EU-DIGEST

The Pros and Cons of printing money to help the economy?

Today's question: Critics say that the Federal Reserve -- which will buy up to $800-billion worth of troubled mortgage and consumer-credit assets -- is effectively printing money to fix the economy. What's the wisdom behind the Fed's actions? Doug Henwood and Brian Doherty debate the consequences of federal monetary policy.

Note EU-Digest: This question should also be asked for the European economies,which are also doing the same.

Labels: meltdown, US Dollar, US Economy

The U.S. Dollar Death Dance - by Jim Willie

The US Dollar rally in the last several weeks has been remarkable. At closer examination, it highly resembles a spurt prior to death. Imagine an old man who just had a heart attack, lost feeling in certain body parts, his mind not working right, plenty of nonsense gibberish coming from his mouth, and now he is dancing hard on some last gasps. The vast liquidation movement is akin to the old man going through an embalming process while dancing atop the tables at the funeral parlor, as bidding proceeds for his cadaver.Are Americans last to realize the financial structure destruction means the US Economy does not enter a recession, but rather a bizarre unprecedented disintegration? It seems so. The liquidation of speculative positions, the massive de-leveraging, the payout's of defaulted bonds, these events are the opposite of developments toward revival or resuscitation, like business investment!! Liquidation is the exact opposite of investment, and precedes job cuts, not job creation.

What is pushing the US Dollar up cannot be construed as anything remotely resembling healthy factors. In no way whatsoever does it resemble investment. It is more like paid off death contracts, paid off death investments, paid off transfers from toxic US bonds into what are falsely regarded as safer US bonds with a guarantee from a crippled USGovt. Foreign financial entities are liquidating on massive scale. They need a tremendous amount of US Dollars in order to complete transactions. Also, a tremendous amount of US Dollars are needed for CDSwap payout's as defaulted bonds are resolved. Almost all CDSwap and other credit derivatives are paid out in US Dollars The Lehman Brothers payout was full of lies, again. The Lehman Brothers total volume of corporate bonds was $160 billion, but $400 billion existed in total CDS volume tied to them! It is no surprise that the Dow and S&P500 stock indexes fell hard (by almost 400 points on Dow) and on the Lehman resolution day. And market mavens boasted of no impact on the Lehman funeral date! Big disruptive events are occurring in the distribution system. Letters of credit are routinely being refused by export nations who distrust US sources. A fall of 10% to 20% in shipping traffic to western US ports has been reported. Ships are empty at Asian ports, some even loaded but interrupted on their voyage to US ports and European ports. Many details are given in the October Hat Trick Letter reports. Even manufacturers of shipping vessels are being severely affected, as credit has interrupted construction projects. Indian suppliers are often demanding 100% upfront on costs to east coast retailers, again showing the distrust. Almost total attention has been given to banks and credit markets and stock markets. The US Economy is moving from recession toward something different from depression. The current interruption could actually be more like disintegration. Short-term credit is soon to interfere greatly with truckers and railways in distribution channels on the domestic side, much like letters of credit are wrecking havoc on the overseas shipper side.

Labels: Dollar, meltdown, US Economy

America must live within its means - by Hamish McRae

There are two bits of good news here for whoever is the next president. He cannot be held responsible for the recession because it is here now, but more important, in another four years when he comes up for re-election the economy will be growing again. There is a natural economic cycle from which we don't seem able to escape, and that makes it virtually certain that the next election will be against a much more favorable background. So there will be time to fix things for the longer term. Right now the US is consuming too much of its output: more than 70 per cent in fact, compared with 65 per cent or less for most developed countries. That money is indirectly borrowed from overseas, with the US having a current account deficit equivalent to some six per cent of GDP. So American consumers have maintained their standard of living, buying cheap goods from China, but the US has become the world's largest debtor nation.

So the central challenge for the next president will to persuade the country to live within its means. That has to happen at a personal level but also at a national level. This cannot be fixed in the next four years or the next eight but a start can be made. This does however mean a slower rise in US living standards and there is no getting away from that. And that raises the biggest question of all. Is the US willing in the 21st century to cede the economic leadership that it built up in the 20th?

Labels: meltdown, US Economy

For the complete report from Radio Netherlands Worldwide click on this link

A growing number of Dutch provinces and councils have revealed huge investments in the now-bankrupt Lehman Brothers bank and in Iceland's failed financial institutions. The Dutch government says that more than 250 million euros worth of taxpayers' money was invested or deposited in now-bankrupt financial institutions. It is not yet clear if it will be possible to get any of the money back. The hardest hit province is North Holland, it had 100 million euros invested with Lehman Brothers and Iceland's Landesbanki. Groningen has also been hard hit; it had 30 million euros deposited in an Icelandic bank. With 15 million euros deposited in Landesbanki, Amstelveen tops the list of municipalities facing huge losses. Texel stands to lose eight million, while Opmeer is facing losses of seven million. The authorities in Opmeer say they could be facing serious problems if they do not get the money back. The cabinet is considering measures to help regional authorities experiencing difficulties. Finance Minister Wouter Bos says that in future, provincial and municipal authorities should not be allowed to invest taxpayers' money themselves and recommended that money be deposited in the Dutch Municipal Bank.

Labels: Economy, EU, Iceland, meltdown, Netherlands

Europe to suspend banks mark-to-market accounting- "Legalizing Banking Fraud"

European leaders have agreed to seek measures to suspend so-called "mark-to-market" accountancy rules in order to stabilise bank balance sheets, a statement said on Sunday. According to an action plan released by the 15 leaders of the eurozone single-currency bloc, equities held by banks will no longer be recorded at their current values on the world's severely depressed markets. "Under the current exceptional circumstances, financial institutions should be allowed to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets, may no longer be appropriate," the statement said.

The leaders hope that by suspending this requirement, banks balance sheets will look more healthy and the risks will be reduced that they be swept away by a run on the markets.

Labels: Banking system, EU, Eurozone, meltdown

G20 meeting Washington - Paulson could face backlash from poorer countries

Treasury Secretary Henry Paulson may get an earful Saturday in a meeting with developing country officials whose economies have been harmed by the global credit crisis, analysts said.The move puts emerging market economies such as China, South Korea, and India on a similar footing as the richer countries that make up the G-7, which will meet with Paulson on Friday. On Monday, Robert Zoellick, president of the World Bank, said the G-7 should be expanded to include major growing economies such as Brazil, China, India, and Mexico.

Labels: Henry Paulson, meltdown, US Economy

G7 meeting Washington "talk but no action" - G7 agree to 'aggressive action plan' to fight crisis - but no action - by David J.Lynch

The G7 group of nations agreed Friday on what U.S. Treasury Secretary Henry Paulson called "an aggressive action plan" to combat a worsening global financial crisis. The five-point, single-page document gave evidence of a shared approach on the part of several of the world's major economic powers, but the meeting ended with no specific new anti-crisis measures."It doesn't sound like any fresh initiatives…The market was hoping for some sort of bolder, coordinated initiatives," said Marc Chandler, senior vice president at Brown Brothers Harriman in New York.

In the days leading to today's meeting, hopes built in financial markets for specific measures that would address a crisis of confidence in the markets. Among them: provisions to guarantee lending between banks. But Paulson said demands for "precisely the same policies" from countries with different legal systems, banking industry structures and regulatory systems was "naive." Saturday, in an unusual step, President Bush is scheduled to meet with the finance ministers and release an early-morning statement.

Labels: meltdown, US Economy

Europe's Domino Effect

A variety of government interventions have suddenly sprung up across the continent since Sunday: Iceland is drafting a plan to bring its banks back from the brink; Britain's treasury secretary is "looking at some pretty big steps" to do the same; Spain and Portugal are set to guarantee all bank deposits; Sweden's central bank is upping its loans to Nordic banks; and Greece, Denmark, Ireland and Germany have all made moves to guarantee bank deposits.

Some still think Europe is forgetting its key unifying force: the European Central Bank. Cantor Fitzgerald Strategist Stephen Pope thinks the best way to calm markets is for the ECB to step in and act as a kind of clearing bank, or middle man between lenders, in order to help keep the faith that banks' loans will be returned. That could be more effective than even a rate cut, or the central bank's current method of offering overnight loans to individual banks, or injecting liquidity.

Labels: ECB, EU, meltdown, World Economy

Mad run on banks 'can't be ruled out'

Professor Ian Harper, a member of the Wallis inquiry into banking, said no one had lost money in an Australian bank since the 1930s. But even though the banks remained well regulated and capitalised, an irrational run caused by a crisis of consumer confidence could not be absolutely ruled out, he said. Only then, might the government have to resort to extreme measures such as guaranteeing deposits, he said.

Labels: meltdown, World Economy

International crisis meeting as Dow Jones plummets below 9,000 - by Gary Duncan

As panic over the danger of financial and economic meltdown swept Wall Street once more, the latest 7 per cent plunge in the value of America’s blue-chip businesses piled pressure on world financial leaders gathering in Washington today to take yet more drastic measures to avert disaster. In its seventh consecutive trading session of steep losses, the worst such run since the Black Monday crash in October 1987, the Dow Jones industrial average sank by a further 678.91 points, or 7.33 per cent, to close at a five year low of 8,579.19. The broader-based S&P 500 index of top US companies fell 75.05 points, or 7.62 per cent, to a five-year low of 909.90.

Labels: meltdown, World Economy

USA: Mortgage meltdown's nightmare scenario - "US Economic Woes Continue"

In the months ahead, millions of other adjustable-rate mortgages like Colombo’s will reset, giving them a higher interest rate as required by the loan agreements and leaving many homeowners unable to make their payments. Soaring mortgage default rates this year already have shaken major financial institutions and the fallout from more of them, some experts say, could spread from those already battered banks into the general economy. The worst-case scenario is anyone’s guess, but some believe it could become very bad.

“We haven’t faced a downturn like this since the Depression,” said Bill Gross, chief investment officer of PIMCO, the world’s biggest bond fund.

Labels: meltdown, US Economy