At the Heart of Deepening Monetary Disorder

Quoted in Asia Times, original at the Prudent Bear, by Doug Noland Excerpts: .... But when it comes to spectacular moves, wheat takes the cake. Prices surged to yet another record high (up 30% y-t-d), as forecasts have U.S. stockpiles falling to the lowest level since 1948. Global supplies are said to be the lowest since 1978. Alarmingly, wheat increased the 30 cent daily limit in Chicago trading for five straight sessions, with Bloomberg reporting this week’s 16% gain as the “biggest in history.” Prices are now up 140% y-o-y. Along for the ride, soybeans rose 4% this week to a near-record ( U.S. inventories at 4-yr low), increasing one-year gains to 80%. Corn prices gained 2% (having doubled in the past two years), also trading at record highs. Production and inventory concerns saw coffee prices rise 5.8% this week to the highest level since 1999. Cocoa gained 3.8% this week (37% 1-yr gain). The question remains: How much will the Chinese, Indians, Russians, American consumers and others be willing to pay for wheat and other vital commodities? For energy? For stores of value such as gold, silver and the other (increasingly) precious metals in an age of unregulated, unrestrained, unanchored, electronic-based, securities-based, and market-driven global “money” and Credit. With trillions of dollar liquidity sloshing vagariously around the global financial “system”, there is clearly more than ample high-octane inflationary fuel to destabilize markets for myriad essential things of limited supply. And, increasingly, there is talk of problematic margin calls and derivative-related issues impacting commodities trading conditions. The talk is of trading dislocations and nervous “bankers” pulling away from the financing of hedging activities in various markets. Or, in short, we are witnessing a precarious ratcheting up of Monetary Disorder – in a multitude of key markets and on a global basis. .... The Wall Street punditry seems to go out of its way to get things wrong. The latest talk is that the market will simply look over the “valley” and begin focusing on a recovery from what will be, at worst, a brief and mild recession. The relative strong performance of the banks, retailers, homebuilders, and transports is accepted as confirmation of the bullish view. I’ll instead take the view that the recent major squeeze in the heavily shorted stocks and sectors is only further destabilizing and indicative of dynamics troubling to the leveraged speculating community and the Credit system more generally. “Hedges” have stopped working, creating a backdrop of angst and forced liquidations. .... Going forward, I expect a foundering leveraged speculating community to be At The Heart of Deepening Monetary Disorder. The initial victims appear the fragile global equities market Bubbles and the U.S. Corporate Credit market. Forced deleveraging of hedge fund corporate debt and derivatives is in the process of creating a massive overhang of securities to sell, in the process profoundly curtailing Credit Availability and Marketplace Liquidity throughout. The ramifications for our finance-based Bubble Economy are momentous. As an economic and financial analyst (as opposed to “fear-monger”), I feel it is imperative to highlight that it is more “technically” accurate to categorize the unfolding scenario in the historical context of an economic “depression” rather than “recession.” This is certainly not shaping up as a short-term inventory-led economic adjustment or “mid-cycle” slowdown. Instead, we have now entered the very initial stages of what will likely prove a deep, prolonged and arduous adjustment to the underlying structure of our Credit and economic systems.

Depression risk might force U.S. to buy assets

Bernard Connolly, global strategist at Banque AIG in London, is quoted by Reuters as saying "Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices." The whole article is good reading: Depression risk might force U.S. to buy assets Some excerpts: Tue Feb 12, 2008 4:19pm EST By John Parry NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts. That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London. In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency. The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said. "If we don't avoid depression, the only thing worth holding is cash," he added. (Reporting by John Parry; Editing by Tom Hals)

A repeat of the Great Depression is unlikely: Wolfgang Munchau

Writing in the Financial Times, Wolfgang Munchau says A repeat of the Great Depression is unlikely, but not impossible. I'm sure the markets will find this comforting in the weeks ahead.

The Financial Tsunami, Part IV. by F. William Engdahl

Part IV of F. William Engdahl's "Financial Tsunami" series, The Financial Tsunami Part IV: Asset Securitization-- The Last Tango, which can also be found (abbreviated) on the Global Research site, will be of interest to those following the ongoing decline and fall of the American Empire. The concluding section (non-abbreviated version) follows:

In the 1980’s this author interviewed a senior Wall Street banker, at the time recovering from some kind of burnout, strictly off-the-record. I asked about his bank’s business in Cali, Colombia during the heyday of the Cali cocaine cartel. He related, “Banks would literally kill to get a slice of this business, it’s so lucrative.” It would seem they moved on to sub-prime lending with similar goals in mind, and profits as huge as in money laundering drug gains.

Alan Greenspan, once again, openly backed the extension of bank lending to the poorest ghetto residents. Edward M. Gramlich, a Federal Reserve governor who died in September 2007, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford. When Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan. [16]

Revealing what was most certainly the tip of a very extensive iceberg of fraud, the FBI recently announced it was investigating 14 companies for possible accounting fraud, insider trading or other violations in connection with home loans made to risky borrowers. The FBI announced that the probe involved companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

At the same time, authorities in New York and Connecticut were investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities sold to investors. Connecticut Attorney General Richard Blumenthal said he and New York Attorney General Andrew Cuomo were looking whether banks properly disclosed the high risk of default on so-called "exception" loans — considered even riskier than sub-prime loans — when selling those securities to investors. Last November, Cuomo issued subpoenas to government-sponsored mortgage companies, Fannie Mae and Freddie Mac, in his investigation into what he claimed were conflicts of interest in the mortgage industry. He said he wanted to know about billions of dollars of home loans they bought from banks, including the largest US savings and loan, Washington Mutual Inc., and how appraisals were handled.

The FBI said it was looking into the practices of sub-prime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors. Morgan Stanley, Goldman Sachs Group Inc. and Bear Stearns Cos. all disclosed in regulatory filings that they were cooperating with requests for information from various unspecified, regulatory and government agencies. [17]

By the early weeks of 2008 the stage was set for one of the most gruesome economic contractions in the United States since the Great Depression of the 1930’s. It was caused by the libertine free market excesses of a US financial establishment determined to keep US capital markets as the world’s sole financial superpower. That attempt had backfired colossally and predictably by the early days of 2008. Financial Securitization would be the Last Tango for the United States as the global financial superpower.

The question now was posed what new center or centers of financial power could conceivably replace New York as the global nexus. That we will look at in Part V.

F. William Engdahl is the author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation, www.globalresearch.ca. The present series is adapted from his new book, now in writing, The Rise and Fall of the American Century: Money and Empire in Our Era. He may be contacted through his website, www.engdahl.oilgeopolitics.net.

We shall eagerly await Part V.

New "My Yahoo"Beta

The new My Yahoo is pretty slick. Hopefully this will catch on and help save them from MSFT. If MSFT buys them, I will be done with Yahoo. The other thing they need to do is change their name to something less... yahooish...

Google should buy Motorola phone division

Google is bidding for spectrum. Google bought Android. Motorola handset division is up for grabs. Google should buy it. None of the financial pages have mentioned the idea, so it must be impossible for some reason. Remember, you heard it here first. I think the googlies are thinking the same thing about the future of phones as I am, which is that the hardware will eventually be a commodity item like x86-compatible hardware, and the software will go from being bloated offensive offal such as offered by Microsoft and cell-phone vendors to being embedded Linux (or equivalent) based. Cell phones are today where personal computers were in the pre- and early-PC era. Vendors with non-standard hardware running proprietary software. MSFT was able to emerge as a standard for a while for two reasons:

1. Because Apple refused to let their hardware be cloned and turn into a software company. If they had ported their system (now Free Software [Mach Microkernel and a BSD Unix server] under the hood) to x86 hardware, they possibly could have smashed MSFT.
2. Because ATT kept a death-grip on Unix, trying (and probably largely failing) to make money from their "intellectual property" and thus preventing the appearance of a decent affordable operating system on x86 hardware until 386-BSD and Linux appeared.

Eventually, probably within five years, phones running a standard, Free Software-based operating system will be widely available, and hopefully ports of this system will be made for reflashable devices such as my Nokia 6133 (the hardware isn't bad, and the software is the sort of trash that only sells to captive audiences, much worse than the software on the Nokia 3650 I bought years ago). [The 6133 is a 6131 with Bad Software made even worse by being crippled and hacked by T-Mobile, but this at least is fixable]. Regardless of what Nokia does, Asia will churn out handsets that run this platform. Symbian will go the way of CP/M and MSDOS. Nokia might go the way of Apple, except that it was the superiority of Apple software that kept them alive, so Nokia will go bust if their hardware doesn't run whatever the emerging standard turns out to be. Their acquisition of Trolltech may indicate that they see this, and will try to push some proprietary QT-based interface on their hardware to compete with a QT or GTK-based interface on the "PC-clone" phones of the near future.

Long-Overdue Death-Spiral for Housing Prices

Turns out people stuck with negative equity in overpriced real estate are doing the sensible thing: just walking away. Heck, all they have to do is move into an apartment for a year and they might be able to buy it back at half price, no down payment! From the Financial Times:

Last year’s model: stricken US homeowners confound predictions “In the past, if a household in America experienced financial problems it tended to go delinquent on its credit cards, but kept on paying its mortgage,” says Malcolm Knight, head of the Bank for International Settlements, the central banks’ bank. “Now what seems to be happening is that people who have outstanding mortgages that are greater than the value of their home, or have negative amortisation mortgages, keep paying off their credit card balances but hand in the keys to their house ... these reactions to financial stress are not taken into account in the credit scoring models that are used to value residential mortgage-backed securities.”

George Soros on the Market Crisis, and on AIPAC

The worst market crisis in 60 years:

Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.

The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.

On Israel, America and AIPAC:

Whether the Democratic Party can liberate itself from AIPAC's influence is highly doubtful. Any politician who dares to expose AIPAC's influence would incur its wrath; so very few can be expected to do so. It is up to the American Jewish community itself to rein in the organization that claims to represent it. But this is not possible without first disposing of the most insidious argument put forward by the defenders of the current policies: that the critics of Israel's policies of occupation, control, and repression on the West Bank and in East Jerusalem and Gaza engender anti-Semitism.