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Walter J. "John" Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies. In this interview John discusses looming hyperinflation, staggering unemployment, the reality of the US economy, the Fed’s inability to stimulate the economy, consumer’s inability to spend, the coming collapse of the US Dollar, how listeners need to prepare themselves for this crisis, the Fed’s debasement of the Dollar, an intensifying great depression, disappearance of cash as we know it and more.
Friday, December 4, 2009
John Williams
Biography from shadowstats.com
Walter J. “John” Williams - Founder of Shadow Government Statistics Newsletter:
Analysis Behind and Beyond Government Economic Reporting
Walter J. "John" Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies.
Formally known as Walter J. Williams, my friends call me John. For more than 25 years, I have been a private consulting economist and, out of necessity, had to become a specialist in government economic reporting.
One of my early clients was a large manufacturer of commercial airplanes, who had developed an econometric model for predicting revenue passenger miles. The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working, and they asked me if I could fix it. I realized the GNP numbers were faulty, corrected them for my client (official reporting was similarly revised a couple of years later) and the model worked again, at least for a while, until GNP methodological changes eventually made the underlying data worthless.
That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad), and my results led to front page stories in the New York Times and Investors Business Daily, considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. Despite minor changes to the system, government reporting has deteriorated sharply in the last decade or so. -- John Williams
The Shadow Government Statistics Newsletter and Specialized economic consulting services including customized forecasts and analyses of the general economy, as well as for specific industry, product or company results.
Saturday, December 5, 2009
US Intelligence raises spectre of upcoming civil unrest in United Kingdom
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One of America's top intelligence services has flagged up the potential for coming widespread civil unrest & violence in the United Kingdom. Total Intelligence Solutions (TIS) which describes itself as a ‘boutique security firm - partner of Fortune 500 and international companies, US State and local government agencies, the US Government, and foreign governments' has identified serious risks in the UK on its Intel Watch website (www.totalintel.com/content/intel-watch-map).
TIS is a private intelligence and security company born out of the Bush regime's desire to privatize certain functions of the CIA. Its website identifies security threats around the world and these include the latest concerns about civil unrest in the United Kingdom.
Two particular warnings are quoted verbatim:-
# ‘Dissident republicans in N. Ireland may attempt to stage a massive attack before Christmas'
# ‘Clashes between far-right and anti-fascists expected at upcoming protests in Nottingham and Edinburgh'
Police leave has already been canceled as authorities in the English Midland's town of Nottingham brace themselves for potentially violent street clashes involving thousands of demonstrators this upcoming weekend, Saturday 5th December.
A rally is planned by the rapidly ascending English Defense League – primarily a white working class pressure-group engaged in street protests against calls by some fundamentalist British Muslims for the introduction of Sharia Law as a first step to the UK eventually becoming an Islamic state.
The EDL is expected to be confronted by large numbers of counter-demonstrators from a variety of left-wing opposition groups including anti-fascists, some Labour Party and Trade Union activists, and radical Muslim groups.
Increasingly widespread Internet cyber-networking by activists of all political persuasions appears to have by-passed more traditional methods for controlling public unrest in the UK. It is believed at least four different police authorities are now investigating the leadership and organization of EDL as it has skyrocketed from obscurity in only a matter of months, despite a conspicuous and curious lack of press coverage by the mainstream media.
Authorities are in danger of being caught flat-footed by a rising tide of discontent among young white working class males and their more mature but less public supporters against a hard-core of young Muslim males, and a loose alliance of left-wing groups who see the EDL as being racist and right-wing. British police are particularly vulnerable having largely overcome the stigma of being found ‘institutionally racist' by official inquiries and yet still having to deal with the fall-out from what are widely seen as failed immigration policies and unpopular foreign wars.
The upcoming Nottingham demonstration is just the latest in a series by the EDL across English towns this year that have involved clashes with hundreds of demonstrators and counter-activists, often resulting in scores of arrests – most of which has gone unreported.
This coming Saturday's demonstration has all the potential ingredients for a ‘perfect storm' resulting in widespread civil unrest and potential injuries to demonstrators, police, and innocent by-standers.
In addition to the rally by the EDL and a counter-demonstration by their opponents, the same day will see a homecoming parade by the 2nd Battalion The Mercian Regiment. Similar army march-pasts during the year have resulted in insulting behavior by some radical Muslims demonstrating against British involvement in Iraq and Afghanistan. This comes on top of President Obama's recent statement to increase troop levels in Afghanistan.
Saturday will also see large numbers of football fans in town for the soccer match between Nottingham Forest and nearby Leicester City, an economically depressed conurbation which has a one of the UK's biggest Muslim populations.
The city center is expected to be packed with families doing their pre-Christmas shopping and attending the annual German street market. It remains to be seen if the British authorities are aware of the dangers identified by US intelligence services and whether the mainstream media is willing and able to report on what's really happening on the streets of Britain.
Long-term jobless make up 38.3% of the unemployed population
msnbc
The number of long-term jobless — those out of work six months or longer — is growing...The data, buried in Friday's unemployment report, are stark: The number of Americans out of work for 27 weeks or more reached 5.9 million last month, the most on records dating from 1948. That's 18 percent more than just three months ago, when the total was just below 5 million...the long-term jobless now make up 38.3 percent of the unemployed population, not that far from the 41.1 percent accounted for by those out of work for 14 weeks or less.
The number of long-term jobless — those out of work six months or longer — is growing...The data, buried in Friday's unemployment report, are stark: The number of Americans out of work for 27 weeks or more reached 5.9 million last month, the most on records dating from 1948. That's 18 percent more than just three months ago, when the total was just below 5 million...the long-term jobless now make up 38.3 percent of the unemployed population, not that far from the 41.1 percent accounted for by those out of work for 14 weeks or less.
Friday, December 4, 2009
Iranian arms merchant says 'war is coming'
John Shiffman
On a grainy undercover videotape recorded in a hotel room in Tbilisi, Georgia, an Iranian arms merchant chats with two Philadelphia salesmen who have brought samples of their military wares.
The merchant, Amir Hossein Ardebili, who has flown from Tehran to make a deal, patiently answers the Americans' questions. The radar microchips? Needed for antimissile protection. The sophisticated computers? Essential to "launch the F-4" fighter.
All of it, he says flatly, is destined for the Iranian military "because they think the war is coming." Against the United States.
The videotape, recorded in October 2007 by undercover federal agents from Philadelphia, was released yesterday as the case against Ardebili was unsealed in federal court in Wilmington - nearly two years after the Iranian was secretly brought to the United States.
U.S. officials said the case, first reported by The Inquirer on Wednesday, offers a window into Iran's covert effort to obtain U.S. military technology to bolster its armed forces.
"There is no question that there is an orchestrated effort by the government of Iran to acquire weapons in violation of our laws," said John Morton, assistant secretary in the Department of Homeland Security for Immigration Customs Enforcement (ICE). "This is serious business, not a flash in the pan. Unfortunately, there's a whole network of these guys out there trying to get weapons and sophisticated technology, and not just for Iran."
ICE undercover agents in Philadelphia and Europe ran the three-year sting, which was kept secret as federal agents used data retrieved from Ardebili's laptop to launch dozens of Iranian arms-sales investigations against U.S. and overseas companies.
The court filings unsealed yesterday, including the videotape, show that Ardebili, a former Iranian government procurement officer, was arrested in Georgia in early October 2007. After legal proceedings in Georgia, Ardebili was secretly extradited to the United States in January 2008 and quietly jailed in Philadelphia. A prominent Wilmington defense lawyer, Edmund D. Lyons, was appointed to represent him.
During a closed hearing in Wilmington in May 2008, Ardebili pleaded guilty to violating the arms embargo, the arms export control laws, conspiracy, and money laundering.
He is scheduled to be sentenced Dec. 14 before U.S. District Judge Gregory M. Sleet in Wilmington. According to federal sentencing guidelines, Ardebili could face more than 10 years in prison.
Lyons, his lawyer, has argued in a court filing that Ardebili should be sentenced to time served. He said Ardebili had admitted he broke U.S. law but did so while in Iran, where his actions are not considered a crime.
Lyons also said the Iranian had suffered in U.S. custody because he is housed in a special unit of the Philadelphia Federal Detention Center, where he is confined 23 hours a day. He has lost teeth and suffers from depression, the lawyer said.
Federal officials characterized the case as serious enough to warrant more prison time.
"Ardebili's job was to illegally" acquire military gear "in preparation for war with the United States," said Ed Bradley, the Philadelphia agent in charge of the Defense Criminal Investigative Service.
Ardebili negotiated the purchases of 1,000 state-of-the-art radar shifters, 10 gyro-chip sensors used in advanced aircraft applications, and two digital air computers for an F-4 aircraft, prosecutors said.
In addition, according to a court filing by U.S. Attorney David Weiss and Assistant U.S. Attorney David Hall, Ardebili made "tens of thousands" of requests via e-mail for American-made military hardware, from "aviation to sonar to radar."
The prosecutors said the Iranian arms merchant had acquired roughly $1 million worth of American hardware annually, most of it from U.S. companies.
Ardebili was lured by two ICE undercover operations, one based in the United States and one in Europe, U.S. officials said.
Much of the negotiation was done via e-mail or instant message.
In May 2006, for example, an ICE agent e-mailed Ardebili, writing in broken English to disguise himself: "What you can say can perhaps be good business, but I stress to you what we are do is ILLEGAL in US."
Ardebili replied the next month. To avoid the U.S. embargo law, he suggested that the military parts be shipped to Europe, then forwarded to Iran. "This is long time we are in the business and working in full security system. . . . [No one will] know end user located in Iran."
By 2007, Ardebili was negotiating by e-mail to buy the radar components and night-vision equipment, the U.S. government said. The undercover agents offered to sell more than 1,000 radar microchips for use in Iran through a shipping company in Azerbaijan. After protracted negotiations, Ardebili agreed to make a deposit on the radar components and wired $3,000 to the ICE undercover company's bank in Delaware, which is why the case was prosecuted in Wilmington.
Although Ardebili wanted to meet the salesmen in Dubai, the undercover ICE agent lured him to Georgia.
In one of their last instant-message chats, the ICE agent wrote to the Iranian arms merchant: "Our future is going to be big. I sometimes believe you do not know how big will our deals be."
On a grainy undercover videotape recorded in a hotel room in Tbilisi, Georgia, an Iranian arms merchant chats with two Philadelphia salesmen who have brought samples of their military wares.
The merchant, Amir Hossein Ardebili, who has flown from Tehran to make a deal, patiently answers the Americans' questions. The radar microchips? Needed for antimissile protection. The sophisticated computers? Essential to "launch the F-4" fighter.
All of it, he says flatly, is destined for the Iranian military "because they think the war is coming." Against the United States.
The videotape, recorded in October 2007 by undercover federal agents from Philadelphia, was released yesterday as the case against Ardebili was unsealed in federal court in Wilmington - nearly two years after the Iranian was secretly brought to the United States.
U.S. officials said the case, first reported by The Inquirer on Wednesday, offers a window into Iran's covert effort to obtain U.S. military technology to bolster its armed forces.
"There is no question that there is an orchestrated effort by the government of Iran to acquire weapons in violation of our laws," said John Morton, assistant secretary in the Department of Homeland Security for Immigration Customs Enforcement (ICE). "This is serious business, not a flash in the pan. Unfortunately, there's a whole network of these guys out there trying to get weapons and sophisticated technology, and not just for Iran."
ICE undercover agents in Philadelphia and Europe ran the three-year sting, which was kept secret as federal agents used data retrieved from Ardebili's laptop to launch dozens of Iranian arms-sales investigations against U.S. and overseas companies.
The court filings unsealed yesterday, including the videotape, show that Ardebili, a former Iranian government procurement officer, was arrested in Georgia in early October 2007. After legal proceedings in Georgia, Ardebili was secretly extradited to the United States in January 2008 and quietly jailed in Philadelphia. A prominent Wilmington defense lawyer, Edmund D. Lyons, was appointed to represent him.
During a closed hearing in Wilmington in May 2008, Ardebili pleaded guilty to violating the arms embargo, the arms export control laws, conspiracy, and money laundering.
He is scheduled to be sentenced Dec. 14 before U.S. District Judge Gregory M. Sleet in Wilmington. According to federal sentencing guidelines, Ardebili could face more than 10 years in prison.
Lyons, his lawyer, has argued in a court filing that Ardebili should be sentenced to time served. He said Ardebili had admitted he broke U.S. law but did so while in Iran, where his actions are not considered a crime.
Lyons also said the Iranian had suffered in U.S. custody because he is housed in a special unit of the Philadelphia Federal Detention Center, where he is confined 23 hours a day. He has lost teeth and suffers from depression, the lawyer said.
Federal officials characterized the case as serious enough to warrant more prison time.
"Ardebili's job was to illegally" acquire military gear "in preparation for war with the United States," said Ed Bradley, the Philadelphia agent in charge of the Defense Criminal Investigative Service.
Ardebili negotiated the purchases of 1,000 state-of-the-art radar shifters, 10 gyro-chip sensors used in advanced aircraft applications, and two digital air computers for an F-4 aircraft, prosecutors said.
In addition, according to a court filing by U.S. Attorney David Weiss and Assistant U.S. Attorney David Hall, Ardebili made "tens of thousands" of requests via e-mail for American-made military hardware, from "aviation to sonar to radar."
The prosecutors said the Iranian arms merchant had acquired roughly $1 million worth of American hardware annually, most of it from U.S. companies.
Ardebili was lured by two ICE undercover operations, one based in the United States and one in Europe, U.S. officials said.
Much of the negotiation was done via e-mail or instant message.
In May 2006, for example, an ICE agent e-mailed Ardebili, writing in broken English to disguise himself: "What you can say can perhaps be good business, but I stress to you what we are do is ILLEGAL in US."
Ardebili replied the next month. To avoid the U.S. embargo law, he suggested that the military parts be shipped to Europe, then forwarded to Iran. "This is long time we are in the business and working in full security system. . . . [No one will] know end user located in Iran."
By 2007, Ardebili was negotiating by e-mail to buy the radar components and night-vision equipment, the U.S. government said. The undercover agents offered to sell more than 1,000 radar microchips for use in Iran through a shipping company in Azerbaijan. After protracted negotiations, Ardebili agreed to make a deposit on the radar components and wired $3,000 to the ICE undercover company's bank in Delaware, which is why the case was prosecuted in Wilmington.
Although Ardebili wanted to meet the salesmen in Dubai, the undercover ICE agent lured him to Georgia.
In one of their last instant-message chats, the ICE agent wrote to the Iranian arms merchant: "Our future is going to be big. I sometimes believe you do not know how big will our deals be."
TrimTabs estimated that US economy shed 255,000 jobs in November
Image via Wikipedia
TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 255,000 jobs in November. This past month’s results were an improvement of only 10.2% from the 284,000 jobs lost in October.
Meanwhile, the Bureau of Labor Statistics (BLS) reported that the U.S. economy lost an astonishingly better than expected 11,000 jobs in November. In addition, the BLS revised their September and October results down a whopping 203,000 jobs, resulting in a 45% improvement over their preliminary results.
Something is not right in Kansas! Either the BLS results are wrong, our results are in error, or the truth lies somewhere in the middle.
We believe the BLS is grossly underestimating current job losses due to their flawed survey methodology. Those flaws include rigid seasonal adjustments, a mysterious birth/death adjustment, and the fact that only 40% to 60% of the BLS survey is complete by the time of the first release and subject to revision.
Seasonal adjustments are particularly problematic around the holiday season due to the large number of temporary holiday-related jobs added to payrolls in October and November which then disappear in January. In the past two months, the BLS seasonal adjustments subtracted 2.4 million jobs from the results. In January, when the seasonal adjustments are the largest of the year, the BLS will add anywhere from 2.0 to 2.3 million jobs. In our opinion, trying to glean monthly job losses numbering in the tens of thousands or even in the hundreds of thousands are lost in the enormous size of the seasonal adjustments.
In November, the BLS revised their September and October job losses down a surprising 44.5%, or 203,000 jobs. In the twelve months ending in October, the BLS revised their job loss estimates up or down by a staggering 679,000 jobs, or 13.0%. Until this past month, these revisions brought the BLS’ revised estimates to within a couple percent of TrimTabs’ original estimates.
The large divergence between the two results begs the question of what is causing the difference. While we don’t have an answer today, we will be poring over the data in an attempt to answer that question.
Thursday, December 3, 2009
Gold is being hoarded as hedge against inevitable US default
Image via Wikipedia
Duncan Davidson
My bet that by 2020 we will return to some form of gold standard is looking better. Something is up when gold is being hoarded to such an extent that the futures exchanges cannot fulfill with metal but have to try to stiff the contract holder with paper. Now, they have done this in the past, and gotten away with it, but according to this story, never so aggressively.
Prof. Antal Fekete has been on this story for several months, and has set forth in some detail how the gold basis is being manipulated, perhaps because of hoarding. (The basis is the delta between the cash price and the next futures price.) Yves has had several posts on Gold Panic, and it is consistent with the good Professor’s analysis.
Another aspect of this story is the collapse of Barrick’s hedging strategy. Barrick Gold (ABX) is the largest gold mining company and had been following a really dumb hedging strategy which had been to take naked short positions (shorting gold they did not possess). In a world of gold hoarding, they may not be able to cover, even at a loss. The strategy was so risky that a conspiracy theory had evolved that Barrick was front-running the US government to keep the gold price down. Lending support to this is the question: why would a gold production firm try to cap the gold price? An answer which does not require the conspiracy is that Barrick had less gold in the ground than it wanted to reveal, and so was engaged in a confidence game of the first order. The weak Dollar (driving gold up) and the hoarding has called their bluff.
Gold-backed currencies, unlike fiat currencies, have the irreducible endpoint of debts being paid in gold, which has retained value throughout history. Fiat currencies have no such endpoint. You can make the argument that fiat currencies are backed by the productive capacity of the issuer, and that they have some irreducible value based on taxing that production. History has tested that case, and found it wanting. You see, fiat currencies tempt countries to over-extend.
What happens when the debts of the issuer are vastly beyond their productive capacity? Well, the country defaults, and the fiat currency is forcibly exchanged for scratch. A 2008 paper by Harvard Professor Rogoff and Prof. Reinhart, both members of the NBER (which calls recessions and recoveries) entitled This Time Is Different demonstrates that instead of fiat regimes making good, they have defaulted over and over throughout eight centuries of financial crises:
We find that serial default [repeated sovereign default] is nearly a universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies.
Before we take comfort in the US being already an advanced economy, the imperial power of its day has typically defaulted after over-extending. Rich European countries have defaulted, including Austria, France, Portugal Spain and Germany. The reunified German defaulted in 1873, bringing the whole world into a long depression, including the United States. In the last century, Germany defaulted twice: 1932 and 1939. Russia three times, beginning in 1918. England in effect defaulted in 1931.
So now the gold hoarding makes sense: other sovereign powers are preparing for - or at least hedging against - the inevitable sovereign default of the US. The more Obama buries the US in ever more present deficits and future commitments, the closer this becomes.
Niall Ferguson’s piece in Newsweek, which I discussed yesterday, fits into this context. He was talking about Imperial powers getting over-extended, and the first thing that falls is to pullback on excessive defense spending and foolish Imperial wars. Even as Obama pitches tonight a three-year vague commitment in Afghanistan, the hand writing is on the wall. Sadly, the US is so over-extended the wars are but a small pullback in the vast future deficits from social commitments. This won’t end well.
Jobless Rate Rose In Almost Half of Metro Areas
yahoo.com
Unemployment worsened or stayed the same in most metro areas in October, the Labor Department said Wednesday, as jobs remained scarce nationwide.
The report comes a day before the Obama administration is to hold a "jobs summit" at the White House that will gather economists, academics and corporate executives to consider how the government can spur job creation.
The jobless rate rose in 162 of the 372 metro areas tracked by the Labor Department. The rate was unchanged in 42 areas. It dropped in 168 areas.
In September, unemployment had improved in 223 areas and worsened in only 123. The deteriorating trend mirrors the U.S. unemployment rate, which jumped to 10.2 percent in October from 9.8 percent in September.
The metro unemployment data isn't seasonally adjusted and is therefore volatile from month-to-month. All 372 areas reported higher unemployment rates in October compared with the previous year.
Unemployment worsened or stayed the same in most metro areas in October, the Labor Department said Wednesday, as jobs remained scarce nationwide.
The report comes a day before the Obama administration is to hold a "jobs summit" at the White House that will gather economists, academics and corporate executives to consider how the government can spur job creation.
The jobless rate rose in 162 of the 372 metro areas tracked by the Labor Department. The rate was unchanged in 42 areas. It dropped in 168 areas.
In September, unemployment had improved in 223 areas and worsened in only 123. The deteriorating trend mirrors the U.S. unemployment rate, which jumped to 10.2 percent in October from 9.8 percent in September.
The metro unemployment data isn't seasonally adjusted and is therefore volatile from month-to-month. All 372 areas reported higher unemployment rates in October compared with the previous year.
Wednesday, December 2, 2009
Businessmen can "shoot to kill" in the event of martial law
Report: Over 23,000 Business Leaders Working With FBI and Homeland Security
The Progressive magazine is reporting that more than 23,000 representatives of private industry are working quietly with the FBI and the Department of Homeland Security. The business leaders form a group known as InfraGard that receives warnings of terrorist threats directly from the FBI before the public does. We speak with the the reporter who broke the story and the editor of The Progressive, Matt Rothschild.
Goldman Sachs bankers stockpiling weapons in case people revolt
Image via CrunchBase
Bloomberg
“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.
I called Goldman Sachs spokesman Lucas van Praag to ask whether it’s true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn’t call me back. The New York Police Department has told me that “as a preliminary matter” it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names.
While we wait, Goldman has wrapped itself in the flag of Warren Buffett, with whom it will jointly donate $500 million, part of an effort to burnish its image -- and gain new Goldman clients. Goldman Sachs Chief Executive Officer Lloyd Blankfein also reversed himself after having previously called Goldman’s greed “God’s work” and apologized earlier this month for having participated in things that were “clearly wrong.”
Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage.
Pistol Ready
Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife’s jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won’t do you any good. As for carrying a loaded pistol when you venture outside, dream on. Concealed gun permits are almost impossible for ordinary citizens to obtain in New York or nearby states.
In other words, a little humility and contrition are probably the better route.
Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance. In a display of both, Blankfein began to raise his personal- security threat level early in the financial crisis. He keeps a summer home near the Hamptons, where unrestricted public access would put him at risk if the angry mobs rose up and marched to the East End of Long Island.
To the Barricades
He tried to buy a house elsewhere without attracting attention as the financial crisis unfolded in 2007, a move that was foiled by the New York Post. Then, Blankfein got permission from the local authorities to install a security gate at his house two months before Bear Stearns Cos. collapsed.
This is the kind of foresight that Goldman Sachs is justly famous for. Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer. Surely, though, this man who can afford to surround himself with a private army of security guards isn’t sleeping with the key to a gun safe under his pillow. The thought is just too bizarre to be true.
So maybe other senior people at Goldman Sachs have gone out and bought guns, and they know something. But what?
Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and -- oh yes -- the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”
Torn Curtain
There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm’s revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.
This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone’s expense.
Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn’t mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though.
Cool Hand Lloyd
No, talk of Goldman and guns plays right into the way Wall- Streeters like to think of themselves. Even those who were bailed out believe they are tough, macho Clint Eastwoods of the financial frontier, protecting the fistful of dollars in one hand with the Glock in the other. The last thing they want is to be so reasonably paid that the peasants have no interest in lynching them.
And if the proles really do appear brandishing pitchforks at the doors of Park Avenue and the gates of Round Hill Road, you can be sure that the Goldman guys and their families will be holed up in their safe rooms with their firearms. If nothing else, that pistol permit might go part way toward explaining why they won’t be standing outside with the rest of the crowd, broke and humiliated, saying, “Damn, I was on the wrong side of a trade with Goldman again.”
Broke and Desperate, Now Banks and the FDIC Want the Money Under Your Mattress
Image via Wikipedia
USA Today writer Martha Moore describes this as a "problem", a problem says Moore that's "most acute among minorities: 53% of African-American households and 43% of Hispanic households.
Now the FDIC claims they want banks to "win back those customers, saying consumers should have the benefit of insured savings and be able to build a credit history. Translation -- they need the money.
"There's a substantial segment of American households whose financial services needs aren't being adequately met," Martin Gruenberg, FDIC vice chairman, said in an interview Tuesday. He called the disproportion of minority households in the group "dramatic and troubling."
What's dramatic and troubling is that not only are banks broke, but so is the FDIC, and now they're after money from the poorest segment of the population.
USA Today:
The FDIC will use the data in its effort to persuade more banks to offer starter accounts," low-cost, no-minimum checking accounts without automatic overdraft programs that can result in customers getting hit with fees if they go in the red. One option, Gruenberg said, is to offer incentives to banks through the Community Reinvestment Act, which encourages banks to do business in low- and moderate-income communities."
FTC Considers Main Stream Media Bailout as Google prepares to Charge For News
Image via Wikipedia
Wall Street Journal reports:
The head of the Federal Trade Commission said Tuesday the agency will study whether government should aid struggling news organizations, which are suffering from a collapse in advertising revenues as the internet upends their centuries-old business model.
FTC Chairman Jon Liebowitz's comments came during day one of a two-day "workshop" sponsored by the agency that became a forum for arguments among the heads of a diverse array of news organizations over the future of journalism.
Mr. Leibowitz said his agency will examine whether government should change the way the industry is regulated, from making news-gathering companies exempt from antitrust laws to granting them special tax treatment to making changes to copyright laws.
The Federal Communications Commission is already reconsidering rules that prevent a company from owning newspapers and TV stations in a single market.
Mr. Leibowitz said other ideas include extending government subsidies to commercial news organizations, granting them special tax treatment or an exemption from antitrust regulations.
Meanwhile, Skynews reports:
Google is to limit the number of news articles users can read for free on its website. The search engine said it was changing its First Click Free programme so that readers would not be able to look at more than five pages in one day.
The move follows scathing criticism of Google by Rupert Murdoch over the way it provides free access to newspaper articles in his News Corp media group.
Google said users who click on more than five articles in a day may be routed to payment or registration pages
Some users have been able to get around paying subscriptions or registration by accessing news articles through Google.
Tuesday, December 1, 2009
Jim Rogers: gold will surge to $2,300 per ounce
David Lew
The rally in gold prices has driven several bullion analysts to frenzied forecasts. Some say gold prices will reach $2,000 per ounce soon. Others are predicting big boom for the yellow metal, saying gold prices will zoom to $5,000 and eventually to even $15,000 per ounce in the years to come.
These days, the biggest gold buyers are not individual customers or families, but global central bankers that are vying with each other to accumulate gold reserves in an attempt to get out of their decades-old dependence on the US dollar as the best asset class. India jumped into the bullion fray to buy 200 tonnes of gold from the International Monetary Fund (IMF) early this month. Other countries like China, Russia, Brazil and Sri Lanka are frantically trying to accumulate gold reserves.
Agreed that gold has emerged as the best asset class among bullion traders, central bankers and families across the world, how far can the yellow metal price surge?
One of the avid proponents who is arguing that gold price will surge past $2,000 soon is the legendary commodities investor Jim Rogers. Rogers, chairman of Singapore-based firm Rogers Holdings, says gold prices are booming because currencies across the world are dropping and the US dollar is collapsing. His latest forecast: gold will touch double the current price—around $1,150. Meaning, Rogers says gold will surge to $2,300 per ounce in the coming months.
The rest of Dave's article is nonsense.
The rally in gold prices has driven several bullion analysts to frenzied forecasts. Some say gold prices will reach $2,000 per ounce soon. Others are predicting big boom for the yellow metal, saying gold prices will zoom to $5,000 and eventually to even $15,000 per ounce in the years to come.
These days, the biggest gold buyers are not individual customers or families, but global central bankers that are vying with each other to accumulate gold reserves in an attempt to get out of their decades-old dependence on the US dollar as the best asset class. India jumped into the bullion fray to buy 200 tonnes of gold from the International Monetary Fund (IMF) early this month. Other countries like China, Russia, Brazil and Sri Lanka are frantically trying to accumulate gold reserves.
Agreed that gold has emerged as the best asset class among bullion traders, central bankers and families across the world, how far can the yellow metal price surge?
One of the avid proponents who is arguing that gold price will surge past $2,000 soon is the legendary commodities investor Jim Rogers. Rogers, chairman of Singapore-based firm Rogers Holdings, says gold prices are booming because currencies across the world are dropping and the US dollar is collapsing. His latest forecast: gold will touch double the current price—around $1,150. Meaning, Rogers says gold will surge to $2,300 per ounce in the coming months.
The rest of Dave's article is nonsense.
“Real” unemployment rate in US is 22%
Image via Wikipedia
The media and government officials often tout the unemployment rate using the official, or U3 rate, which stands at 10.2% for October. While 10.2% unemployment is certainly bad enough – it’s the highest rate nationally excluding 1983s 10.8% - it pales when compared to the U6 unemployment rate. First let’s discuss the differences between U3 and U6 measures.
According to the Bureau of Labor Statistics (BLS) the U3 measure is described as “total unemployed, as a percent of the civilian labor force (official unemployment rate).” Now let’s take a look at the BLS U6 measure: Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
When including marginally attached workers and those forced to work part-time instead of full-time we have a national unemployment rate of 17.5%, which is nearly 70% higher than the U3 rate of 10.2%. That’s a dramatic increase from the normally quoted U3 unemployment rate, but even U6 fails to provide the actual percentage of people who are, or may be considered unemployed.
John Williams discusses alternative unemployment data sets at his Shadow Government Statistics site. Their service, in part, “exposes and analyzes flaws in current U.S. government economic data and reporting.” Once those flaws are included in the unemployment calculation – called the SGS Alternate - the unemployment rate reaches 22%. Shadow Government Statistics gives the following reason for SGS Alternate measure: “The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated “discouraged workers” defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.”
To clarify why the discrepancy between U6 and the SGS Alternate rate of 22%, I contacted the BLS and received the following answer to my question about the change in discouraged worker designation during the Clinton Administration:
“(P)rior to 1994 persons were not asked whether they had searched for work recently. If they gave one of the five “discouraged worker” reasons for not looking for work in the past 4 weeks, they were assumed to have “given up” the search for work, although they weren’t asked when they had last looked. As a result of the greater specificity introduced in 1994, the number of discouraged workers was cut approximately in half, from about 1.1 million in 1993 to 500,000 in 1994.”
About 600,000 people were removed from the unemployment calculations in 1994, so if you merely add those 600,000 to the current U6 number, the rate of unemployment would be much higher than 17.5% and would more accurately be reflected in the SGS Alternate unemployment rate of 22%.
The BLS now offers the U6 measure of unemployment for states. An example is New York’s U6 rate averages 13.4% for the period fourth quarter of 2008 through third quarter of 2009 at: Alternative measures of labor underutilization by state. So making the simple assumption that the SGS Alternate data is, on a national level, about 4.5% higher than U6, the unemployment rate in New York is closer to 17.9%, and that’s being conservative since the current unemployment rate is higher than the average presented at the BLS.
When nearly 1 in 5 eligible New York workers are either unemployed or underemployed, we are made aware of the brutal state of employment. Maybe it’s time to spend more money on job creation, instead of pumping billions of dollars into the coffers of banking bonus babies and corrupt banks and institutions that were made too big to fail by two presidential administrations more concerned about campaign money than taxpayer needs.
A sliver of good news, according to John Williams, is that during the Great Depression the SGS Alternate measure of unemployment would likely be near 34%. Let’s hope our elected “representatives” don’t aim for those lofty unemployment levels.
If you would like to follow my Examiner.com posts, they are located at Rochester Unemployment Examiner’s Articles.
“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” – Frederic Bastiat (1801-1850)
Unemployment Insurance Breaking Down
Unemployment offices are receiving record numbers of applications and phone calls. One story the media isn't covering is the sheer horror many out of work Americans feel when they try and contact and apply for unemployment insurance benefits. Sometimes months may pass by before some families begin to receive benefits. Many are confused with the inability to get through to offices by phone, and the closing down of physical locations by the state. What are the number that give up on unemployment and simply apply for welfare and food stamps?
Monday, November 30, 2009
How much longer can the dollar defy gravity?
Image via Wikipedia
Liam Halligan
The trade deficit of the world's biggest economy also remains huge. How much longer can the dollar defy gravity?
Last week, America's currency fell to a 15-month low against the euro, cutting through $1.5050. Against a trade-weighted currency basket, the dollar was also at its weakest since July 2008. The greenback plunged to parity with the rock-solid Swiss franc, then hit a 14-year low against the yen.
The dollar's weakness is based on fundamentals – not least America's jaw-dropping debt. It's a long-term trend. From the start of 2002 until the middle of last year, the dollar lost 30pc on a trade-weighted basis.
It was during the summer and autumn of 2008, though, that the sub-prime debacle entered its most vicious phase (so far). The rescue of Fannie Mae and Freddie Mac, America's quasi-state mortgage-lenders, followed by the Lehman collapse, sent shock waves around the world. For six months or so, Western investors piled into what they knew, liquidating complex positions and buying plain dollars. The greenback became stronger, spiralling upward during the so-called "safe haven rally".
All that has now changed. The trade-weighted dollar has lost 22pc since March. One reason is that, since the spring, the Federal Reserve has been printing money like crazy – both to bail out Wall Street and service America's rapidly growing debt.
Sophisticated investors have also been exploiting America's ultra-low 0.25pc interest rate to borrow cheaply in dollars, switch these borrowings in currencies where returns are higher, then pocket the difference. This so-called "carry trade" has flooded foreign exchange markets with US currency.
The dollar fell particularly sharply last week, though, as traders were reminded of the patently obvious – that the White House actually wants the dollar to fall. US Treasury officials have lately taken to staring into the TV cameras, puffing out their chests, then stating: "We are committed to a strong dollar." That's nonsense, of course, because a weaker currency boosts US exports and lowers the value of America's external debt.
When the minutes of the Fed's latest policy meeting were published on Tuesday, describing the dollar's decline as "orderly", the markets rightly took that as confirmation of America's "benign neglect" approach – with intervention to support the dollar unlikely. The minutes also showed the Fed's key committee members voted "unanimously" to keep interest rates at rock-bottom for "an extended period" – another reason to sell.
In addition, the Federal Deposit Insurance Corporation, the fund that safeguards US bank deposits, warned that the number of "problem" banks grew in the third quarter, leading to speculation it could seek a credit line from the US Treasury. That would mean more borrowing and money-printing, concerns which sent the dollar even lower.
Yet "benign neglect" is fraught with danger. A weak US currency makes commodities more expensive (seeing as they're priced in dollars). It was when the dollar hit an all-time low of $1.60 against the euro during the summer of 2008 that oil soared to $147 a barrel. Expensive crude damages the economy of the world's biggest oil user. And as the dollar falls, America's huge commodity imports cost more, making the trade deficit even worse.
On top of all that, a falling dollar makes it even more difficult for the US government to meet its massive borrowing needs. Just to service existing debt, America must sell $205bn of Treasuries this year, a total set to hit more than $700bn a year by 2019 – even if annual budget deficits shrink. Selling long-term sovereign debt, in a currency expected to fall, is not easy.
Almost every American economist I know dismisses these concerns. Several have contacted me over the last 48 hours, gloating that the dollar has just put on a renewed "safe haven" spurt in the midst of fears about Dubai.
Yet the state of the dollar poses enormous dangers. For one thing, America's currency depreciation trick could backfire if "the rope slips" and a steadily dollar decline turns into free fall. The cost of US imports would soar, with the Fed being forced to sharply push up rates. The world's largest economy would then be caught in a stagflation trap – a slump, but with high inflation.
A more immediate concern is that a blind rush into the US currency could cause the carry-trade to go badly wrong – with those who've borrowed in dollars suddenly owing more, while their dollar-funded investments elsewhere are worth less.
A rapid "unwinding" could cause major losses at financial institutions, posing renewed systemic dangers. Far from being a safe haven, the dollar is the likely source of the next financial crisis.
One in Four Children on Food Stamps
Alex Spillius
One in eight people is now taking advantage of the nationwide subsidised scheme, with 20,000 more signing up each day, according to research by the New York Times.
It found that in 239 counties, at least 25 per cent of residents collected food stamps, which are plastic cards that can be used for a wide range of staple goods at supermarkets.
The scheme has existed for years, and was made easier to apply for by George W Bush, despite conservative opposition. Under Mr Bush, the scheme was also given a less pejorative formal title, the Supplemental Nutrition Assistance Programme.
But officials have put the rapid increase down to hard economic times, with demand rising most sharply in places blighted by collapsed housing markets. The newspaper's research showed there are about 60 counties where registration has doubled since the foreclosure crisis was unleashed in 2007.
One new recipient, an electrician in Ohio, said the monthly benefit of $300 (£180) was plugging the gap left by the collapse of his overtime payments and rising health insurance premiums.
"I always thought it was people trying to milk the system. But we just felt like we really needed the help right now," said Greg Dawson, a father of five.
Critics maintain that the system is widely abused, with beneficiaries piling up on steaks and soft drinks, but its defenders argue that genuine need for help with food is overwhelming.
"This is the most urgent time for our feeding programmes in our lifetime, with the exception of the Depression," Kevin Concannon, a senior agriculture department official, told the New York Times. "It's time for us to face up to the fact that in this country of plenty, there are hungry people.
One in eight people is now taking advantage of the nationwide subsidised scheme, with 20,000 more signing up each day, according to research by the New York Times.
It found that in 239 counties, at least 25 per cent of residents collected food stamps, which are plastic cards that can be used for a wide range of staple goods at supermarkets.
The scheme has existed for years, and was made easier to apply for by George W Bush, despite conservative opposition. Under Mr Bush, the scheme was also given a less pejorative formal title, the Supplemental Nutrition Assistance Programme.
But officials have put the rapid increase down to hard economic times, with demand rising most sharply in places blighted by collapsed housing markets. The newspaper's research showed there are about 60 counties where registration has doubled since the foreclosure crisis was unleashed in 2007.
One new recipient, an electrician in Ohio, said the monthly benefit of $300 (£180) was plugging the gap left by the collapse of his overtime payments and rising health insurance premiums.
"I always thought it was people trying to milk the system. But we just felt like we really needed the help right now," said Greg Dawson, a father of five.
Critics maintain that the system is widely abused, with beneficiaries piling up on steaks and soft drinks, but its defenders argue that genuine need for help with food is overwhelming.
"This is the most urgent time for our feeding programmes in our lifetime, with the exception of the Depression," Kevin Concannon, a senior agriculture department official, told the New York Times. "It's time for us to face up to the fact that in this country of plenty, there are hungry people.
Pension Benefit Guaranty Corporation to seize pension plans covering 4,780 workers
David Shepardson
Detroit News
The government's pension insurer said Monday it will assume responsibility for the underfunded pension plan of a bankrupt Northville auto supplier -- at least the fifth supplier to abandon its pension obligations this year.
The Pension Benefit Guaranty Corporation said it will seize the pension plans covering 4,780 workers and retirees of Hayes Lemmerz International Inc., the Michigan-based wheel manufacturer -- a move that will add nearly $100 million to the PBGC's growing deficit.
PBGC said it is moving now because Hayes Lemmerz failed to meet the minimum funding requirements, and the company cannot afford to fund the pension plan and to successfully exit bankruptcy.
The Hayes Lemmerz International Retirement Income Plan is 54 percent funded, with assets of $110.4 million to cover benefit liabilities of $204.8 million, according to PBGC estimates. The agency expects to be responsible for $93.7 million of the $94.4 million shortfall. The plan was frozen on Dec. 31, 2004.
The Detroit News reported this summer that PBGC was in talks with Hayes to seize its pension plans.
On May 11, Hayes filed for Chapter 11 protection. The company has said it intends to reorganize and emerge from bankruptcy this year to preserve its market share.
On Nov. 4, Hayes won court approval for a reorganization plan that will allow it to shed $480 million of its $720 million in debt.
The PBGC, a government-owned company, insures the basic pension benefits of about 44 million American workers and retirees in more than 29,000 private-sector defined benefit pension plans.
Earlier this year, PBGC assumed responsibility for Troy-based Delphi Corp's pension plans -- a move that saddled PBGC with $6.7 billion in costs for plans covering more than 70,000 people.
PBGC also assumed pension plans at suppliers Metaldyne Corp; Proliance International Inc., an auto parts maker based in New Haven, Conn.; and Portage-based Contech US LLC.
PBGC said earlier this month that its deficit had soared to $21.1 billion this year -- up from $10.4 billion last year. But it improved over its mid-year estimate of $33.5 billion.
Detroit News
The government's pension insurer said Monday it will assume responsibility for the underfunded pension plan of a bankrupt Northville auto supplier -- at least the fifth supplier to abandon its pension obligations this year.
The Pension Benefit Guaranty Corporation said it will seize the pension plans covering 4,780 workers and retirees of Hayes Lemmerz International Inc., the Michigan-based wheel manufacturer -- a move that will add nearly $100 million to the PBGC's growing deficit.
PBGC said it is moving now because Hayes Lemmerz failed to meet the minimum funding requirements, and the company cannot afford to fund the pension plan and to successfully exit bankruptcy.
The Hayes Lemmerz International Retirement Income Plan is 54 percent funded, with assets of $110.4 million to cover benefit liabilities of $204.8 million, according to PBGC estimates. The agency expects to be responsible for $93.7 million of the $94.4 million shortfall. The plan was frozen on Dec. 31, 2004.
The Detroit News reported this summer that PBGC was in talks with Hayes to seize its pension plans.
On May 11, Hayes filed for Chapter 11 protection. The company has said it intends to reorganize and emerge from bankruptcy this year to preserve its market share.
On Nov. 4, Hayes won court approval for a reorganization plan that will allow it to shed $480 million of its $720 million in debt.
The PBGC, a government-owned company, insures the basic pension benefits of about 44 million American workers and retirees in more than 29,000 private-sector defined benefit pension plans.
Earlier this year, PBGC assumed responsibility for Troy-based Delphi Corp's pension plans -- a move that saddled PBGC with $6.7 billion in costs for plans covering more than 70,000 people.
PBGC also assumed pension plans at suppliers Metaldyne Corp; Proliance International Inc., an auto parts maker based in New Haven, Conn.; and Portage-based Contech US LLC.
PBGC said earlier this month that its deficit had soared to $21.1 billion this year -- up from $10.4 billion last year. But it improved over its mid-year estimate of $33.5 billion.
Sunday, November 29, 2009
Bob Chapman: This may be the most important info we have ever published
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The following information may be the most important we have ever published. One of our Intel sources, highly placed in banking circles, tells us that on 1/1/10 all banks that have received TARP funds have been informed by the Federal Reserve that they must further restrict any commercial lending. Loans have to be 75% collateralized, 50% of which has to be in cash, which is a compensating balance.
The Fed has to do one of two things: They either have to pull $1.5 trillion out of the system by June, which would collapse the economy, or face hyperinflation. This is why the Fed has instructed banks to inform them when and how much of the TARP funds they can return. At best they can expect $300 to $400 billion plus the $200 billion the Fed already has in hand.
We believe the Fed will opt for letting the system run into hyperinflation. All signs tell us they cannot risk allowing the undertow of deflation to take over the economy. The system cannot stand such a withdrawal of funds. They also must depend on assistance from Congress in supplying a second stimulus plan. That would probably be $400 to $800 billion. A lack of such funding would send the economy and the stock market into a tailspin. Even with such funding the economy cannot expect any growth to speak of and at best a sideways movement for perhaps a year.
We have been told that the FDIC not only is $8.2 billion in the hole, but they have secretly borrowed an additional $80 billion from the Treasury. We have also been told that the FDIC is lying about the banks in trouble. The number in eminent danger are not 552, but a massive 2,035. The cost of bailing these banks out would be $800 billion to $1 trillion. That means 2,500 could be closed in 2010. Now get this, the FDIC is going to be collapsed before the end of 2010, which means no more deposit insurance. This follows the 9/18/09 end of government guarantees on money market funds. Both will force deposits into US government bonds and agency bonds in an attempt to save the system.
This will strip small and medium-sized banks and force them into shutting down or being absorbed. This means you have to get your money out of banks, especially CDs. We repeat get your cash values out of life insurance policies and annuities. They are invested 80% in stocks and 20% in bonds. Keep only enough money in banks for three months of operating expenses, six months for businesses.
Major and semi-major banks are being told to obtain secure storage for new currency-dollars. They expect official devaluation by the end of the year.
We do not know what the exchange rate will be, but as we have stated previously we expect three old dollars to be traded for one new dollar. The alternative is gold and silver coins and shares. For those with substantial sums that do not want to be in gold and silver related assets completely you can use Canadian and Swiss Treasuries. If you need brokers for these investments we can supply them.
The Fed also expects a meltdown in the bond market, especially in municipals. Public services will be cut drastically leading to increased crime and social problems, not to mention the psychological trauma that our country will experience. Already 50% of homes in hard hit urban areas are under water, nationwide more than 25%. That means you have to be out of bonds as well, especially municipals. More...
Dubai May Trigger Major Sovereign Default
Alex Messenger
Dubai’s announcement on Wednesday that it would be delaying by “at least” six months the maturity date of $59 billion in bonds issued by the city-state’s largest state-owned company, Dubai World, has sent global shares tumbling. The market reaction to Dubai’s massive debt default is partly explained by the exposure of European and Asian banks to DP World and its tourism subsidiary, Nakheel.
The real reason for the falls, however, is that Dubai’s apparent insolvency confirms that default by hyper-indebted government borrowers is now a real risk right across the globe, especially in the Middle East and Eastern Europe. Such a default would not only mean an immediate worsening of the already brutal post-crash conditions suffered by millions of workers in defaulting countries, but would usher in a second, and probably worse, phase in the global financial crisis.
A note published by Bank of America strategists warned of the possibility of a major sovereign default. “One cannot rule out—as a tail risk—a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” the note said.
An editorial in today’s Financial Times noted that while markets were not expected to return to the panic of September 2008, because the financial sector had state backstops, “fearful investors have started to worry about how safe sovereign debt is,” citing Ireland and Greece as two examples.
The Dubai meltdown represents only a small sum in terms of total global indebtedness. Nevertheless it indicates that despite talk of global economic recovery, the world remains on a knife-edge. Attempts at reassurance by British prime minister Gordon Brown indicate that financial and government elites are already fearful. Brown this morning acknowledged the risk that Dubai posed to the global economy but, with careful understatement, told reporters “I think we will find this is not on the scale of the previous problems we have dealt with.”
Market falls on news of the Dubai crisis were sharpest in Japan, where a number of banks (including Mitsubishi UFJ and Semitoro Mitsui) are directly or indirectly exposed. Japanese shares plummeted 3.2 percent yesterday—the market’s largest one day decline in 8 months. A 2.9 percent fall in Australia the same day reflected the fact that a Dubai World subsidiary, stevedoring company DP World, carries one third of Australia’s sea cargo. In New York, the share index opened 2 percent down and only partially recovered those losses. Forty-four billion British pounds has been wiped off the London market, the largest single day loss since March. Shares in UK bank HSBC fell 7 percent. HSBC is reported to have lent Dubai $17 billion. Other UK banks with a Dubai exposure are Standard Chartered, Citigroup UK, Lloyds and Royal Bank of Scotland, an institution now majority-owned by the UK government, which has received more bailout money ($67 billion) than any other bank in the world.
Dubai World accounts for three quarters of the $80 billion borrowed by Dubai’s state-owned companies to fuel the emirate’s property boom. That boom—which came to an end when property values halved in a period of weeks from October 2008—was an expression of the global elite’s fantasy of endless wealth, with Dubai’s ruling family creating a desert playground for the global rich. Its most notable features were the world’s tallest building, a giant indoor ski slope and a series of vast man-made islands in the shape of palm trees and stars. Dubai World, which manages billions in construction projects, also used its foreign borrowings to diversify into global transport, especially ports and shipping. DP World is the largest port operator in the Middle East.
It is testimony to the anarchy and irrationality of the global financial system that although the scale of the Dubai crisis has been apparent for months, the government’s default announcement still caught global markets unawares. Banks had apparently assumed the existence of an implicit government guarantee of DP World’s debt, if not by the Dubai government, then by Dubai’s sister emirate, oil-rich Abu Dhabi. But there was no guarantee—Dubai World is a limited liability company owned by the Dubai government. The expectation that Abu Dhabi would rescue foreign investors was just idle hope.
Along with worldwide share market falls, the immediate effect of the Dubai default has been a surge in the insurance costs for national borrowings, especially by poorer countries. That cost is represented in the price of credit default swaps (CDS) on government bond issues. Greek CDS costs in particular have skyrocketed, raising fears that Greece, with public debt levels at a staggering 130 percent of GDP, will follow Dubai within weeks. CDS costs for Hungary have also soared since Wednesday, and there have been CDS price increases of about 11 percent for Malaysia, South Korea and Qatar.
These developments are by no means unforseen. Rather, the Dubai default is a lit match for ready-to-burn tinder, namely global sovereign debt levels. The key response of capitalist institutions to the global financial crisis has been to transform the toxic debts and unsustainable borrowings of private institutions into public debt via bail outs, guarantees and other stop-gap mechanisms. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 percent between 2007 and 2010 to $15.3 trillion.
This ballooning of sovereign debt has been so fast and so immense that there is little chance of debtor governments, mired in unemployment and low growth, repaying either in the short or long term. As borrowing costs increase because of the perception of increased default risk (also called ‘long tail’ risk), the situation for indebted countries becomes worse. Global funds available for such borrowings are also drying up. While Greece, Hungary, Latvia, Estonia and Turkey are at the top of the global watchlist, default is also an eventual likelihood for the United States, which has public debts of $12 trillion. The key difference between the United States and smaller states, in this regard, is that the US is currently deemed by its bondholders, including the Chinese government, as ‘too big to fail’.
The Dubai default also pierces claims that allegedly well-managed and well-regulated national portions of the world economy can escape the effects and aftershocks of the financial crisis. Government and the corporate press have claimed that Australia, for example, is immune. But it is now likely that DP World’s Australian ports—a substantial piece of that country’s infrastructure, currently worth $1.5 billion—will have to be sold in the near future. Early reports indicate that there is unlikely to be strong interest and there may be no buyers. Few local companies have funds of that scale to invest in what is now, in the context of an uncertain future for global trade, a very risky asset.
Dubai’s announcement on Wednesday that it would be delaying by “at least” six months the maturity date of $59 billion in bonds issued by the city-state’s largest state-owned company, Dubai World, has sent global shares tumbling. The market reaction to Dubai’s massive debt default is partly explained by the exposure of European and Asian banks to DP World and its tourism subsidiary, Nakheel.
The real reason for the falls, however, is that Dubai’s apparent insolvency confirms that default by hyper-indebted government borrowers is now a real risk right across the globe, especially in the Middle East and Eastern Europe. Such a default would not only mean an immediate worsening of the already brutal post-crash conditions suffered by millions of workers in defaulting countries, but would usher in a second, and probably worse, phase in the global financial crisis.
A note published by Bank of America strategists warned of the possibility of a major sovereign default. “One cannot rule out—as a tail risk—a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” the note said.
An editorial in today’s Financial Times noted that while markets were not expected to return to the panic of September 2008, because the financial sector had state backstops, “fearful investors have started to worry about how safe sovereign debt is,” citing Ireland and Greece as two examples.
The Dubai meltdown represents only a small sum in terms of total global indebtedness. Nevertheless it indicates that despite talk of global economic recovery, the world remains on a knife-edge. Attempts at reassurance by British prime minister Gordon Brown indicate that financial and government elites are already fearful. Brown this morning acknowledged the risk that Dubai posed to the global economy but, with careful understatement, told reporters “I think we will find this is not on the scale of the previous problems we have dealt with.”
Market falls on news of the Dubai crisis were sharpest in Japan, where a number of banks (including Mitsubishi UFJ and Semitoro Mitsui) are directly or indirectly exposed. Japanese shares plummeted 3.2 percent yesterday—the market’s largest one day decline in 8 months. A 2.9 percent fall in Australia the same day reflected the fact that a Dubai World subsidiary, stevedoring company DP World, carries one third of Australia’s sea cargo. In New York, the share index opened 2 percent down and only partially recovered those losses. Forty-four billion British pounds has been wiped off the London market, the largest single day loss since March. Shares in UK bank HSBC fell 7 percent. HSBC is reported to have lent Dubai $17 billion. Other UK banks with a Dubai exposure are Standard Chartered, Citigroup UK, Lloyds and Royal Bank of Scotland, an institution now majority-owned by the UK government, which has received more bailout money ($67 billion) than any other bank in the world.
Dubai World accounts for three quarters of the $80 billion borrowed by Dubai’s state-owned companies to fuel the emirate’s property boom. That boom—which came to an end when property values halved in a period of weeks from October 2008—was an expression of the global elite’s fantasy of endless wealth, with Dubai’s ruling family creating a desert playground for the global rich. Its most notable features were the world’s tallest building, a giant indoor ski slope and a series of vast man-made islands in the shape of palm trees and stars. Dubai World, which manages billions in construction projects, also used its foreign borrowings to diversify into global transport, especially ports and shipping. DP World is the largest port operator in the Middle East.
It is testimony to the anarchy and irrationality of the global financial system that although the scale of the Dubai crisis has been apparent for months, the government’s default announcement still caught global markets unawares. Banks had apparently assumed the existence of an implicit government guarantee of DP World’s debt, if not by the Dubai government, then by Dubai’s sister emirate, oil-rich Abu Dhabi. But there was no guarantee—Dubai World is a limited liability company owned by the Dubai government. The expectation that Abu Dhabi would rescue foreign investors was just idle hope.
Along with worldwide share market falls, the immediate effect of the Dubai default has been a surge in the insurance costs for national borrowings, especially by poorer countries. That cost is represented in the price of credit default swaps (CDS) on government bond issues. Greek CDS costs in particular have skyrocketed, raising fears that Greece, with public debt levels at a staggering 130 percent of GDP, will follow Dubai within weeks. CDS costs for Hungary have also soared since Wednesday, and there have been CDS price increases of about 11 percent for Malaysia, South Korea and Qatar.
These developments are by no means unforseen. Rather, the Dubai default is a lit match for ready-to-burn tinder, namely global sovereign debt levels. The key response of capitalist institutions to the global financial crisis has been to transform the toxic debts and unsustainable borrowings of private institutions into public debt via bail outs, guarantees and other stop-gap mechanisms. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 percent between 2007 and 2010 to $15.3 trillion.
This ballooning of sovereign debt has been so fast and so immense that there is little chance of debtor governments, mired in unemployment and low growth, repaying either in the short or long term. As borrowing costs increase because of the perception of increased default risk (also called ‘long tail’ risk), the situation for indebted countries becomes worse. Global funds available for such borrowings are also drying up. While Greece, Hungary, Latvia, Estonia and Turkey are at the top of the global watchlist, default is also an eventual likelihood for the United States, which has public debts of $12 trillion. The key difference between the United States and smaller states, in this regard, is that the US is currently deemed by its bondholders, including the Chinese government, as ‘too big to fail’.
The Dubai default also pierces claims that allegedly well-managed and well-regulated national portions of the world economy can escape the effects and aftershocks of the financial crisis. Government and the corporate press have claimed that Australia, for example, is immune. But it is now likely that DP World’s Australian ports—a substantial piece of that country’s infrastructure, currently worth $1.5 billion—will have to be sold in the near future. Early reports indicate that there is unlikely to be strong interest and there may be no buyers. Few local companies have funds of that scale to invest in what is now, in the context of an uncertain future for global trade, a very risky asset.
Dubai Govt owns 21 per cent of London Stock Exchange
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Dubai World, the state-owned corporation that began the panic on Wednesday by demanding a standstill on its interest payments, worsened the mood when it postponed a teleconference for its bond holders, saying the phone lines were overwhelmed.
Gerard Lyons, chief economist with Standard Chartered, said: “The market reaction shows how vulnerable some economies are to the aftermath of the debt binge. This highlights how fragile confidence is.”
The Eid al-Adha religious holiday in the Middle East, and the closure of financial markets in the United States for Thanksgiving, exacerbated the sense of uncertainty in markets that were open for business.
A computer crash at the London Stock Exchange, which by coincidence is 21 per cent owned by the Dubai Government, left dealers unable to trade for three and a half hours.
Shares in HSBC slumped by 5 per cent, wiping £6.2 billion from its value. According to the United Arab Emirates Banks Association, HSBC has £11 billion of loans outstanding to the UAE, of which Dubai is one of seven emirates. HSBC declined to comment.
More than £2.6 billion was slashed from the value of Barclays, while Lloyds and Royal Bank of Scotland, both partly owned by the taxpayer, saw their values fall by £1.7 billion and £1.5 billion respectively.
Dubai Crisis Threatens Airbus and Boeing
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As if Airbus and Boeing didn’t have enough to worry about already, the looming debt crisis in Dubai has cast a shadow over a backlog of aircraft orders, worth more than $60 billion, from Dubai, Inc.
The biggest – but by no means the only – example is Emirates, Dubai’s government-controlled carrier. It has more than $30 billion worth of planes on order from Airbus, including 53 of the double-decker A380, for which Emirates is by far the largest customer. Emirates also has placed 70 orders for Airbus’s forthcoming A350 widebody. And Airbus has outstanding orders from state-controlled leasing outfit DAE Capital totaling about $12.6 billion.
No surprise, then, that shares in Airbus parent European Aeronautics Defence & Space Co. fell more than 3% on Nov. 26 when the Dubai government asked to postpone debt repayments.
Boeing is considerably less-exposed than Airbus to potential turmoil in Dubai, but it still has plenty at stake. Emirates has about $4 billion worth of Boeing 777s on order, while DAE Capital and low-cost carrier Flydubai have a combined $16 billion on order from Boeing. As U.S. markets reopened on Nov. 27 after Thanksgiving, Boeing shares were down 1.2%
Emirates, which in less than a decade has grown from obscurity into one of the world’s biggest airlines, has long said that it receives no government subsidies. Even so, the debt crisis could wreak havoc with its future. Travel to Dubai had already started to slump as the economy weakened earlier this year – although Emirates is cushioned somewhat because about 60% of passengers coming through its Dubai hub are on flights connecting elsewhere.
A scarier prospect for Emirates is that Dubai’s oil-rich neighbor, Abu Dhabi, might demand control of the airline as part of a deal to bail out its debt-strapped neighbor. Abu Dhabi’s state airline, Etihad, has ambitions to become a global player and turn the Abu Dhabi airport into a major hub.
If that happens, it’s unlikely Abu Dhabi would take delivery of all Emirates’ order backlog, in addition to the 100 aircraft it has ordered. Longterm market analyses by Airbus and Boeing predict that air travel in the Middle East will grow an average 6% to 7% annually over the next two decades, too little to absorb both carriers’ order books. And those estimates were made before the Dubai debt crisis.
The outlook for DAE Capital and Flydubai is worrisome, too. Both now have small fleets and have been counting on robust revenue growth to pay for new aircraft purchases. It could add up to a very bumpy ride for both Airbus and Boeing.
Citibank loaned $8 billion in bailout money to Dubai
http://www.7days.ae/
Wednesday 11 Mar, 2009
US outrage over Citi loan to Dubai
The US public will be “outraged” by Citibank’s $8 billion loan to Dubai just six weeks after the bank was bailed out, US House of Representatives domestic policy subcommittee chair-man has said. Dennis Kucinich commented on the Dubai loan and other US banking investments as a congressional panel released a report that strongly questioned Citibank’s actions. The report, shown to 7DAYS, cites the Dubai loan as the largest of the “questionable transactions” by banks after the US government bailed them out. It notes that the loan to Dubai’s public sector came on December 14, just six weeks after the US government gave Citibank a $25 billion bail-out.
The report quotes Win Bischoof, then chairman of Citi, as saying the bank agreed to the Dubai loan because “we continue to place the Gulf region among our globally most significant markets”. The report also questions JP Morgan’s $1 billion investment in India and Bank of America’s $7 billion investment in China. “When the American people find that their tax dollars, which were supposed to be used to get us out of this financial crisis, are instead being used to ship jobs and investments overseas, there will be outrage,” Kucinich said. The report notes the loans were not illegal and that it is not known if they were directly funded by bail-out funds. A Citibank official was quoted at the time as saying the $8 billion came from the bank’s own funds and third party sources. The report was released as the committee prepares to question banking chiefs about their use of bail-out funds.
Wednesday 11 Mar, 2009
US outrage over Citi loan to Dubai
The US public will be “outraged” by Citibank’s $8 billion loan to Dubai just six weeks after the bank was bailed out, US House of Representatives domestic policy subcommittee chair-man has said. Dennis Kucinich commented on the Dubai loan and other US banking investments as a congressional panel released a report that strongly questioned Citibank’s actions. The report, shown to 7DAYS, cites the Dubai loan as the largest of the “questionable transactions” by banks after the US government bailed them out. It notes that the loan to Dubai’s public sector came on December 14, just six weeks after the US government gave Citibank a $25 billion bail-out.
The report quotes Win Bischoof, then chairman of Citi, as saying the bank agreed to the Dubai loan because “we continue to place the Gulf region among our globally most significant markets”. The report also questions JP Morgan’s $1 billion investment in India and Bank of America’s $7 billion investment in China. “When the American people find that their tax dollars, which were supposed to be used to get us out of this financial crisis, are instead being used to ship jobs and investments overseas, there will be outrage,” Kucinich said. The report notes the loans were not illegal and that it is not known if they were directly funded by bail-out funds. A Citibank official was quoted at the time as saying the $8 billion came from the bank’s own funds and third party sources. The report was released as the committee prepares to question banking chiefs about their use of bail-out funds.
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