SOMETHING BIG COMING? by World Affairs Brief Editor, Joel Skousen

The "August Review" asks if there is an imminent financial crisis coming. Actually, it's already with us. Only part of the crisis, however, is visible as tricky accounting rules allow government, corporations and investment companies to hide the true state of financial affairs. The effects are being masked by the tax rebates flooding the consumer market. As Bloomberg noted, "The U.S. economic expansion may slow to the weakest pace in six years in the fourth quarter, after the impact of federal tax rebates fades." May? I think it is a certainty.

I have held to the line that government will do everything possible to keep a collapse from coming because extreme financial contractions tend to make the people angry and foment anti-government sentiment. I still believe the PTB want Americans fat dumb and happy right up to the big war that is coming in the next decade. But, now I'm not so sure that they can salvage this economy without severe consequences. I am sure that whatever they do will result in huge amounts of inflation--that deadly hidden tax that is now taking more than 10% additional income out of everyone's pockets.

To forestall the inevitable, Government is still flooding the world with new money in all its various iterations: credits, swaps, buyouts, guarantees and dozens more shady ways to inflate the currency. But the big boys in Europe see something the American public is oblivious to, accord to the August Review.

"Europe is running scared of an impending financial disaster. Barclays Capital, the Royal Bank of Scotland and Fortis are pulling away from the U.S. financial markets. The withdrawal of funds from New York institutions has not been reported, but amounts to at least a mini-run on the banks involved, similar to what happened to Bear Stearns in March; the run may be expanding. These major financial institutions in Europe are predicting imminent, major economic and market meltdowns. Fortis expects a complete collapse of the US financial markets within a few days to weeks. That explains, according to Fortis, the series of interventions of last Thursday to retrieve ⬠8 billion.'We have been saved just in time. The situation in the US is much worse than we thought,' says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US.

"At the same time, the Royal Bank of Scotland headlined warnings of a global crash: The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyzes the major central banks. 'The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets,' the bank said. Lastly, Barclays Capital warned clients to 'batten down the hatches for a worldwide financial storm. On July 2, U.S. Treasury Secretary Henry Paulson's European speech was covered live on CSPAN. He gave considerable lip-service to what would happen if a number of U.S. banks were to fail, including even a major U.S. bank. No bank names were mentioned, but the fact that he brought it up indicates that the Europeans are very concerned about it."

All the US auto makers are in big trouble, and burning cash reserves that will dry up within 3-9 months as they desperately try to retool for fuel efficient vehicles and dismantle the huge investment in SUVs and oversized pickup trucks.

Dave R. told the Jim Rawles Survival blog, "Anyone who is paying attention would have seen the mess that America's 'Big Three' auto makers are in. Consider this little fun fact - As of this last Friday, the market capitalization of General Motors (GM) was just over $5 billion. That's all. Toyota has about 25 times that. So are several other healthy auto makers and they all know that times are tough yet GM expects sales to pick up later this year? But consider that $5 billion. It's cheap yet no one is touching GM. No one wants to buy it, even to take it apart and shut it down. Why? Every single asset GM has is pledged multiple times as collateral for loans that it cannot repay while it is losing $41 billion per year." Jim Rawles adds that this doesn't take into consideration their huge pension fund obligations.

"Here's the final hint for anyone still in denial. As of June 30th, GM slipped beneath $20 billion in remaining cash assets but is burning $17 billion per year. In other words, GM probably has just 9 to15 months of life left, at the most... No one will be able to stop it and GM will be history. And the lenders will still only get pennies on the dollar for each dollar they loaned. Ford and Chrysler are in similar situations. If the economic system implodes, the Big Three will cease to exist."

Fannie Mae and Freddie Mac, the two government sponsored mortgage brokerage houses are also in big trouble. Bloomberg News notes that "Freddie Mac and Fannie Mae plunged in New York trading and their credit-default swaps rose as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules." That's putting it mildly. Another writer at Bloomberg quoted St. Louis Federal Reserve President William Poole as saying, "the biggest provider of financing for U.S. home loans won't have enough capital to weather the worst housing slump since the Great Depression. The company's credit-default swaps show traders are treating the AAA rated debt as if it were five steps lower. Fannie Mae shares tumbled 13 percent yesterday in New York to the lowest level in almost 14 years. Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac."

I think Poole is right. But, there is no single big collapse event coming, just a continuing series of collapses as the speculative house of cards falls and the speculators themselves run out of places to invest their massive gambling portfolios-which dwarfs the actual productive investment economy. The only card the fed has to play is the continued bailout the biggest players--running on the excuse that the big boys have to be saved to keep the economy from collapse.

GM, Ford and Chrysler will not all be allowed to fail. Neither will Fannie Mae and Freddie Mac. Indeed, a government takeover of one or both companies is being discussed by the Bush administration as you read this. The mortgage markets don't function without some government funded agency to buy up and repackage the mortgages being written by the smaller banks and brokers.

How will these bailouts be financed? Increasingly the bond market is failing to respond to using increasing debt to solve the debt bubble. As Martin Z. Braun of Bloomberg Financial notes, "Bonds sold by U.S. municipal borrowers with rates set through periodic auctions failed to attract enough buyers as banks including Goldman Sachs Group Inc. and Citigroup Inc. that run the bidding won't commit their own capital to the debt.

"What began three weeks ago with too few bidders for auction-rate debt backed by relatively small entities, such as Georgetown University and Nevada Power, has widened in recent days to include large issues of state governments, such as New York state's Dormitory Authority. The auction failures provide new indication of Wall Street's unwillingness to commit capital amid $133 billion in credit losses and asset writedowns. 'It's the beginning of the end for the auction-rate market,'' said Matt Fabian, a senior analyst with Concord, Massachusetts-based Municipal Market Advisors. 'Banks have stopped supporting the market.'"

What this means is that the Fed will increasingly have to simply monetize these bailouts flooding the world with new money. This is why inflation is increasing dramatically, with no halt in sight.

Examples: Dow Chemical is increasing prices an average of 25%. Iron ore prices have jumped 85% with relatively no change in demand. Like big oil, there is a cartel of 3 insider-connected Iron ore companies that control most of the market. Tom Palley writes that Vale do Rio Doce, Rio Tinto, and BHP Billiton account for 75% of total global production. Vale do Rio Doce is Brazilian and based in the Western hemisphere, while Rio Tinto's and BHP Billiton's operations are in Australia.

It's no wonder that the Producer Price crude goods index increased 6.7 percent after climbing 3.2 percent in April. Retail inflation will be a few multiples higher than these wholesale prices as everyone is scrambling to cover their increased costs of fuel and transportation. When inflations starts to run, everyone starts taking on extra price increases just because they can--as people lose the ability to discern what's a "normal" price anymore. Besides, sales are dropping as people have less money to spend so merchants can no longer depend on high volume to produce profits at small margins. They now need larger profit margins with each new sale. That's what the big airlines are trying to do by shutting down capacity--forcing people to pay higher prices for fewer available seats. I'm predicting it won't work--especially since Southwest airlines doesn't have to raise prices and will start growing capacity as the big airlines downsize.

Eventually, however, as sales continue to shrink, the large overhead of big corporations will put them into the red and they will fail. Even lower interest rates can't save companies who can't pay any interest at all. Bridge loans don't work when the time frame for recovery is too far in the future--and this collapsing bubble looks like it will take several years to fully unravel. The shrinking buying power of the consumer is making it difficult for Mall-based businesses to survive. According to economic research firm Reis Inc., vacancies at U.S. neighborhood and community shopping centers rose in the second quarter to a 13-year high. Vacancies at larger, regional malls were at their highest level since 2002.

Even internet commerce is seeing significant declines. Jeremy Herron, AP Business Writer, commenting on the Allen & Co annual internet marketing retreat at Sun Valley, Idaho, says that, "This year both media and online leaders are grappling with the Internet's increasing fragmentation. And they're all looking for more advertising revenue online, where media companies have recouped only a small fraction of what they lost in print and where Web companies want to maximize their investments. Even the top Internet companies -- save maybe Google Inc. -- are seeing revenue growth slowing as online audiences fragment. And they worry that, without steady access to high-quality content, they won't be able to attract enough viewers to keep growing fast.

"At the same time, the barons of old-line newspapers and broadcast TV seem to have realized it's pointless to keep fighting the shift online, but they're still unsure how to embrace it. And they're struggling to attract new online users just to survive. The flagging economy, slowing consumer spending and costlier capital on Wall Street will only add to any gloom and may prevent the summit from living up to its reputation as an incubator for big deals." Print newspaper organizations are all downsizing rapidly as regular advertizing revenue shifts to the internet where it is free or much cheaper.

Therefore it behooves each of us to try to determine if and how this might affect each of us and our families, or if all or any of it is something we can blow off as hype.  The Church has given us basic warnings and advice on preparedness.  Each of us would do well to decide how to tailor our personal and family preparedness for the challenges and difficulties it will or might present us and our families.

DoubleD wrote:

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I need to get a safe for my home.

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For your guns?  Won't be long before money isn't worth much.

 

Consider what you would keep in your safe that would be of value if or when things deteriorate.  A safe will certainly deter burglars, but it will not deter determined enforcement of confiscation of certain items that I expect will be subject to confiscation in future.

And the billions that the FedGov is pouring into banks to subsidize their bad loans?  Where does that money come from?  How does that affect us?  If any one of us printed money at home to offset our losses,  where would we likely spend the next 20 years or so?   

Note what Joel Skousen wrote (2^nd & 3^rd paragraphs of the 3rd post on this thread)

"I have held to the line that government will do everything possible to keep a collapse from coming because extreme financial contractions tend to make the people angry and foment anti-government sentiment." (Ignore this next sentence for now, even though I take it seriously: " I still believe the PTB want Americans fat dumb and happy right up to the big war that is coming in the next decade.") Skousen continues "But, now I'm not so sure that they can salvage this economy without severe consequences. I am sure that whatever they do will result in huge amounts of inflation--that deadly hidden tax that is now taking more than 10% additional income out of everyone's pockets." ( And consider what that inflation will do to our $ based income and savings). Skousen continues, "To forestall the inevitable, Government is still flooding the world with new money in all its various iterations: credits, swaps, buyouts, guarantees and dozens more shady ways to inflate the currency." (Inflation leads to reduction of the buying power of the US$) "But the big boys in Europe see something the American public is oblivious to,(because we aare being lied to) according to the August Review."

Cant blame foreigners for getting out of US$s. But what we need to wise up to is that Americans are being made to pay for the investment shenanigans of certain parties that, ever since the creation of the Fed, have been bilking Americans thru the hidden tax called inflation. There have been only 2 presidential candidates who spoke about this scam and committed to trying to put an end to it, Ron Paul and Chuck Baldwin, and the media has virtually blackballed the two of them.

Thanks, Bok. Actually getting screwed over on it by those who did not like me actually doing my job. My predecessors did not do it, I did it and has annoyed some. My new boss is now finding out the nonsense and stupid things that have been done and go on. I am still there for another month and getting severance.

I am not sure if the stress of losing versus the stress of the job is really any different. I am not real worried, I have always paid my tithing, living like I should, I have never been without and each time when the time has come, it has been for the better even though the stress sucks. God has always carried it, so am really trusting in that.

My boss has been really cool and stuck his neck out for me, he is being given no choice on it.