Thursday, March 02, 2006

No More Global Savings Glut, Bernanke! Interest Rates Shoot Up World Wide

By Elaine Meinel Supkis

The USA sucks up around 80% of all possible international funds of various sorts. This is to pay for the half trillion in government red ink and near trillion in trade deficits. In return, we printed money at an accelerated rate and now inflation is beginning to rage across the planet. Interest rates are shooting up and investment funds are vaporizing.

From the BBC:
The European Central Bank (ECB) looks set to raise interest rates in the light of rising inflationary pressures in the eurozone.
Economists are betting on a quarter percentage point rise in the cost of borrowing to 2.50% on Thursday.
The euro is the strongest currency right now so they don't have to defend it by raising interest rates alot.

Japan defends the yen by deliberately weakening it which is why their interest rates remain at a totally insane 0%. This is ridiculous since inflation is now raging in Tokyo according to on the street accounts. Even the prostitutes have figured out the dollar isn't worth what it was so even their prices are now climbing.

One by one, the eurozone, the Swedes, the Swiss and now even the Japanese, are turning off the tap of ultra-cheap credit that has flushed the global system for the past year, keeping the ageing asset boom alive.

The "carry trade" - as it is known - is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that offers higher yields, whether Argentine notes or US mortgage securities.

Arguably, it has prolonged asset bubbles everywhere, blunting the efforts of the US and other central banks to restrain over-heating in their own countries.

The Bank of International Settlements last year estimated the turnover in exchange and interest rates derivatives markets at $2,400bn a day.

"The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads: everything is poisoned," said David Bloom, currency analyst at HSBC.

"It's going to come to an end later this year and it's going to be ugly, even if we haven't reached the shake-out just yet," he said.
All countries are exposed but none as much as the USA. Our rulers keep lying to us and claiming, the budget deficit is "only" 6 to 7% of our GNP which is of course, a very dangerous level but untutored people reading this information seldom realize what would happen if we can't get 7% of our GNP in the form of hard cash.


Since our GNP is so huge, this 7% is also huge! And since America has outsourced/outsized potential taxpayer's jobs, this means we can't fill this yawning gap by taxing the middle class. The rich can't be taxed at all since they rule us and they intend to keep things this way and besides, they squirrel away their money in off shore accounts, anyway. Since Americans can't tax the people with the money, this means cutting the budget by $500 billion not in ten years but next year. This is impossible unless our government either cuts the military to near zero or kills off most Americans who are dependent upon the government functioning.
There were early signs of panic this week when the Icelandic krone crashed 8pc in two days, setting off dominoes in high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil.

The debacle was triggered when the rating agency Fitch downgraded Iceland's sovereign debt, a move that would not normally rattle markets.
The only reason our debt isn't being downgraded is because there are many things America can sell off. We are already hard at work, selling off our ports, our forests, our minerals, our people.
Most of the world is now tightening, with no sign of a fresh credit window opening to keep the game going. This is new. Japan has had the tap on continuously as the trade exploded over the past five years, while America itself became the source of funds after it slashed rates to 1pc at the end of the dotcom bubble, and held them there until June 2004.
Between illegal drug dealers and the explosion in derivative trades, the "dark matter" money will melt away like ice in a heat wave when the various governments crack down on currencies.

Already, the USA is frantically changing the color and design of its currency in preparation of squeezing out the drug trade money yet again. Not to mention gross counterfit monies.

American consumer credit depends very heavily on foreign money pouring in. Interest rates on houses were ridiculously cheap and the mortgages were bundled and resold to hedge funds and overseas investors seeking stable shelter for their money, little understanding how this particular shelter has a very leaky roof.

Namely, when the dominos start to fall in America, people will cease paying for their grossly over inflated in value homes and abandon them, this has happened in the past, can happen at any time. It is no coincidence that all gold rushes in history coincide with world wide depressions. Such as the all famous on in California, the banking systems of the world collapsed in 1848 and the rush was in 1849. Ditto the Alaskan rush.

Take a good look at this. These people, mostly city dwellers, hiking up a mountain in winter. The stream of humanity pouring into the dangerous backlands of Alaska to claw gold from rivers and streams was the result of a terrible depression. Just like the Great Depression, the side effects reverberated for a while, translated into a world war.

Just like many analysts refuse to see ahead, one has to focus on what will happen in ten years.

Just like the housing bubble bust. It doesn't happen instantaneously, everywhere. It takes time to pop. Once it is underway, it is nearly impossible to stop. Ditto currency problems. Under Clinton and Rubins, they stopped several currency collapse waves, most spectacularily in Asia. We have fools and liars running things now. Bernanke isn't a liar, his is just a Brownie level type idiot. An innocent who can't think straight, drunk on his new powers.

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