealed. With lenders' capital depleted, and falling home prices, and rising unemployment putting borrowers at greater risk of default, credit is naturally harder to come by. Had only a small percentage of borrowers needed to access their credit card "rainy day funds" there would have been no credit crisis. But with a deluge drenching so many at once, there was simply not enough credit umbrellas to go around. Had Americans actually been saving money instead, everyone would have his own umbrella and would not now be looking to borrow someone else's.

Most importantly, as savers bank their earnings into "rainy day funds," in addition to earning interest, those savings are available to businesses to make capital investments, produce goods and services, and provide employment. Without access to those savings, such investments cannot be made, and society is worse off as a result.

Markets Rigged

Free markets are meant to be fair, but are they really?

Max Keiser filmed this 2 years ago back in 2007. Interestingly enough it has been shown around the world but been broadcast in the US.



PART 2

Where Does Money Come From?

For those of you who haven't previously seen this excellent video (Money as Debt) by Paul Grignon I would encourage you to take the time!




PART 2
PART 3
PART 4
PART 5