Global financial system implosion begins

[david dissadent]

China set to become a net importer.

Official data released earlier this month showed that China's exports slumped a larger-than-expected 23.4% in August from the same period a year earlier, while imports narrowed by a margin of 17%.

Basicaly its stimulus means its rate of importing dropped slower than its exports. If those figures are accurate that is a depression not a recession.

Link

And it adds the trend may mean China buying less US debt, which will force the price up impacting all along the chain. You can hear the creaks and groans of the global economy as it tries to rebalance itself, or is it sinking?

This is a graph of the 'Baltic Dry Index' which is sort of a way of seeing how much it costs to ship goods.

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm

Its a measure of how much the worlds shipping capacity is free or in demand. it is a specilized tool but its a visual representation of the 'ghost fleet' stuff people post around.

 

[yield]

HSBC bids farewell to dollar supremacy
Telegraph 20 Sep 2009

The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.

"The dollar looks awfully like sterling after the First World War," said David Bloom, the bank's currency chief.

...

An interesting article.

 

[Jessiedog]

Blessings from China.



May you live in interesting times.




Woof

 

[david dissadent]

7 million foreclosures.

The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.

The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.

These are mortgages that are in areers but have not yet been siezed as it there is no space in the courts to process many of these reposessions, its cheaper for the banks to keep someone in the property than have to maintain it and it prevents areas from going further down hill due to vacant properties depressing the value of the area.

An AP wire feed suggests that US social security is now in the red.

Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.

The deficits - $10 billion in 2010 and $9 billion in 2011 - won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Keep in mind that a demographic shift is underway in the US (and the west generally) that will see increasing demands on pensions and reductions in inward payments to these sort of schemes, this draw down will bring the day reckoning closer. Also this article is assuming a climb out of recession not a double dip as the banks begin big write downs again next year.

Some small scale resistance to repossesions is also taking place.
Bostonian housing occupation

City Life’s unorthodox - and illegal - action appears to be yielding results. Yesterday, the townhouse’s owner, Guaranty Bank, said it will sell the property to Boston Community Capital, a nonprofit lender that specializes in selling and renting to local residents homes that were formerly owned by banks. That means Louis might be able to stay put.

May you live in interesting times.

Good luck in finding a more boring world soon Mr Jessiedog.

 

[yield]

The demise of the dollar
By Robert Fisk
Independent October 6, 2009

In the most profound financial change in recent Middle East history, Gulf Arabs are planning - along with China, Russia, Japan and France - to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

...

Ever since the Bretton Woods agreements - the accords after the Second World War which bequeathed the architecture for the modern international financial system - America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

...

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

...

 

[kyser_soze]

9 years time. eh? Hmmm.

 

[goebfwai]

I wondered why it attracted so little attention or comment at the time, but the plans (when they were at a fledgling stage) were originally first reported in The Times last year:

Gulf finance ministers back single currency plan
The Times, Sep 18 2008
http://business.timesonline.co.uk/tol/business/economics/article4775451.ece

 

[gosub]

think I mentioned what I called the GOPEC before 18/9/08

eta counter move is to build on ICAO ideas on carbon credits , EUETS being tainted by the french riding of 2 horses

 

[Dr Jon]

I see that Nassim Nicholas Taleb has lost what little confidence he had in the Obama administration and now wants his vote back!
I also spotted this interesting comment about Taleb and his ten principles.

If policymakers did adhere to Taleb's principles, society would be better off, but Power would not be

This, I believe is the big problem: the vested interests of the powerful and those of the money-juggling twats who created this mess are both incompatible with the public interest. As Gerald Celente has said, these money-juggling scam artists should be in jail. Instead, they've been baled out and are still getting obscene bonuses...


I agree with Taleb, that we should absolutely not allow the architects of this failed system to "fix" it.

See also this piece from Dmitry Orlov.

 

[elbows]

Considering that the bail-outs seem to have prevented the worst-case collapse scenarios from happening, at least in the short-term, I am now more inclined to see these events as a major rebalancing of global economic power than armageddon, but only time will tell. I will certainly be very surprised if this turns out to be another American Century, that order seems to be well and truly over.

 

[Dr Jon]

Just spotted this movie from Professor Richard Wolff, in which he gives the history of dodgy bubble finance and explains why this implosion was inevitable.

ETA
See also Jump! You Fuckers!:

Implicit in Nixon’s reforms of the financial system was the world in which we now live; a ruin presided over by bankers.

 

[goebfwai]

50% devaluation of the dollar predicted, and the consequences.

http://globalguerrillas.typepad.com/globalguerrillas/2009/10/rc-journal-the-dollar-crump.html

 

[Dr Jon]

Just seen the latest from Dmitry Orlov:

Obama Wins Gorbachev's Peace Prize

Gorbachev certainly deserves credit for making sure that the USSR disintegrated with a whimper and not a bang. May Barak Obama be just as successful in completing the dissolution of the USA, quietly and without any undue bloodshed. Moving forward, I wish him a long and happy unemployment.

 

[Falcon]

Well, it's a while since I checked into the thread I started. Some fascinating commentary within--thank you all.

However, much of the debate in the comments has been (to me) interesting but fairly off-topic debate about details of the unfolding implosion of the financial system (and with it, our concept, at least in the "developed world" of civilisation). The spirit was that the structure containing the abstractions debated here (currency systems, housing markets, etc.) is itself collapsing. In that context, there has been a lot of deck chair straightening on this particular Titanic :-D

In the spirit of my original post, today's Archdruid Report (see the link below) is an excellent reminder (or tutorial) in the fundamentals of what we are experiencing. Well worth a read, especially if you think we appear to have survived some sort of temporary recession and our present situation is in some way recoverable.

[E]conomic abstractions keep functioning only so long as actual goods and services exist to be bought and sold, and it’s only in the pipe dreams of economists that the abstractions guarantee the presence of the goods and services
...
[T]his trap is a central driving force behind the decline and fall of civilizations; the movement toward abstraction goes so far that the concrete realities are neglected. In the end the realities trickle away unnoticed, until a shock of some kind strikes the tower of abstractions built atop the void the realities once filled, and the whole structure tumbles to the ground. We are uncomfortably close to such a possibility just now
...
[T]here are not enough goods and services on Earth to equal, at current prices, more than a small percentage of the face value of stocks, bonds, derivatives, and other fiscal exotica now in circulation. The vast majority of economic activity in today’s world consists purely of exchanges among these representations of representations of representations of wealth.

This is why the real economy of goods and services can go into a freefall like the one now under way, without having more than a modest impact so far on an increasingly hallucinatory economy of fiscal abstractions.

Twilight of money, Archdruid report, 15 Oct 2009

I would recommend subscribing to his feed for weekly posts on the collapse of industrial society, founded on an extraordinary breadth of knowledge and which are very well written.

 

[Dr Jon]

... I would recommend subscribing to his feed for weekly posts on the collapse of industrial society, founded on an extraordinary breadth of knowledge and which are very well written.

Seconded. JMG provides a very sane and insightful commentary on our predicament.

 

[Jessiedog]

From dave dissident's post about three weeks ago, from the Wall Street Journal.

Many borrowers with option ARMs are underwater and are falling behind even before payments jump. Forty-six percent of option ARMs are now at least 30 days past due, even though just 12% have recast, according to Fitch, which examined loans packaged into securities. Option ARM borrowers owe on average 126% of their home's value, Fitch said.

Definitely over US$ 100b (probably US$ 175b,) gonna disappear there in the next year or two.



Would be good to know if this has been properly accounted for as yet or whether the full-hit will need to be taken.




Meanwhile, in China, the Central govt. has flooded close to US$ 1 trillion into the economy over the last 10 months - most of it has flown in and out of the stock market, into property speculation or into yet more "White Elephant" capital investment projects.

These loans will never be repayed.

We get daily news of increasing social unrest. Forty million peeps have lost their jobs and, as they're being laid off, many millions are being shafted by employers, big time.

Ethnic tension is exploding in Xinjiang province and the Tibetan "Region".

Corruption is out of control at every level - peeps are making the most of what they think may be the last good chance to stash something away.

China is still a poor country, with at least 600 million peeps living on less than US$ 2:00 per day, most of them on less than US$ 1:00 per day, and many tens of millions (probably a couple of hundred million,) still getting by on US$ 0:33c per day.

On top of that, the greatest unleashment of entrepreneurial power in history has occurred. More than 400 million hungry peeps have been catapulted into the global labour market inside of two decades - most of them in the last dozen years. They have worked hard in a way that few in the west can imagine and have created the (albeit lopsided,) development of China.

As Falcon attests, the changes that the global economy are seeing are seismic.

The world in 2020, let alone 2050 will be very, very, very different.

The good times are over - and most of the pain will be felt in the "west". Not as much pain as China has always had, but the effects will be disasterous to the psyche of peeps whom are used to (and expect,) relative luxury.


And, as we type, the CCP has about 50,000 salaried employees paid to do nothing but moniter the internet within China (mostly blogs, etc.) and another @ 100,000 freelancers paid (@ US$ 0:50c per post) to trawl the global blogosphere and put forward the Party's point of view.


This has just begun.

Interesting times.





Blessings all.




Woof

 

[goebfwai]

Some interesting stuff...

US criticises 'inflexible yuan' (in other words they want China to make the US/Yuan exchange rate more favourable to them, to reduce the severity of a wider dollar devaluation).
http://news.bbc.co.uk/1/hi/world/asia-pacific/8310001.stm

Dollar May Drop 20% More, Harvard’s Ferguson Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZYblKZy9jTs

China forges links with oil rich Iran


We are paying an enormous price for the myth that banks are too big to fail
http://www.guardian.co.uk/commentisfree/2009/oct/15/paying-price-myth-banks-fail

Max Keiser - Face Off - "Is the Crisis Over?"

 

[Falcon]

One in five dollars of US personal income now comes from the Federal government. This is obtained by government borrowing, on which the government has to repay interest, currently $470 billion per year. Since there is no growth in the economy, GDP fall can only be averted by more borrowing ("Stimulus 2.0", already in preparation). Next year this will require $3 trillion in loans and interest repayments. $4 trillion the following ("Stimulus 3.0") etc. until The Great Implosion.

(source: OfTwoMinds, October 16, 2009)

 

[goebfwai]

Former Labor Secretary and author of 'Supercapitalism', Professor Robert Reich of UCL Berkeley, has a plan to get the economy back on track. But will anyone listen?

http://therealnews.com/t/index.php?option=com_seyret&Itemid=91&task=videodirectlink&id=4591

 

[elbows]

Well the idea that the UK would be especially badly hit by the recession seems to be holding weight, as I long expected it would. For if the numbers are be be believed, the USA and various European countries have emerged from recession, and we havent. This should not come as a surprise but we are still treated to the bullshit about it being a 'shock' and Brown saying we will be out of recession by Christmas. Mind you he also said we were well positioned to weather the storm, a claim that was obvious horseshit when first made, and still crap now.

 

[Giles]

Well the idea that the UK would be especially badly hit by the recession seems to be holding weight, as I long expected it would. For if the numbers are be be believed, the USA and various European countries have emerged from recession, and we havent. This should not come as a surprise but we are still treated to the bullshit about it being a 'shock' and Brown saying we will be out of recession by Christmas. Mind you he also said we were well positioned to weather the storm, a claim that was obvious horseshit when first made, and still crap now.

I want to know when the US or UK government is going to run out of money.

I hope it is soon, then they can get this mad spending under control and leave people alone to sort out their own lives.

Giles..

 

[Barking_Mad]

All major news outlets reporting that the US has come out of recession. Even though it's only one quarter of growth and not the standard two.

 

[kyser_soze]

I read an interesting article (and can I find it? No.) on a small financial website pointing out that if you remove the car-related growth from the German and French economies their numbers don't look quite as good.

I took it with 50% of salt, but it is true that their growth is being driven mainly by car sales and production increasing...

 

[Kanda]

All major news outlets reporting that the US has come out of recession. Even though it's only one quarter of growth and not the standard two.

BBC are actually saying it 'indicated' they are coming out of recession. Not that they are out of recession.

 

[Giles]

So long as you keep interest rates at zero, and keep printing squillions of dollars every week, you can probably stave off the inevitable.

But what happens when they try to turn off the money tap?

 

[Falcon]

re. "All major news outlets reporting that the US has come out of recession" ...

The geological and thermodynamic limits to energy growth, like political power and the mob psychology of bubbles, lie outside the economic sphere...

neoclassical economics is poorly equipped to deal with the reality of noneconomic constraints on economic processes. It thus comes as no surprise that when an economist enters the peak oil debate, it is almost always to claim that there is nothing to worry about, because the market will solve any shortfall that happens to emerge. As shortfalls emerge, expect to hear the claim – already floated by a few economists – that declining production is simply a sign that the demand for fossil fuel energy has decreased. No doubt when people are starving in the streets, we will hear claims that this is simply because the demand for food has dropped.

The Archduid Report, "Why Markets Fail", October 28 2009

 

[Jessiedog]

So long as you keep interest rates at zero, and keep printing squillions of dollars every week, you can probably stave off the inevitable.

But what happens when they try to turn off the money tap?

Turn the tap off?

Nah.

Won't happen, especially in the UK with an unwinnable election for Nu-Lab' coming in May/June 2010.

There will be the inevitable collapse of currencies and massive inflation before that. The west is not ready to bite the bullet, it will keep trying to reinflate until it all goes to shit.

Sell your shares, unit trusts and property now peeps - while it's still "OK". Get out of the GBP and USD and into Euros - as an interim step - and then into the (Chinese) Yuan. It's appreciated nearly 15% against the US$ over the last 3 years, and yet the Yanks are still pushing and pushing for another 40% appreciation - fast! It may not be that (the Chinese have their own agenda and timing), but there's no doubt that it's the strongest currency in the world and will continue to appreciate as things progress.


BTW, are peeps aware that in California (a US State with a population of over 120 million souls) if we look at residential properties that carry a mortgage (so not all residential properties, but just a hellofahellofafuckofalotofthem), seventy five percent (75%) of them are in negative equity?

And they haven't even begun the real meltdown in industrial, commercial and retail properties yet.


This is the beginning.




Woof

 

[Falcon]

Do you have a reference for that?

 

[Jessiedog]

Do you have a reference for that?

Sorry, no.

It was from a feature in the Property section of the South China Morning Post about a week or two ago (two max).

I get the paper based edition, the on-line is subscription.

I'm sure that if you google around the issue it will come up - they must have sourced it from elsewhere, it's not their data.

If you can find the source I'd be most interested.




Woof

 

[Giles]

Turn the tap off?

Nah.

Won't happen, especially in the UK with an unwinnable election for Nu-Lab' coming in May/June 2010.

There will be the inevitable collapse of currencies and massive inflation before that. The west is not ready to bite the bullet, it will keep trying to reinflate until it all goes to shit.

Sell your shares, unit trusts and property now peeps - while it's still "OK".

I would have thought that in case of runaway inflation, you wouldn't want to sell your property?

Your money might become worthless, but your house is still a house, in the end.

Inflation is good news for people owning houses, because the inflation makes their mortgages much smaller relatively.

Giles..