More articles on the state of the US and world economy.
More than 400 US Banks Will Fail: Roubini
5 Doomsday Scenarios for the U.S. Economy
Venezuela introduces Cuba-like food card
These all layout a pretty grim picture. The million dollar question is when will it snap.
Only God knows and He is not telling. =)
We must prepare our families for tough times so that we will be prepared to help others that did not remain watchful, for we know not how much we will have to endure until Christ returns to rapture his church.
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More than 400 US Banks Will Fail: Roubini
Even if the US and European economies manage to avoid a double dip, it will still feel like a recession, while more than half of the 800-plus US banks on the “critical list” are likely to go bust, according to renowned economist Nouriel Roubini of Roubini Global Economics.
The second half of the year will remain weak as tailwinds become headwinds, Roubini told CNBC on the shores of Lake Como, Italy at the Ambrosetti Forum economics conference.
“In the second half, fiscal policy becomes a headwind, no more cash for clunkers,” Roubini said. “The positive scenario is that growth will be below par.”
Roubini recently said the chance of a double-dip recession in the US was now more than 40 percent.
“The big risk is that there will be a downturn in markets that could impact the bond, the equity and the credit markets,” he said.
“Job losses have been higher, the US jobs number will show that. There is no private sector jobs growth,” he said. “Consumption is weak, exports are weak and housing is weak.”
“If there is no final sales and no final demand, companies will not invest,” he added.
New Normal Coming and More Banks Will Fail
Roubini said he believes hopes of decoupling will be dashed as the slowdown in the US impacts China, Japan and the euro zone.
“In Europe, Germany is strong but the rest of the continent is pretty dismal,” he said. “The rest of the world cannot cope without the prop of the US consumer. Chinese growth in the second half will be 7 percent.”
“Get used to it,” Roubini said. “Deleveraging has to continue as governments and consumers deleverage in the developed world.”
“We have to expect the new normal,” he added. “We do not need a double dip for it to feel like recession.”
“The biggest banks have been backstopped, but 800-plus small- and medium-sized banks in the US remain on the critical list and half of those will go bust,” Roubini said.
Roubini said corporate and consumer debt problems will get worse and that there are more problems ahead in the commercial and residential property market.
“Policy makers are running out of bullets, the problem is we need fiscal consolidation, fiscal policy is constrained by the debt problem, monetary policy is becoming ineffectual,” he said.
Roubini, known as Dr. Doom to most and voted as Roubini the Realist by CNBC.com readers, said further quantitative easing is pointless as interest rates are already low.
“We are in a liquidity trap and we have insolvency problems,” he said.
“What we need is credible spending plans over the medium term on health care, welfare and retirement age,” Roubini said. “This will create a fiscal constraint lasting well into next year.”
“The best growth over the next 18 months will come from the domestically-focused Brazil, which will outgrow China for the first time in 20 years,” he added.
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Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history. Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke (left) delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months. That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”. Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid. -Global Research/Matthias Chang
Dominant Social Theme: Don’t look now but things are not yet where they should be. A little prayer is all that’s needed.
Free-Market Analysis: Here at the Daily Bell, we long ago adopted the position that the Great Recession of the late first-decade of the 2000s is nothing like previous economic downturns. Several years ago we came to the conclusion that this crisis marked the unraveling of the current dollar-denominated fiat money system and that honest money would rise in value substantially as the public’s confidence eroded.
The only question we had and still have is when the dollar will reach the tipping point in its downward slide and head to the proverbial fiat-money graveyard that inevitably awaits all fiat currencies. Matthias Chang, who tends to see a glass half-empty, believesl that time is imminent and has written an interesting though apocalyptical article explaining his views over at Global Research.
We wouldn’t count Global Research as a mainstream publication by any means – nor LewRockwell.com – but in both cases, the articles we have examined today deal with mainstream trends as we see it. The Rockwell article deals with issues having to do with free-market thinking and this Global Research article describes a scenario that might take hold if the Fed fails to stimulate the American economy long term.
We too believe an unravelling is feasible, as we mentioned above. The long-term view would hold that this unraveling actually began with the creation of the American Federal Reserve in 1913. Alternatively, you could argue that the starting point of the current system began after World War II with Bretton Woods when the dollar was effectively declared the world’s reserve currency. You could peg it around the time Richard Nixon refused to honor gold convertibility. Finally, you could argue the current system’s unraveling began with the bull market of the early 1980s.
Ultimately, it is immaterial exactly when it began – though the longest view is perhaps that the late 2000s marks the end not just of the dollar’s supremacy but of the effectiveness of central banking itself. We pointed out over a year ago that the Federal Reserve was leaking credibility; the bailouts were inconveniently deployed in the Internet era, not reported on just by the Fed-biased mainstream media.
The result was swelling indignation that is depriving the Fed (and other central banks) of moral authority. Those at the Fed and at central banks generally still do not understand what has happened. They believe if they can just restimulate the economy with more fiat money that everybody in the US, and throughout the West will forget about the crisis and it will be back to business as usual.
It won’t be though, in our opinion. Just as with the Gutenberg press, the modern era’s communication revolution has punctured the power elite’s promotional mechanisms. We see this most obviously on the Internet. What the power elite has lost, especially, is the hold it had previously over a portion of the intelligentsia and the young. In the 1930s, Leftism was a necessary position for intellectuals to adopt. Now even those on the Left, we would argue, are nowhere near as radical as they once were. The young too, steeped in free-market thinking based solutions have turned away from socialism (let alone communism) and a growing number in the US especially have embraced the common-sense classical liberalism of Congressman Ron Paul (R-TX).
What may be the proverbial final nail in the coffin – as this article points out – is that the US Fed is not going to be able to bring the economy back. Not only has the Fed lost moral authority, it may soon lose any claim to competence in the public mind. It is the economic downturn, as much as anything else, that has made the criticisms of the hard-money alternative press credible. If the Fed and central banking generally continues to fail, a day of reckoning will draw closer. Here’s some more from the article:
Let me be plain and blunt. The “unexpected developments” Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning. So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers’ scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest. This was the fairy tale. … The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.
When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs. I expect that the FED and other central banks will pre-empt such a run and will do the following: 1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above.
We would tend to agree perhaps there is nothing left that the Fed can do (from their point of view) but continue to stimulate. But being students of dominant social themes, we have our antenna up for other solutions. There is also talk of a return to a quasi gold standard, and supposedly sample “golden” dollar bills are being printed even now. There is more substantial talk of making the IMF’s SDR into a full-fledged global currency, presumably by converting it into John Maynard Keynes’ one-world bancors. We would tend to believe these solutions are ephemera; we will not endorse a timeline either.
We do agree that the power elite will desperately try to keep the system aloft via laws, regulation and confiscation. But if it really gets to that point, what credibility will the system have left? Where will those responsible for the great deception of monetary fraud hide? What we have tried to emphasize over and over is that the elite needs its memes. They have to be effective for them to remain in control and now, more than ever, the ramifications for those responsible could be much more severe than just simply “losing control.” When six billion people cease to believe in something it is OVER.
Conclusion: It is not necessarily true, in our view, that the powers-that-be in an aim to maintain power and avoid negative blowback from an increasingly angered citizenry will be able to impose a fully authoritarian culture on the US and the West – in the event of larger social and economic failures. Just as we do not believe that war will be a panacea at this point. We continue to believe that there is a possibility the system will unravel in such a way as to give rise to some sort of free-market based gold and silver standard. It would emerge spontaneously, at least to a degree and might be adopted serially by countries around the world. This is perhaps an optimistic scenario but it is not one to be ruled out. The worst does not always happen.
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5 Doomsday Scenarios for the U.S. Economy
It’s been a brutal summer for the economy. The housing sector, like a balloon batted in the air one last time by the government credit, resumed its inevitable fall. Economic growth slowed to a lead-footed 1.6 percent, and job growth is even more anemic. Meanwhile, consumers are cranky, the trade gap is gaping.
Most signs point to a slow and steady recovery, but what if the pessimists are right, again? What if the United States isn’t in the slow-lane to recovery, but rather on the precipice of another decline — a double dip?
To see where this re-recession might begin, my colleague Dan Indiviglio and I imagined five financial earthquakes, each with a single epicenter: housing, consumers, toxic assets, Europe, and the debt. The following five scenarios are listed in order of likelihood.
1. Housing’s Mini-Bubble Pops
Perhaps nothing poses as a big of a concern to the U.S. economy as its housing market. It’s unclear how the government’s efforts to stabilize the market through a buyer credit, ultra-low mortgage rates, and mortgage modification programs will pan out. Did it just create another mini-bubble that’s beginning to pop now that the support has been withdrawn?
Here’s the scenario. Weak home sales and continuing foreclosures result in climbing real estate inventory. This has two effects. First, it makes new homes even less attractive which further reduces construction jobs. Second, it puts downward pressure on home prices, which makes it harder for struggling homeowners to sell their home to avoid foreclosure and also keeps strategic default rates high, exacerbating the problem. Lower home values encourage Americans to save more and spend less, since their wealth is effectively reduced. The Dow drops and credit markets tighten even further, suffocating private investment just as homeowners bunker down and slash spending. Growth turns negative.
2. You Break the Economy
You, the American consumer, are reloading savings after a debt-fueled decade. But as any general will tell you, when an entire squad reloads at once, it leaves everybody vulnerable. It’s the same with the economy.
Here’s the scenario. Consumer sentiment continues to fall slowly, and spending turns negative again. Small businesses hold off to replenish their inventories or add new workers. Wages and hours freeze, and unemployment takes a leap toward 10 percent in October. Congress is paralyzed, because it’s only weeks away from the mid-terms. The stock market sees business revenue trending flat, joblessness rising and Congress doing nothing, and it sparks a 300-point sell-off. Americans frightful for their savings cut back spending even more the next month, and overall growth turns negative.
3. Toxic Assets Return
If you closely followed the bank bailout, then you know it wasn’t originally billed as simply throwing money at the banks. Instead, the Treasury intended to purchase the toxic assets from banks, which were the source of investors’ uncertainty concerning bank stability. But the Treasury couldn’t figure out a way to do this quickly enough to make it effective. As a result, the banks were largely stuck with these bad assets. We just don’t know how bad, yet.
Here’s the scenario. The residential real estate market’s problems continue. Even once foreclosures begin to decline, we see waves of defaults, as modification program participants re-default at rates of 30% to 50%. Commercial mortgage-backed securities continue to deteriorate, as some businesses struggle with weak consumer demand. Home and commercial real estate values keep declining, and so do the value of the assets that back them. Banks with exposure to these toxic securities see another round of losses, and investors question their stability. The market plummets, credit freezes, and growth turns negative.
4. Europe Falls Apart
Europe seems to have avoided an all-out collapse of confidence in its ability to pay back its debt. But things can change, and fast fast. Indeed, the Greek debt crisis went from ignorable wire stories to front page news in a matter of days.
Here’s the scenario. Slow growth in weak Eurozone states like Greece, Spain, and Italy turns negative and spooks investors, who demand higher returns on government debt. Europe’s bond rates spike. Countries announce further austerity — tax increases and spending cuts — which strangles our biggest export market. The EU central bank responds by announcing a plan to write down troubled debt, which dings some Americans banks.
In a flight to quality debt, the dollar appreciates. This hurts our exports even more. As the trade deficit gapes open and manufacturing’s good run dead ends, the stock market plummets, taking household wealth down with it. Families looking to restore balance sheets cut back on spending, and the American producer loses the American consumer and the European buyer. Growth turns negative.
5. Debt Finally Catches Up to Us
Interest rates on U.S. debt are low today for one big reason. Investors trust the United States, at least more than they trust other countries. If the people giving us money suddenly have as little faith in America as Americans, that could change, and quickly.
Here’s the scenario. The IMF recently said the United States has a 25 percent chance of seeing dramatically higher interest rates in the near future. But the bond market can strike without warning, as it did in Europe earlier this year. If uncertainty with our political process gets reflected in our interest rate, we’ll have a harder time affording debt, 55% of which has to be rolled over in the next three years. Pension and mutual funds with government debt would be written down, causing Americans to save even more of their paychecks. We’d be left with two bad choices: tax cuts to juice consumption or tax hikes to please our lenders. But at that point, it would be too late to avoid a double dip.
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Venezuela introduces Cuba-like food card
Presented by President Hugo Chávez as an instrument to make shopping for groceries easier, the “Good Life Card” is making various segments of the population wary because they see it as a furtive attempt to introduce a rationing card similar to the one in Cuba.
The measure could easily become a mechanism to control the population, according to civil society groups.
“We see that in short-term this could become a rationing card probably similar to the one used in Cuba,” Roberto León Parilli, president of the National Association of Users and Consumers, told El Nuevo Herald. “It would use more advanced technological means [than those used in Cuba], but when they tell you where to buy and what the limits of what you can buy are, they are conditioning your purchases.”
Chávez said Tuesday that the card could be used to buy groceries at the government chain of markets and supplies.
“I have called it a Good Life Card so far,” Chávez said in a brief statement made on the government television channel. “It’s a card for you to purchase what you are going to take and they keep deducting. It’s to buy what you need, not to promote communism, but to buy what just what you need.”
Former director of Venezuela’s Central Bank, Domingo Maza Zavala, said this could become a rationing card that would limit your purchases in light of the country’s recurring problems with supplies.
“If the intention is to beat inflation, they should find a good source of supply for the entire market and not only for centers that are part of social chains,” he said. “To do that, you need to encourage local production with the help of the private sector, since they cannot do it by themselves. The government cannot become the ultimate food distributor.”
Humberto Ortega Díaz, minister for public banking and president of the Venezuelan Bank, minimized such criticism and said that all this measure is trying to do is to improve service at the government supply chains.
“Why can’t our Bicentennial chain use a card to make it easier for customers to buy their groceries?” the minister said in an interview broadcast on a government channel. He said that this type of initiative has been used by private commercial entities.
Yet, critics pointed out that the measure could turn out not as innocent as the minister makes it to be, and they insist that the government control over the supply chain is too broad and depends greatly on imports the government authorizes through its currency exchange system.
In theory, the government could begin to favor the import of products to be sold through the government chains and have more control over the type of products purchased and the people buying them.
Jaime Suchlicki, director of the University of Miami’s Institute for Cuban and Cuban-American Studies, said that Venezuela’s current problems of scarce supplies are very similar to those Cuba faced when Fidel Castro introduced the rationing card.
“The card emerged when goods began to become scarce,” Suchlicki said. “The government had seized many companies that did not work because the government managed them poorly. Then they decided to distribute groceries through those cards.”
And although the cards were introduced as a mechanism to deal with scarcities, Suchlicki said, they later became an instrument of control.
“People depended on the government to eat, and nothing gives you more power than having people depend on you to get their food quota,” he said.
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myBlessedHope 