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Recession: Can It Become Global Economic Crisis?

by John E. Carey | March 17, 2008 at 04:09 am | 256 views | 1 comment
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We live now in a “global economy.” One downside to this may be that when a big player gets the flu, many others contract pneumonia.

The <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />United States is suffering through the onset of a recession.  Buyers are staying away from retail stores in droves, unemployment is way up and manufacturing is down.

Gasoline prices are at an all time high.  The thirst for fuel sparked huge government support for projects to convert corn to ethanol.  Now corn prices have skyrocketed and farmers cannot pay for feed.  Cattle in the U.S. this year are going to market early because they cost the farmers too much to feed.  Next year: watch out for beef prices.

The price of wheat has doubled in a few months.  Your bagels, cereal and pizza will cost more soon if they don’t already.

The White House is calling this a “rough patch” for the economy.  My wife, who sells men’s suits, and my friend Ken, who has a very nice Italian eatery, are calling it a recession.

The White House has great hope in (but no control over) the Federal Reserve — which controls interest rates in the U.S.
Federal Reserve Chairman Ben Bernanke testifies before the House Financial Services Committee about the latest measures to heal the U.S. economy, on Capitol Hill in Washington in this file photo from Wednesday, Feb. 27, 2008.  (AP Photo/J. Scott Applewhite)

Sunday, another economic shock wave hit the U.S. economy.

Just four days after Bear Stearns Chief Executive Alan Schwartz assured Wall Street that his company was not in trouble, he was forced on Sunday to sell the investment bank to competitor JPMorgan Chase for a bargain-basement price of $2 a share, or $236.2 million.
Just a few days ago Bear Stearns was valued at $30.00 a share.  A year ago it was valued at about $172.00.

This was a classic “fire sale.”

Bear Stearns headquarters
<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />The sale on a Sunday was almost unprecedented.
A few hours later the Federal reserve approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. In an example of the urgency of the situation, the Fed said the new lending facility will be available to big Wall Street firms on Monday.
This bold action Sunday evening is meant to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.

But the news sent the dollar tumbling to a record low against the euro as investors worried that there would be more casualties in the widening U.S. financial crisis.

And Asian stock markets reacted with concern and dismay.

A trader stands on the floor of the Philippine Stock Exchange which closed down 3.88 percent on Monday.
Photo by Darren Whiteside (Reuters).

Asian stocks plunged and the dollar sank Monday in early trading.
Japan’s benchmark 225 index sank 3.7 percent to close at 11,787.51 points, its lowest in more than 2 1/2 years. In Seoul, the Korea Stock Price Index fell 1.6 percent to 1,574.44 after sagging as much as 3.9 percent.
And there is a ripple effect across Asia.

Take Vietnam for example.  The communist state has had the second strongest economy, after China, for the last two years.  But in December alone, inflation in Vietnam was at 50%.

This past week Vietnam announced a drastic draw down in exports.

A year ago, Vietnam’s exports were rising at a rate of 29.2 percent.  Economic analysts said this year’s rise would exceed 32%.  But because of the weaker U.S. dollar and the slower world-wide economy, Vietnam’s exports in the first quarter would only grow 23.7 percent from a year earlier

In China, manufacturing and exports were way off for the first quarter.  But China said much of that was due to the staggering snowfall and cold this past winter.

“There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted,” said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

“Just buying an investment bank does not solve the problem,” he said. “Markets are prodding (the U.S. government) to inject public funds.”
Bear Stearns’s headquarters overlooks the flag for neighboring JP Morgan Chase headquarters in New York on Friday, March 14, 2008. The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis. JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.
(AP Photo/Mark Lennihan)

There is, of course, good news.  There always is.

If you sell your gold jewelry right now you’ll make a record profit.  Reuters reports that gold prices shot up more than 3 percent Monday to fresh record highs as investors stepped up buying of the yellow metal, whose luster has increased due to the dollar’s weakness and deepening U.S. financial woes.

“This morning’s moves by the Fed clearly tell how serious the situation is in the United States. Gold is drawing a lot of safe-haven demand as you can’t buy stocks or currencies because of this volatility,” said Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd. Mr. Sugata wa quoted by Reuters.

Gold’s attraction as an alternative investment has helped boost the precious metal’s price by more than 20 percent this year alone, as it hit successive record highs along the way.

Gold was up 32% in 2007.

Gold bars are displayed at the headquarters of Mitsubishi Materials Corporation in Tokyo, January 9, 2008. Gold prices shot up more than 3 percent on Monday to hit fresh record highs as investors stepped up buying of the yellow metal, whose luster has increased due to the dollar’s weakness and deepening U.S. financial trouble.(Toru Hanai/Reuters)

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March 17, 2008 at 04:09 am by John E. Carey, 256 views, 1 comment

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The problem is the result of the War in Iraq and Afghanistan. Most people who supported Bush believed that Oil prices would be on the decline when securing Iraq from Saddam assured viable oil supplies. But they met head-on to Global Warming facts, and the need to reduce oil consumption. Does anyone really believe that Oil is high because of any other reason?  Now the NeoCons are seeing they can get richer by having high priced gas, ease the tension with the Global Environmentalists, and reserve the supplies in Iraq for continued Oil domination on the world price front.

The high cost to goods from high energy costs has created higher costs for employment which has created a negative affect in reducing and losing jobs. This has infiltrated the housing mortgage market causing it to collapse. People can’t make the payments. The house of cards is tumbling fast. People are seeing that the War has created this mess, and no matter what Bernake tries to do, he can not stop the inevitable. Now JP Morgan adds insult to injury by acquiring Bear and Stearns sending the signal that Banks of this size are unreliable investment risks.

The Solution to the Mortgage Crisis:

They need to enact The 2 loan Mortgage policy to separate housing from the work place economy. The work place economy is too volatile to expect a home mortgage banking system to remain stable and secure. When people get loans for a home they would get 2 loans. One loan pays for the house; while the other loan is used to make payments on the 1st loan and itself, until the money runs out.

By that time credit history is established to be able to take out another loan to replace the 2nd used to continue making payments. This process goes on until the house is paid, leaving a secure housing market. The 2nd loan that still has payments left but is a smaller principal is paid via the same process until the loans are paid. It will work because people can then deduct the interest from their taxes each year, not on one loan but from two, providing more liquidity to them to make payments on time.  With low interest payments this can be a win for both homeowners and Banking Institutions. Who says Bush needs a permanent tax break. This provides that result.

It is the same principal as borrowing from Peter to pay Paul. The rules of equity holding changes more toward Credit Value Worthiness and Credit Appreciation, meaning homeowners stable payment sent each month earns them the ability to secure higher value loans which increases their Credit Appreciation. Banks are in the Business for loans and having stable payment records of return. Equities provide no such leverage, because often equities are false from speculative appraisals. They could be worth more or really less, since age devalues property. This does not necessarily mean significant devaluation to historical preservation sites.

Bernake and Paulson need to learn that Banking is about Credit Worthiness not Equity Accumulation .When Banks make Credit Worthiness its banking value it increases Bank Credit Appreciation. This is what makes Bank more valuable to the people who use the banks for investment instead of the false equities banks think they own.

Clearly they are losing in the present scheme, and is the clue that Equity holdings is a false indicator to Bank Stability and Bank worth Appropriations. Get on the stick Bernie and Paul, and Setup the 2 Loan Mortgage Policy Act to secure banks and insure them-selves from the unstable work place environment. If not they become worthless Institutes with incompetent Banking Practices and Policies. Gold is a similar equity falsehood, in which people are investing thinking how secure it is when in fact the appraisal values are without merit. What is golds value based on? Absolutely nothing; except the value people see happening to it. This was the same phenomenon that occured with Mortgages.Gold is bound to sink as well because it has the same speculative falsehoods as the Mortgage Equity Trap.

Banks who establish them-selves as Credit-Worthy Banks in their services will win when they have policies that reflect a 2 loan mortgage policy. It is rather like an insurance ideal, where the borrower is allowed to borrow with the stipulation it is used only on the original loan. This secures the monthly payments and gives the Bank assurance that Mortgages can never default.

As far as the energy problem in bring prices down, I think the answer is in Geothermal Development. This is a never ending supply and comparing it to nuclear power just blows nuclear power out of the ball park. There is no pollution or waste derived from Geothermal Wells to the earths core or hot zone. Wells can be capped securely to assure no pressure blowups, or release of inner earth gases. The energy supply would last forever. What need for bioenergy then? What need for ethanol except only to use ethanol for Agriculture purposes in running farm machinery. The price of food would come down because ethanol is not competing for land areas used to grow food, or be co-mingled with the price of grain such as corn for livestock eating or corn for fuel ethanol.

We would make the new Maglev SuperHighway that is electric powered for maglev cars, trucks, and buses. This would create thousands of good American jobs to transform the broken gas economy into a new dynamic modern transportation and economic market in the world. If we were really smart we could connect that superhighway by making a bridge from Alaska to Russia and thereby connect the entire world to a global maglev transportation enterprise that runs on the heat from the earths core. The heat would never be lost because it would be sent back to the core in a recycling plan that assures constant energy to run our world and it energy needs.

Believe me Geothermal is the answer to the end of oil. Oil should be used for other things besides being burnt up in internal combustion engines. It will take a few years to get things going but that is the challenge isn’t it. It can be done no doubt. So will America sink or swim? I think it will have no choice but to learn how to swim to do these things to end the crisis. Anyone that thinks this is a recession, certainly didn’t know we have been living in the Great Depression for all these years. 

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