Global financial system implosion begins

[Dr Jon]

Just spotted this article about the effect of deflation on the Swiss economy.

The SNB is not easily spooked. It is the world's benchmark bank, the keeper of the monetary flame. Yet even the SNB's hard men have thrown away the rule book, taking emergency action to force down the exchange rate of the Swiss franc.

...

Enjoy the "bear-trap" rally on global bourses this spring. But remember, we have only just begun to see the mass lay-offs and hardship caused by this slump. The politicians will act to save their skins. Markets may not like the result.

 

[Puffer]

Copper is being bought by the Chinese government (Strategic Reserve Bureau) as a hedge against the dollar falling, it can be stored easily until demand and prices pick up properly and is a convenient way to get rid of dollars.

 

[A Dashing Blade]

Copper is being bought by the Chinese government (Strategic Reserve Bureau) as a hedge against the dollar falling, it can be stored easily until demand and prices pick up properly and is a convenient way to get rid of dollars.

Copper's priced in dollars non? In what way can purchasing a dollar asset be a "hedge against the dollar falling".

Would also query "it can be stored easily" in the context of other commodities.

 

[terrythomas]

So are ANY countries economies doing well?? From what I've read the whole world is in a downward spiral, the money must be somewhere or is that too simplistic??? Can anyone shed any light for me...

 

[elbows]

So are ANY countries economies doing well?? From what I've read the whole world is in a downward spiral, the money must be somewhere or is that too simplistic??? Can anyone shed any light for me...

The money doesnt have to be anywhere, it can just evaporate. One example would be the value of commodities. The prices were soaring, making some people very rich on paper, and now the prices have been collapsing, many of those fortunes have been vastly reduced.

 

[terrythomas]

The money doesnt have to be anywhere, it can just evaporate. One example would be the value of commodities. The prices were soaring, making some people very rich on paper, and now the prices have been collapsing, many of those fortunes have been vastly reduced.

But surely people paid those inflated prices to someone?? *confused*

 

[xes]

But surely people paid those inflated prices to someone?? *confused*

the total money owed to banks is more than the total ammount of actual money in existance. This is due to inflation, and massive interest on loans. If all the debt was paid off (which is impossible, as the total ammount of money lent out, has to be paid back with interest, which doesn't actually exist) then there'd be no money at all.

 

[terrythomas]

the total money owed to banks is more than the total ammount of actual money in existance. This is due to inflation, and massive interest on loans. If all the debt was paid off (which is impossible, as the total ammount of money lent out, has to be paid back with interest, which doesn't actually exist) then there'd be no money at all.

Brilliantly put, thanks.

 

[Giles]

I still think it would have been far simpler just to let the banks that f***ed themselves up go bankrupt. And the car companies. Etc.

If I go bust, no-one is going to bail me out. Why should they get special treatment - they made bad decisions, let em go.

Bail out the UK retail depositors.

Let someone new start some new banks from scratch that just do normal low-risk banking i.e take in savings accounts and make loans.

Leave the wrecked ones to go - flog off the branches to the new ones, or to Aldi or someone.

I mean we would have the same number of people in the UK, with the same assets, and the same jobs.

What would really have changed? Nowt much......

Giles..

 

[frogwoman]

the total money owed to banks is more than the total ammount of actual money in existance. This is due to inflation, and massive interest on loans. If all the debt was paid off (which is impossible, as the total ammount of money lent out, has to be paid back with interest, which doesn't actually exist) then there'd be no money at all.

 

[Dr Jon]

I still think it would have been far simpler just to let the banks that f***ed themselves up go bankrupt. And the car companies. Etc.

If I go bust, no-one is going to bail me out. Why should they get special treatment - they made bad decisions, let em go.

Aye. Maybe it'd be a lesson to them...

But politicians are understandably reluctant to see cornerstones of the economy crumble and millions of ordinary people (ie. voters) lose their jobs / savings.

Replacing the financial infrastructure is not possible, at least in the short term, so printing funny money and baling out / nationalising failing banks is probably the only realistic option.

I agree that the money-juggling fuckwits whose reckless and irresponsible actions precipitated a crisis of this severity should be given a good kicking.

However, it must be recognised that the fundamental problem lies in the inherently unsustainable nature of capitalism and the assumptions upon which the world economy is built.

It is impossible to change to a stable / sustainable system overnight, so I think the only hope is to nationalise and modify the system we have, to give us a bit more time to try to work something out and get it right.

Whether we have time (a) to realise that we need to change, (b) for the right change to take place and (c) for us to adapt to this changed reality, is another matter altogether.

Fingers crossed, eh?

 

[pinkychukkles]

...the money must be somewhere or is that too simplistic??? Can anyone shed any light for me...

Mr.Thomas - this question has been asked on a separate thread on Urban and the replies there you may find illuminating:
http://www.urban75.net/vbulletin/showthread.php?t=285196

 

[A Dashing Blade]

The money doesnt have to be anywhere, it can just evaporate. One example would be the value of commodities. The prices were soaring, making some people very rich on paper, and now the prices have been collapsing, many of those fortunes have been vastly reduced.

You're confusing "mark to market" with "realised profit".

 

[A Dashing Blade]

the total money owed to banks is more than the total ammount of actual money in existance. This is due to inflation, and massive interest on loans . . .

Wtf? What inflation, what "massive interest on loans". Globally, inflation has fallen off a cliff in the last 10-15 years and interest rates have followed.

 

[xes]

Wtf? What inflation, what "massive interest on loans". Globally, inflation has fallen off a cliff in the last 10-15 years and interest rates have followed.

Apply for a loan, you're looking at 6-7%apr at the very least, if you've got a good credit history. Fucking Abbey national wanted to charge me 20% on a 5 grand loan!! (wankers) Where does that 6 or 7 % come from? You can't create money out of thin air. Which is what banks are doing when they do this. I'm not an expert (no shit, sherlock ) but I got a slight understanding of how fucked up it all really is. There isn't enough money in existance to pay off all the debt. And that's just how the "printers" of money like it.

 

[elbows]

You're confusing "mark to market" with "realised profit".

Yes I guess so. I was sorta going by articles about the worlds richest people and how badly affected by the crisis they've been. I got the idea that quite a lot of their worth was based on how much their companies were worth, and there has been quite some decline on this front. Those who sold at the right time realised the giddy value placed on their assets, and converted this to real cash, leaving someone else the loser?

 

[elbows]

Apply for a loan, you're looking at 6-7%apr at the very least, if you've got a good credit history. Fucking Abbey national wanted to charge me 20% on a 5 grand loan!! (wankers) Where does that 6 or 7 % come from? You can't create money out of thin air. Which is what banks are doing when they do this. I'm not an expert (no shit, sherlock ) but I got a slight understanding of how fucked up it all really is. There isn't enough money in existance to pay off all the debt. And that's just how the "printers" of money like it.

I think thats where the whole 'growth as an essential part of the system' comes into things? If population, economic activity, etc keeps increasing, then the money supply also has to increase? Even on the gold standard, the amount of gold in circulation kept increasing, albeit there were physical limitations on how much new gold could be added to the system per year.

 

[terrythomas]

Mr.Thomas - this question has been asked on a separate thread on Urban and the replies there you may find illuminating:
http://www.urban75.net/vbulletin/showthread.php?t=285196

confused me more!!!!

 

[xes]

truth is, the money was never there to start with

 

[jæd]

Apply for a loan, you're looking at 6-7%apr at the very least, if you've got a good credit history. Fucking Abbey national wanted to charge me 20% on a 5 grand loan!! (wankers) Where does that 6 or 7 % come from? You can't create money out of thin air. Which is what banks are doing when they do this. I'm not an expert (no shit, sherlock ) but I got a slight understanding of how fucked up it all really is. There isn't enough money in existance to pay off all the debt. And that's just how the "printers" of money like it.

The 6 % is a charge for you wanting the £5,000 *now* instead of being paid and getting the money over a few months.

 

[xes]

it's still money that never existed though.

 

[A Dashing Blade]

it's still money that never existed though.

You're not making syntactic sense imo.

I borrow money and, after I have borrowed it, I will be charged 6% p.a. untill I have paid it back.

Do you mean "it's still money that never will have existed"?

 

[xes]

only the 6% on top never existed.

it's got something to do with the fraction banking system, of which i know not a fucking lot about. Something to do with every bank transaction that occurs, 9 times that ammount is created in inflation/interest and stuff. Say the federal reserve gives a bank 1 billion, all the transaction on that, as it goes through the system, makes 9 times the original ammount. It's a big fuck off scam, money is a lie.

 

[A Dashing Blade]

. . . Those who sold at the right time realised the giddy value placed on their assets, and converted this to real cash, leaving someone else the loser?

The final (usually exponential) surge in any bull market is always a game of musical chairs.

 

[jæd]

only the 6% on top never existed.

So, if I charge you 25p for buying a cake, does that 25p exist...?

it's got something to do with the fraction banking system, of which i know not a fucking lot about. Something to do with every bank transaction that occurs, 9 times that ammount is created in inflation/interest and stuff. Say the federal reserve gives a bank 1 billion, all the transaction on that, as it goes through the system, makes 9 times the original ammount. It's a big fuck off scam, money is a lie.

Thats bollocks.

 

[xes]

So, if I charge you 25p for buying a cake, does that 25p exist...?



Thats bollocks.

well like I said, I don't understand it very well. But it's not total bollocks. I've probably gone a little wrong somewhere (shut up)

 

[doddles]

it's still money that never existed though.

It exists by the time you pay it back. Where did it come from? Presumably from your hard work, which earns you pay, some of which you pass on to the bank.

 

[goebfwai]

An interesting read...

The crash – a view from the left
Edited by
Jon Cruddas and Jonathan Rutherford

http://www.lwbooks.co.uk/ebooks/The Crash.pdf

 

[david dissadent]

Asian property crash underway.

By Rodman's calculations, 500 million square feet [46 million square meters] of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government. He says 100 million square feet of office space is vacant - a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased.

... The Beijing Municipal Bureau of Statistics reported this month that housing sales in the city dropped 40% last year. Chinese economists have predicted that housing prices will drop 15% to 20% in Beijing this year. Shanghai has experienced a similar decline.
Two numbers stand out there: 100 million square feet is the first one, given that's the space of office space in many smaller Asian cities in total. However, the second figure: "14 years' supply" at the best possible take-up rate is more startling, showing as it does the rampant overbuilding that went on across the Chinese capital. The last time Asia witnessed a similar boom was in Thailand during the 1990s;

This is ontop of the reported high rate of non payment of comercial loans in China.

All deals are structured to legally bypass China's arcane and foreigner-unfriendly capital restrictions. Foreign investors gather together collateral - say $100 million destined for a new Beijing office owned jointly by Chinese and foreign investors. Before coming onshore, that pool of capital is incorporated as a special purpose vehicle (SPV) usually in Caribbean tax havens such as the Cayman Islands or the BVI [British Virgin Islands]. ... Once onshore, the capital can be used in one of many ways - pumped into a Chinese company, a China-based wholly foreign-owned enterprise (WFOE), or a Sino-foreign joint venture ... It is hugely sensitive subject for international investment banks, given that many of them are now being forced to cobble together new deals that they hope will claw back some of the capital marooned in China. "We're still in the very early stages of restructuring those deals but its going to be a long, slow and pretty horrible process" says a banker at one institution working on several restructuring deals.

This does seem a familiar tale. But the size of it is breathtaking.

Thirdly, have there been frequent policy flip-flops? You bet. After first acting to curtail activities in the residential property market in 2007 and onwards through the course of the first three quarters of 2008, the Chinese government abruptly reversed course in the first quarter of this year to help engineer a recovery for the residential market. However, all evidence points to much of the damage - overbuilding, excessive leverage - being already done in the country. This has left banks in the unenviable position of going into the sectors with the worst possible dynamics and repayment options - commercial and residential property - due to government diktat.

 

[Sunray]

I would say that an over supply of business space is never a bad thing, keeps rents very low and ensures that people can do start up companies for very cheap.

We have council housing in this country, but nothing like it to encourage the creation of small companies.

I'm interested in the current situation with regard to all the buy to let mortgages that people took out in this country, a million of them or so, if they start to go bad in any numbers, watch house prices tank.