Gary Prior's List: financial crisis

• BRUSSELS — German Chancellor Angela Merkel and other EU leaders flatly rejected a new multibillion euro (dollar) bailout for eastern Europe
• Eight other EU nations had joined Hungary in vowing to pressure richer members to back up vague pledges of support with action _ Poland, Slovakia, the Czech Republic, Bulgaria, Romania and the three Baltic states. But Hungary's plan was quickly shot down by Germany

• Some scholars frequently hold that politics and economics are somehow separate. Such view is profoundly mistaken because politics and economics are strongly interlinked. Actually, political power and economic wealth cultivate one another. Likewise, economic trouble, more often than not, tends to lead to political trouble and the reverse is equally true.

  • IPE
• Therefore, it is fairly reasonable to assert that this financial crisis will have a major impact on the international system's balance of power.

  • pretty timely reading you just did for that course
• the Dollar hegemony is one of the twin pillars of American power, the other one being military strength. The US Dollar's position as the top reserve currency is what has allowed the American economy to finance a huge trade deficit.
• f the US refuses to pay, how will its debtors react?
• According to Der Spiegel, Britain itself (the very cradle of modern finance) is "on the brink of financial ruin".
• It is yet too early to accurately predict the full consequences of the world financial crisis. Nevertheless, it seems that it will spark some unforeseen geopolitical readjustments. The financial system is approaching a most critical turning point and so is the international balance of power.

  • all very interesting

4 more annotations...

• Too bad neither the president,
• nor the jubilant Democrats with their solid majorities, nor the grumpy Republicans slouching in the minority across the aisle, know what they are doing as economic extinction stares the United States of America in the face. 
• But accomplishing this depends entirely on one thing: more federal deficit spending to serve as the economic engine in an economy where bank lending has dried up because businesses and consumers can no longer repay their loans.
• Hillary Clinton said frankly during last week’s trip to China : “We are relying on the Chinese government to continue to buy our debt.”
• at least President Obama is trying.
• But neither President Obama, nor his Democratic supporters or Republican antagonists, should feel badly about what is happening. This is because the system they have been given to work with was designed to fail. The U.S. was saddled long ago with a debt-based monetary system, whereby the only way money can be introduced into circulation is through bank lending. It was the system that was instituted in 1913 when Congress gave away its constitutional power over money creation to the private banking industry by passing the Federal Reserve Act.

4 more annotations...

• • IPE big time
• • new dollars
• Social mayhem comes with a 12-month lag.
• we have been lulled into a false   sense of security by the lack of "soup kitchens"
• "The temptation for investors is   to see this as just another recession, over by the end of the year. But this   is not a normal cycle. It is a cataclysmic structural breakdown
• The real cost of money is rising as deflation gathers   pace.
• Graham Turner, from GFC Economics, fears the Dow could crash to 4,000 by   summer unless there is a "quantum reduction" in mortgage rates.   The Fed should swoop in to the market – armed with Ben Bernanke's "printing   press" – and mop up enough Treasuries to force 10-year yields down to   1pc and mortgage rates to 2.5pc. Monetary shock and awe.
• This remedy is fraught with risk, but all options are ghastly at this point.

• From all accounts, the Fed was ready to launch its bond blitz in January.   Something happened. Perhaps the hawks awoke in cold sweats at night,   fretting about Weimar. 

   

   Perhaps they feared that China and the world will pull the plug on the US bond   market. If so, it is time for Washington to get a grip. America remains the   hegemonic global power. The Obama team should let it be known – and perhaps   Hillary Clinton did just that on her trip to Asia – that any country playing   games with the US bond market in this crisis will be treated as an enemy and   pay a crushing price. 

   

   Pacific allies already know that they cannot take the US security blanket for   granted. As for China – and others pursuing a mercantilist strategy of   export-led growth – they must know that the US can shut off its market and   wreak havoc to their economy. 

   

   To Europe, they might make it clearer that unless the European Central Bank is   brought to heel by the Continent's leaders (whatever Maastricht says) and   forced to play its full part in emergency efforts to save the global   economy, the NATO military alliance will wither and the region will be left   to fend for itself against a revanchist Russia. 

   

   Should the main threat come from an exodus of private wealth, Washington may   have to impose temporary capital controls. Never forget, America is the one   country with enough strategic depth to go it alone, if necessary. The US is   not going to let foreigners keep it trapped in a depression. 
• The US will very likely introduce the "New Dollar"; only US residents will be allowed to exchange their old dollars in exchange for "New Dollars". 
   
  Simultaneously the US will reneg and default oo all its obligations denominated in the old dollars. 
   
  This will clean the American balance sheet and the move will be implemented and defended by the US military. 
   
  Trading partners will mumble and grumble but in the end they will have to accept to trade with America and accept "new dollars". 
   
  Brazil has regularly implemented variants of this new currency technique ; everybody should sell their "old dollars" before they become worthlesss. 
   
  The "New Dollar" is on its way - save yourselves before its too late and get rid of your "magic green paper" that has been printed so freely by Messrs. Greenspan and Helicopter Ben !

8 more annotations...

• Bernanke: Contradicting Soros, Roubini, Volcker, Reality

  • 090301

• Why Gold at $1,200/Ounce Is Likely

  • 090301

• Euro Slides to One-Week Low as EU Rejects East Europe Aid Call

  • 090301
• “I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels yesterday. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.”

  • slovakia

• WTO membership - when combined with good infrastructure, a vast workforce and low wages - allowed the most populous country on the planet to become the workshop of the world.
• until recently, Western economists were able to reassure themselves that at least the People's Republic, while almost certain to up-end the existing global economic order, was helping to tame inflation.
• The reason is that as cheap Chinese goods have swept the globe, the country has, effectively, been "exporting deflation". The benefits of China's low wages extended to Western shoppers, who have seen the prices of many clothes, toys and other consumer goods fall on their local high streets.
• China played a crucial role in helping the West recover from the twin-blow of the dotcom crash and 9/11
• In the US, Britain and beyond, central bankers reacted to these crises by repeatedly slashing interest rates, which boosted investment and helped restore financial confidence. That could only be done because the constant flow of cheap Chinese goods helped keep inflation in check.
• "China has exported deflation in the past, but that's now changing," says Gerard Lyons, chief economist at Standard Chartered. "And as inflation becomes more of a concern around the world, the inflationary impact of China is becoming much more important."
• If China's per capita car ownership rises to only a 10th of American levels over the next decade, as seems highly likely, the country will outstrip the US as the world's biggest oil consumer. And as the People's Republic continues growing, and its vast population uses more and more energy per head, the upward pressure on oil prices can only intensify.

5 more annotations...