Who Insures the Insurers?

The Federal Deposit Insurance Corporation (FDIC) insures bank accounts up to $100,000. The FDIC holds about a penny in reserve (in T-bills) for every dollar worth of insured deposits.

Who insures the T-bills? The Federal Reserve System. Who insures the Federal Reserve System? No one. It doesn't need insurance. It can create money.

Then who insures the purchasing power of the dollar? The central banks of the world, which hold dollars as legal reserves for their own currencies.

What happens if they decide not to add to their holdings of dollars?

[What we can look forward to includes:] rising prices for imported goods, rising domestic interest rates because foreign central banks are not buying Treasury debt any longer, unemployment, bankruptcies, defaults.

And when the checks from Washington no longer buy much of anything, the great political transformation will begin.

[Excerpt of an article by Gary North]

Soros: “Worst financial crisis since the 1930s”

George Soros, the legendary financier and philanthropist, has written a new book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.

Mr. Soros’ opening sentence summarizes his sense of urgency about the turmoil in the financial world, where he is one of the most successful and enduring of investors:

“We are in the midst of the worst financial crisis since the 1930s.”

Wall Street Investment Banks Now Borrowing $38.1 billion Daily

As an update on my March 29th posting, Wall Street investment companies are stepping up their borrowing a bit from the Federal Reserve’s unprecedented emergency lending program.

The Federal Reserve reports Thursday that those firms averaged $38.1 billion in daily borrowing over the past week from the new lending program!

That compared with $32.9 billion in the previous week and $13.4 billion in the first week the lending facility opened.

On Abolishing the Federal Reserve

As discussion is underway to give further, sweeping financial oversight to the Federal Reserve, reflect for a moment on this excerpt of a speech by Congressman Ron Paul to the U.S. House of Representatives (September 10, 2002)

Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy.

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy.

I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

Investment Banks Borrowing Billions

Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported. Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

The Fed debuted a separate lending facility where Wall Street firms can borrow Treasury securities and put up risky home-loan packages as collateral.

Those firms averaged $32.9 billion in daily borrowing over the past week from the new lending facility, compared with $13.4 billion the previous week. The program, which began last Monday, is part of the Fed's effort to aid the financial system, and the broadest use of the Fed's lending authority since the 1930s.

The Fed also said it would make as much as $200 billion worth of Treasuries available through weekly auctions that started Thursday.

[Excerpt of an article by Jeannine Aversa, AP]

Note: A “billion” is a difficult number to comprehend. The next time you hear of loans or debts in the “billions”, or consider how much a billion is.

Derivatives, the ticking bomb

“Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." –Warren Buffet, 2002

A Derivative is an investment that derives its value from another more fundamental investment, as a commitment to buy a bond for a certain sum on a certain date. In recent years, there was a five-fold growth of derivatives, from $100 to $516 trillion. The new derivatives bubble was fueled by five key economic and political trends:

1. Sarbanes-Oxley increased corporate disclosures and government oversight

2. Federal Reserve's cheap money policies created the subprime-housing boom

3. War budgets burdened the U.S. Treasury and future entitlements programs

4. Trade deficits with China and others destroyed the value of the U.S. dollar

5. Oil and commodity rich nations demanding equity payments rather than debt

To grasp how significant this five-fold bubble increase is, let's put that $516 Trillion in the context of some other domestic and international monetary data:

• U.S. annual gross domestic product is about $15 trillion
• Current proposed U.S. federal budget is $3 trillion
• U.S. government's legal debt is $9 trillion
• World's GDPs for all nations is approximately $50 trillion
• Total value of the world's real estate is estimated at about $75 trillion
• Total value of world's stock and bond markets is more than $100 trillion

[By Paul B. Farrel, MarketWatch]

Derivatives and the Shadow Banking System

The Federal Reserve has not only taken action unprecedented since the Great Depression--by lending money directly to major investment banks--but also has put taxpayers on the hook for billions of dollars in questionable trades these same bankers made when the good times were rolling.

Over the last decade, the biggest Wall Street banks and brokerage firms created a dizzying array of innovative products that experts now acknowledge are hard to understand and even harder to value.

One of the fastest-growing and most lucrative businesses on Wall Street in the past decade has been in derivatives. It is a stealth market that relies on trades conducted by phone between Wall Street dealer desks, away from open securities exchanges. How much changes hands or who holds what is ultimately unknown to analysts, investors and regulators.

Used unwisely --when greed and the urge to gamble with borrowed money overtake sensible risk-taking --derivatives can become Wall Street's version of nitroglycerin.

Even the people running Wall Street firms didn't really understand what they were buying and selling, says Byron Wien, a 40-year veteran of the stock market who is now the chief investment strategist of Pequot Capital, a hedge fund.

[Excerpt of an article by Nelson D. Schwartz and Julie Creswell, NY Times News Service]

Federal Reserve's boldest action since Great Depression

The Federal Reserve is the only U.S. institution with the authority and ability to create money out of thin air. And the FED has taken its boldest action since the Great Depression, invoking rarely used powers in an effort to contain a panic threatening to undermine the economy.

Because of the Fed's direct influence over interest rates, the money supply, and the larger economy, some have called the Fed chairman the second most powerful job in Washington after the president.

But the Fed's moves are raising questions about its regulatory powers. In one remarkable week, the Fed:
--engineered the fire sale of bankruptcy-headed Bear Stearns Cos. to J.P. Morgan Chase & Co. with a $30 billion loan.
--offered emergency loans to other securities dealers under terms normally reserved for regulated banks.
--slashed a key short-term interest rate by three quarters of a percentage point, to 2.25 percent. The cut was sixth since September.

These steps followed moves to lend $100 billion in cash to banks, and $200 billion in Treasury bonds to cash-strapped investment banks.

"I spent 35 years on Wall Street, have been a Fed watcher for a long time and I have never seen the potential for a more severe credit crisis than this one," said David Jones, chief economist at DMJ Advisors and a former Wall Street economist.

[AP]

When the Bear Stearns fantasy turned into a nightmare

We had a conversation yesterday with a source who is very close to the Bear Stearns situation.

"What went wrong?" we wanted to know. "How could this group of very smart accountants, lawyers, and investment pros have been so wrong about what they had in their own portfolios?"

One day, they think they have a stock worth $30...a few hours later, they sell it for $2--making the whole company worth less than a quarter of the value of their headquarters building. If they had thought it wasn't worth $30, they would have unloaded it then. Instead, they held until forced to turn it over for practically nothing.

"Well" said our source, "They have no reliable way of knowing what their 'assets' are worth. They're not marked to market; they're marked to whatever fantasy they have in their heads at the moment. When the fantasy was positive, the assets were worth something. When the fantasy turned into a nightmare, they panicked and wanted to get rid of them in the worst possible way.

"And the really scary thing is that the other financial institutions are in much the same situation. They don't really know what they have...or what it is worth. There are almost certainly some more horror stories that will be coming out.”

[Excerpt of an article by Bill Bonner, The Daily Reckoning]

Stiglitz: U.S. Financial Crisis Worst since the 30’s

The current financial crisis is the worst the world has seen since the Great Depression of the 1930s and the US Federal Reserve move to cut interest rates will not make much difference, the Nobel Prize winning economist Joseph Stiglitz said on Wednesday.

Stiglitz, who won the Nobel Prize in economics in 2001, is a former chief of the World Bank and chaired former US president Bill Clinton's council of economic advisers.

He said the main problem is the fact that an estimated 2 million Americans are going to lose their homes because they could not repay mortgages which exceed the value of their property, as house prices fell dramatically. "As people walk away from their mortgages there will be more and more defaults - that undermines the whole financial system," he said.

Stiglitz said the Bush administration was bailing out banks, but accused it of refusing to do anything to help poor people stay in their homes which would stabilise the housing market. "It's very easy to do something about it," he said, suggesting the administration could give assistance to write down mortgages to about 90 per cent of the value of a house which would enable people to stay in their properties.

[Of the Iraqi War, Stiglitz said:] "They didn't want Americans to know exactly how bad the war was for the economy so they flooded it with liquidity, they looked the other way with regulations and they deliberately, I think, postponed the problem into the future and now we're paying the price."

[The Economic Times]

Wall Street fears next Great Depression

Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn was wiped off the US equity markets on Friday following the emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge."

In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: "We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it's a self-feeding disaster."

Mr Taylor added that the problems unravelling at Bear Stearns are just the beginning: "There will be more banks and hedge funds heading for collapse."

[By Margareta Pagano, The Independent]

Who's Next After Bear Stearns?

The Bush Administration and FED engineered a deal to at least temporarily save Bear Stearns from bankruptcy, but investors began turning a critical eye to other investment banks amid worries about how far the credit contagion could spread.

The fact that a major investment bank could reach the verge of buckling -- and be sold at such a discount -- sent dismay through Wall Street and beyond.

"One reaction is shock that a company that reaffirmed its book value at around $84 on Wednesday can be worth $2 per share four days later on Sunday," said Deutsche Bank analyst Mike Mayo.

The price represents roughly 1 percent of what the investment bank was worth just 16 days ago.

The financial industry wants to know exactly how badly Bear Stearns bet on mortgage-backed investments. Unwinding the nation's fifth-biggest investment houses should provide some insight into what other financial institutions might have on their books.

Wall Street analysts say the rescue bid was more than just saving one of the world's largest investments banks -- it was a prop for the U.S. economy and the global financial system.

[AP]

The Dollar has been shoved off a cliff

The dollar has been shoved off a cliff and no one knows where it will land.

Recently, the Wall Street Journal broke down the relationship between the dollar and oil and revealed the ugly truth; that consumers are getting gouged at the pump because of the Bush Administration's policies, not Saudi greed:

“Since 2001 the dollar price of oil and gold have run almost in tandem. The price of gold has risen 240% since 2001, while the price of oil has risen 270%. That means that if the dollar had remained “as good as gold” since 2001, oil today would be selling at about $30 a barrel, not $100. Gold has traditionally been a rough proxy for the price level, so the decline of the dollar against gold and oil suggests a US monetary that is supplying too many dollars”.” (“Oil and the Dollar” Wall Street Journal)

There it is in black and white. Bush's dollar policy has taken us where Bin Laden never could; the edge of ruin. The consumer is getting clobbered, the country is slipping into recession, and the greenback is hanging by a thread.

There's another reason to believe the dollar won't rebound, too, that is, that Fed chairman Bernanke is deliberately undercutting the dollar to stimulate the economy. … Unfortunately, there are roughly $6 trillion in US dollar-backed assets around the world which could be quickly dumped on US shores if Bernanke goofs up and foreign holders of USDs start selling their paper on the open market. That would trigger a round of Wiemar-like hyperinflation in the homeland that would terminate the dollar's position as the world's reserve currency as well as America's role as the global superpower.

[Excerpt of an article by Mike Whitney, ICH]

So what caused the Mortgage Banking Scandal?

So what caused the Mortgage Banking Scandal? In one word --GREED!

"It became commonplace for banks to outsource their mortgage lending to free-lance brokers. Instead of doing their own credit checks they relied, often exclusively, on various online credit questionnaires … where no follow-up was done.

"It became common practice for mortgage lenders to offer brokers bonus incentives to bring in more signed mortgage loan volume, another opportunity for massive fraud. The banks got more gain from making high volumes of loans than selling for securitization.

"The world of traditional banking was being turned on its head. Many US banks, simply to churn loan volume and returns, gave what they cynically called "Liars’ Loans." They knew the person was lying about his credit and income to get that dream home. They simply didn’t care. And they sold the risk once the ink was dry on the mortgage.

"A new terminology arose after 2002 for such loans, such as "NINA" mortgages—No Income, No Assets. "No problem, Mister Jones. Here’s $400,000 for your new home, enjoy."

[Excerpt of an article by F. William Engdahl, Global Research]

International experts foresee collapse of U.S. economy

Harry Koza in the Globe and Mail quotes Bernard Connelly, the global strategist at Banque AIG in London, who claims that the likelihood of a Great Depression is growing by the day.

Martin Wolf, celebrated columnist of the U.K.-based Financial Times, cites Dr. Nouriel Roubini of the New York University's Stern School of Business, who, in 12 steps, outlines how the losses of the American financial system will grow to more than $1 trillion - that's one million times $1 million. That amount is equal to all the assets of all American banks.

Every day now, thousands of people all over the U.S. and Great Britain are walking away from their homes - simply mailing their house keys to the banks - as housing bailout plans fail. With unemployment growing, the next phase will hit commercial real estate making the financial institutions the unwilling owners not only of quickly depreciating houses, but also of empty strip malls and even larger shopping centers.

The next domino to fall will be credit card defaults, and after that... who knows?

The most frightening forecast so far comes from the Global Europe Anticipation Bulletin: "The end of the third quarter of 2008 (thus late September, a mere seven months from now) will be marked by a new tipping point in the unfolding of the global systemic crisis.

The report goes on to say that we are entering a period for which there is no historic precedent. What we will have, instead, is truly a global momentous threat - a true turning point affecting the entire planet and questioning the very foundations of the international system upon which the world was organized in the last decades.

The report emphasizes that it is, first and foremost, in the United States where this historic happening is taking an unprecedented shape (the authors call it "Very Great U.S. Depression").

Concerning stock markets, the GEAB anticipates that international stocks would plummet by 40 to 80 per cent depending where in the world they are located, all affected in the course of the year 2008 by the collapse of the real economy in the U.S. by the end of summer.

The European authors of this report - it appears simultaneously in French, German and English - state that they simply and without prejudice try to describe in advance the consequences of the ominous trends at play, so readers can … take the proper means to protect themselves from the most negative effects.

[Excerpt of an article by Bert Hielema, Belleville Intelligencer]

Why the Gold Boom, Dollar Bust

Forget the fact that over the last 6 months gold has skyrocketed from $670 an ounce to now-approaching $990 an ounce, and yet it’s hardly even been mentioned in the mainstream media.

Michael Byrd, of the Austin Report offers some background:

Many of today's currency problems began in World War I when the gold standard was first abandoned.

On August 15, 1971, President Nixon severed the link between the U.S. dollar and gold. Since 1973, flexible exchange rates were introduced and chaos has prevailed in the global financial system. Jacques Rueff, an advisor to President Charles de Gaulle, described the situation in his book The Monetary Sin of the West: “Since the abandonment of the gold standard, i.e. the only system that ever worked, the world has been moving from one crisis to the next, from deflation to inflation, from economic boom to bust."

The sudden jump in the price of gold after central banks gave up on control was confirmation of a loss of confidence in the U.S. dollar. In the absence of a gold-market-valued U.S. dollar, investors chose to put their faith in gold alone. Consequently, the price of gold rose from $35 per troy ounce in 1969 to almost $850 in 1980. As a result, the value of the U.S. dollar fell against gold and has never recovered since 1971.

Note the similarities in the 1970's and today—rising commodity prices, record oil prices, an unpopular War while the government refuses to cut back other expenses, and a massive trade deficit. These factors combined with a trade deficit to create a situation in which the dollar was worth less than the gold used to back it.

Playing musical chairs on the deck of the Titanic

I once heard the expression used, “playing musical chairs on the deck of the Titanic", and feel it fairly accurately describes the various attempts to avoid a shipwreck of the economy!

Are the Fed’s attempts to help going to do that much good? Since the FED is what has caused much of the financial mess, isn’t this kind of like asking the Mafia to donate drug money toward research for curing addiction?

The Federal Reserve IS the problem. Greenspan and the FED knowingly caused this mess.

The probability is that nothing effective will be done by the Fed or the Government. We are going to have to ride out the recession-depression, during which time all elements of the population will have plenty of time to contemplate the level of greed at all levels, that contributed to this mess.

The principal shareholders of the Fed

What most American citizens don't realize is that the Federal Reserve, which controls the U.S. currency, inflation, and deflation at the cost of the American people, is a private corporation.

While the name “Federal Reserve” might suggest otherwise, it is simply a private company set up by big bankers in 1913, a company that makes decisions based on profits, as required by stockholders.

The principal shareholders of the Fed are: the Rothschilds, Lazard Feres, Israel Schiff, Kuhn-Loeb Co., Warburg Co., Lehman Brothers, Goldman-Sachs, the Rockefeller family, and the J.P. Morgan interests.

The fact that Americans hold a great deal of private debt isn't troublesome to them, merely profitable.

Who’s responsible for the meltdown? The Federal Reserve

Gold has spiked over $950, a new high, while oil futures passed the $100 per barrel mark. The battered greenback has taken a beating, and yet, Fed chairman Bernanke is signaling that there are more rate cuts to come. The prospect of a global run on the dollar has never been greater.

The problem far exceeds the Federal Reserve's paltry increases to the money supply or Bush's projected $168 billion “surplus package”. Capital is being sucked out of the system faster than it can be replaced which is apparent by the sudden cramping in the financial system and a more generalized slowdown in consumer spending.

An article which appeared on the front page of The Financial Times [but not in the US media] illustrates how hard-pressed the banks really are: “US banks have been quietly borrowing massive amounts of money from the Federal Reserve...$50 billion in one month”.

The present troubles originated at the Federal Reserve and, ultimately, they are the ones who are responsible for the meltdown. The Fed refused to perform its oversight duties because its friends in the banking industry were raking in obscene profits selling sketchy, subprime junk to gullible investors around the world. They knew about the “massive off balance-sheet positions” which allowed the banks' to create mortgage-backed securities and CDOs without sufficient capital reserves. They knew it all; every last bit of it, which simply proves that the Federal Reserve is an organization which serves the exclusive interests of the banking establishment and their corporate brethren in the financial industry.

[Excerpt of an article by Mike Whitney, Counterpunch]

300 Days to Create a Trillion Dollars

Last August, the near meltdown of the Sub-Prime Mortgage Markets led to a panic sell-off of stocks which quickly became a worldwide liquidity crisis. In response, an unprecedented $400 billion dollars was created at the press of a few computer keys to save the entire financial system from a wipe-out, followed by the Federal Reserve lowering interest rates by one-half a percent.

What is the root cause of the dollar crisis? The single leading factor destroying the value of the U.S. dollar is the law of supply and demand. The world has become flooded with paper dollars.

It took the U.S. government 354 years (1620 – 1974) to create the first $1 trillion dollars in circulation. It only took 300 days to create the last trillion dollars of paper money.

Somewhere there's a point of equilibrium where the demand for dollars by foreigners can no longer absorb the flood of the money supply. On that day, our country will no longer be able to pay its bills.

At the same time, everyone holding U.S. Treasury bonds, U.S. debt, or U.S. stocks may create a mad rush for the exits. In a panic sell-off, every single dollar outstanding could fall in value suddenly and dramatically. If you believe the U.S. dollar cannot fail, you'll be very surprised to learn that currency failures are not rare events. In fact, history is loaded with failed currencies around the world.

[Excerpt of an article by Michael Byrd, Austin Report]

The Decline of the American Empire

The notion that Washington had entered a "New American Century" -- a phrase used by the nationalist and neo-conservative unilateralists who championed the Iraq war -- seems largely to have gone the way of the dodo bird.

Yale Professor Paul Kennedy argued that the U.S. was falling into a familiar historical pattern where the combination of huge military budgets and ever-larger deficits led inevitably to the kind of "imperial overstretch" that transformed once-mighty empires into shadows of their former selves.

Washington Post neo-conservative columnist Charles Krauthammer exulted on [the American empire], "The fact is no country has been as dominant culturally, economically, technologically, and militarily in the history of the world since the Roman Empire."

What a difference five years and an invasion and bungled occupation of Iraq make! References to the Roman Empire at this point are more likely to refer to its decline than to its power.

"I’ve argued that not since the Roman Empire has anyone had such extraordinary power as the United States after the Cold War," says Donald Kagan, a dean of neo-conservatism. "But all of the elements of our strength are now being challenged, and it’s perfectly possible that we are seeing a relative decline in U.S. power that will prove lasting."

[Inter Press Services]

Iran forcing more Dollar Doldrums

Japanese investors are selling their dollars on the Tokyo Financial Exchange with worries about a recession in the U.S. economy.

The dollar also recently had its biggest weekly loss this year against the euro after Federal Reserve Chairman Ben S. Bernanke signaled he may cut interest rates further amid mounting concern that the economy is headed for a recession.

Iran, OPEC's second largest exporter, has already cut all of its ties with the greenback with respect to oil transactions.

And on Sunday, Iran established its first oil products bourse in a free trade zone on the Persian Gulf Island of Kish. Oil and petrochemical products will be traded in Iranian Rials, as well as all other hard currencies, the statement quoted Iranian Oil Minister Gholam Hossein Nozari as saying. About 20 brokers are already active in the market, it added.

As the fourth-largest oil producer in the world, Iran has a measure of influence over international oil markets. The country ranks second for output among OPEC Countries, and controls about 5 percent of the global oil supply. Tehran also partially controls the Persian Gulf's Strait of Hormuz, through which much of the world's oil supply must pass.

Now, the Organization of Petroleum Exporting Countries (OPEC), which supplies 40 percent of the global crude demand, plans to discuss a proposal by Iran and Venezuela to price oil in non-dollar currencies.

US subprime crisis costs global 7.7 trillion dollars

The meltdown in the US subprime real-estate market has led to a global loss of 7.7 trillion dollars in stock-market value [over the last 4+ months], a report by Bank of America showed Thursday.

The crisis, which has spread beyond US shores to banks and other sectors worldwide, is "one of the most vicious in financial history," according to Bank of America chief market strategist Joseph Quinlan.

Quinlan said in the report that the losses are worse than any in the past few decades, including Wall Street's Black Monday of 1987, the 1999 Brazilian real currency crisis and the collapse of hedge fund Long Term Capital Management in 1998.

"The current financial crisis is one for the record books and one, more ominously, not over yet."

[AFP]

Expensive Oil is far from being the Only Problem

"The greatest challenge to the world is not US$100/barrel oil. It's getting enough food so that the new middle class can eat the way our middle class does," says Donald Coxe, global portfolio strategist at BMO Financial Group, at the Empire Club's 14th annual investment outlook in Toronto.

The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire. "It's not a matter of if, but when," he warned investors. "It's going to hit … hard."

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year. Wheat prices alone have risen 92% in the past year.

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India, as well as heavy demand from the biofuels industry.

With 54% of the world's corn supply grown in America's mid-west, the U.S. is one of those countries with an edge. But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.

[Excerpt of article by Alia McMullen, Financial Post]

The Unexplained Broken Undersea Communications Cables

As the dollar plummets, the Gulf Oil producers’ dollar holdings are worth less and less.

Iran intends to open its own Oil Bourse this month that will trade in “non-dollar currencies”. An operational Iranian Oil Bourse, actively trading supertankers full of petroleum in non-dollar currencies, poses a great threat to the American dollar's continued dominance as the international reserve currency.

Oil-rich Gulf Cooperation Council (GCC) member states Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE have set 2010 as the target date for adopting a monetary union and single currency.

The past week has seen a spate of unexplained, cut, undersea communications cables that has severely disrupted communications in many countries in the Middle East, North Africa and South Asia. According to CNN the first two cut cables “account for as much as three-quarters of the international communications between Europe and the Middle East.“

The news media initially advanced the explanation that the cables had been cut by ships' anchors. But on 3 February the Egyptian Ministry of Communications and Information Technology said that a review of video footage of the coastal waters where the two cables passed revealed that the area had been devoid of ship traffic for the 12 hours preceding and the 12 hours following the time of the cable cuts. So the cable cuts cannot have been caused by ship anchors, in view of the fact that there were no ships there.

Three things stand out about these incidents, several cables cut over a period of days:

All of them, save one, have occurred in waters near predominantly Muslim nations, causing disruption in those countries;

All but two of the cut/damaged cables are in Middle Eastern waters;

So many like incidents in such a short period of time suggests that they are not accidents, but are in fact deliberate acts, i.e., sabotage.

The evidence therefore suggests that we are looking at a coordinated program of undersea cable sabotage by an actor, or actors, … who have the technical capability to carry out clandestine sabotage operations on the sea floor, and who have exhibited a pattern of violently destructive policies towards Muslim peoples and nations, especially in the Middle East region?

Read full article by Richard Sauder

The Economy 101

During the final two decades of the twentieth century, the U.S. economy was the envy of the world. The dollar was the world’s dominant currency. Foreign central banks accumulated dollars as their main reserve asset. Commodities like oil were denominated in dollars, and emerging countries like Argentina and China linked their currencies to the dollar in the hope of achieving U.S.-like stability.

But as the century ended, so did this extraordinary run. Tech stocks crashed, the Twin Towers fell, and Americans’ sense of omnipotence went the way of their nest eggs.

The dollar is falling in value versus other major currencies and plunging versus gold. The whole world is watching, scratching its collective head, and wondering what has changed. The answer is that everything has changed, and nothing has. The spectacular growth of the past two decades, it now turns out, was a mirage generated by the smoke and mirrors of rising debt and the willingness of the rest of the world to accept a flood of new dollars. Like a family that has maintained its lifestyle by maxing out a series of credit cards, America is at the point where new debt goes to pay off the old rather than to create new wealth.

A quick scan of world history reveals them to be depressingly familiar. All great societies pass this way eventually, running up unsustainable debts and printing (or minting) currency in an increasingly desperate attempt to maintain the illusion of prosperity. And all, eventually, find themselves between the proverbial devil and deep blue sea: Either collapse under the weight of their accumulated debt, or keep running the printing presses until their currencies become worthless and their economies fall into chaos.

[Excerpt of book by James Turk and John Rubino]

Gold, the Shadow Currency

All great debt-ridden societies either collapse under the weight of their accumulated debt, as did the U.S. and Europe in the 1930s, or they keep running the printing presses until their currencies become worthless and their economies fall into chaos. This time around, governments the world over have clearly chosen the second option.

Now, what does a collapse in the value of the dollar mean for your finances? First, it hurts people on a fixed income, because the value of each dollar they receive plunges. Ditto for those who are owed money, because they’ll be paid back in less-valuable dollars (hence the disaster hitting many banks). Bonds, which are basically loans to businesses or governments that promise to make fixed monthly payments and then return the principal, will be terrible investments, since they’ll be repaid in always-depreciating dollars.

The only unambiguous winner is gold. For the first 3,000 or so years of human history, gold was, for a variety of still-valid reasons, humanity’s money of choice.

As recently as 1970, it was the anchor of the global financial system. And since the world’s economies severed their links to the metal in 1971, it has acted as a kind of shadow currency, rising when the dollar is weak and falling when the dollar is strong.

Not surprisingly, gold languished during the 1980s and ’90s, drifting lower as the dollar soared, and being supplanted by the greenback as the standard against which all things financial are measured. But now those roles are reversing. As the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the center of the global financial system, and its value, relative to most of today’s national currencies, will soar.

[Excerpt of book by James Turk and John Rubino]

Hard Times Coming

The Fed is in a trap.

To cut interest rates much more could collapse the dollar, which because of the huge US trade imbalance --and all the consumer goods and raw materials that are imported--would lead to serious inflation.

Plus with the current rate cut, the US now has the third lowest interest rates in the world. Any further cut makes the dollar a very undesirable currency for foreigner investors.

Yet if the Fed doesn't cut interest rates even further, the stock market will continue to plunge, which again discourages foreign investors from pouring their money into the U.S., which in turn puts downward pressure on the dollar.

So soaring inflation may be next, as strapped companies in China, India and elsewhere start raising their prices for goods shipped to the US and paid for in dollars. Then the Fed will have to respond by raising interest rates again, in an effort to shore up the currency. And with that will come deeper recession and an even lower stock market.

Oh, did I forget to mention the Trillion dollar military debacle that has no end in sight, that is sucking money out of the country like a giant industrial vacuum cleaner?

[Excerpt of an article by Dave Lindorff, Information Clearing House]

The Profile of a Third World Country

Seven years of the Bush Administration has seen the federal debt increase by two-thirds while US household debt doubled.

This massive Keynesian stimulus produced pitiful economic results. Median real income has declined. The labor force participation rate has declined. Job growth has been pathetic, with 28% of the new jobs being in the government sector. All the new private sector jobs are accounted for by private education and health care bureaucracies, bars and restaurants. Three and a quarter million manufacturing jobs and a half million supervisory jobs were lost. The number of manufacturing jobs has fallen to the level of 65 years ago.

This is the profile of a Third World economy.

The "new economy" has been running a trade deficit in advanced technology products since 2002. The The US does not earn enough to pay its import bill, and it doesn't save enough to finance the government's budget deficit. To finance its deficits, America looks to the kindness of foreigners to continue to accept the outpouring of dollars and dollar-denominated debt.

At the meeting of the World Economic Forum at Davos, Switzerland, this week, billionaire currency trader George Soros warned that the dollar's reserve currency role was drawing to an end. If the world is unwilling to continue to accumulate dollars, the US will not be able to finance its trade deficit or its budget deficit. As both are seriously out of balance, the implication is for yet more decline in the dollar's exchange value and a sharp rise in prices. As the dollar sheds value and loses its privileged position as reserve currency, US living standards will take a serious knock.

If the US government cannot balance its budget by cutting its spending or by raising taxes, the day when it can no longer borrow will see the government paying its bills by printing money like a Third World banana republic. Inflation and more exchange rate depreciation will be the order of the day.

[Excerpt of an article by Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review]

A Global Crash Coming

The credit storm that began in the United States with subprime mortgages has spread to markets across the globe.

CNN reports this morning that "Todays' [plunge of world markets] renews speculation that the crisis in the U.S. housing market may trigger a global recession."

According to the UN's World Economic Situation and Prospects 2008: "The major uncertainty for 2008 now emanates from the US economy. The domino effect of a US recession would be to knock down export growth from China, Europe and Japan, in turn reducing their demand for exports from developing countries," it said.

According to the Wall Street Journal: "Chinese authorities have slammed the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world's third-largest economy. In recent weeks, regulators have quietly ordered China's commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals."

China is awash in US Dollars and that surplus is causing a steady rise in food and energy costs. This could be mitigated by allowing their currency to "float" freely. But a sudden, steep increase in the Chinese yuan's value could also send the world headlong into a global recession. For now, the lending freeze and price fixing appear to be the way out.

The dollar continues to take a pasting. Gold and oil has shot up to record levels.

Jon Basile, economist at Credit Suisse, summed it up like this: "There's a heck of a lot of bad news out there." Indeed.

The recession message from Fed chairman Ben Bernanke

Fed chairman Ben Bernanke’s recent keynote on the state of the economy could have been accompanied by a funeral dirge. He made no effort to conceal the gloomy facts:

“Currently, about 21% of subprime ARMs are ninety days or more delinquent, and foreclosure rates are rising sharply ...The far-reaching financial impact of the subprime shock is that it has contributed to a considerable increase in investor uncertainty about the appropriate valuations of a broader range of financial assets …The market strains have been serious, and they continue to pose risks to the broader economy.”

Bernanke's gri