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Saturday, 31 January 2009

Paying a High Price for Bad Advice

by Robert Kiyosaki

At this time of financial crisis, people are seeking good, relevant advice. But this can be hard to find.

The following is typical of a question you would see in a financial publication -- and its less-than helpful answer:
Q: What can someone whose 401(k) is down do to rebuild their retirement savings?

A: For anyone who is at least five years from retirement, there is probably time for their investments to right themselves.

Resist the urge to take money out of a 401(k) or to stop making contributions to it. Research has shown that dollar-cost averaging -- investing at given intervals -- pays off well in times of crisis.

Check whether the wild market swings have thrown off your asset allocation -- the specific mix of stocks and bonds that makes sense for an individual's financial goals and risk tolerance. If so, then rebalance it by selling shares that are overvalued and buying those that are below optimal levels. Focus on low cost....

Blah, blah, blah.

How naive do the so-called financial experts think people are? Well, obviously, many people are that naive because millions keep listening to the same old advice again and again.

The Same Old Story

So what is wrong with those giving the advice and those following it? Now that the markets have crashed and trillions have been lost, these so-called experts continue on like mindless parrots, saying over and over again, "Polly wants you to invest in a well-diversified portfolio of mutual funds."

Don't they know the market has changed? Don't they know the global economy is contracting, not expanding? Don't they know their advice is bad regardless of whether the market is expanding or contracting? Doesn't the general public realize that most financial "experts" are not professional investors? They're either sales people or journalists -- people who earn money via commissions or a paycheck. And even the people running our biggest investment banks -- or what use to be investment banks -- are compensated via commissions or a paycheck. They are not investors. They are employees working for banks.

So my advice is, be very careful whom you take financial advice from -- and that includes me. My guidance, after all, does not work for 80 percent of the people. My suggestions are not right for those who work for a paycheck or for commissions, nor do they work for those who save money in the bank or a retirement account.

The Right Advice for the Right Audience

My advice is for people who are entrepreneurs or professional investors. I have had a "real" job for only four years of my life, which means I only collected a traditional paycheck for that very short period of time. I do not have a retirement account. If my businesses or my investments are not profitable, then I don't eat. And I like to eat.

I chose to live my life this way because this financial lifestyle keeps me honest. It also keeps me wary and very suspicious of financial experts who offer inane advice. I personally cannot live on such advice. My businesses and investments need to be profitable monthly and pay me monthly, regardless of whether the economy is expanding or contracting.

I don't live in some fairytale world with the hope that the markets will right themselves in five years. I don't keep putting money into a losing venture such as a retirement plan filled with stocks, bonds, and mutual funds. I do not live on false promises. I cannot afford to live on bad advice.

Some Serious Questions

My questions to financial journalists and others who are doling out poor counsel: "What if your advice is wrong in five years? What happens if the markets don't come back? What happens if the markets just stay flat or crash even further? What happens if the markets recover and then crash when the person following your advice is in their late eighties?"

My advice for those seeking financial advice: Look for investments that pay you monthly or quarterly, regardless of whether the markets are up or down or whether the economy is expanding or contracting. Stop listening to those pseudo financial experts with crystal balls and journalism degrees.

The following are tidbits of information to keep in mind as you consider your financial options:

1. I learned my investment philosophy at the age of nine by playing Monopoly. In the game, if I had one green house, I was paid $8. If I had two green houses, then I was paid $16.

I began playing Monopoly for real when I was 26 years old. Today my wife and I have approximately 1,400 little green houses -- each paying us monthly. You do not have to be a rocket scientist or have a Harvard degree to play Monopoly for real. Today's depressed real estate market is the best time to start buying little green houses, even if credit is tight.

In 1987 the stock market crashed. That crash was followed by the crash of the Savings and Loan industry. Those two crashes led to the crash of the real estate market. The economy stayed down from 1987 to 1995. Even though my wife and I were strapped for cash and bankers did not want to lend to small investors, we found ways of putting deals together by using seller financing and creative financing, or simply taking over properties that the bank did not want on its books.

Most financial experts discourage people from doing what I do. They often say that it is risky -- and it certainly can be. But, in my opinion, following their advice of putting money into a savings account and investing in a 401(K) is even riskier in this volatile economy.

2. Today, as the economy is contracting, cash is king. Yet because the Federal Reserve is printing trillions of Monopoly dollars in order to stop deflation, in a few years we could see a hyperinflationary period. Hyperinflation will wipe out the value of a saver's holdings and eventually destroy most mutual funds as the government begins to raise interest rates in an attempt to stem inflation. In a hyperinflationary period, gold and silver will be king.

3. I am not actually recommending gold, silver, or real estate. Assets do not make you rich. Assets can make you poor if you are not careful. In 1980 gold and silver hit all-time highs, gold hitting $800 an ounce and silver $50 an ounce. So the suckers jumped in and were slaughtered. The same thing happened with real estate in 2004.

If you do not know what you are doing, no asset can make you rich. Ultimately, what makes you rich is your financial intelligence. Your greatest asset is your brain -- so take care of it and protect it from bad advice.

Economy's new plunge is worst in quarter-century

By Jeannine Aversa, AP Economics Writer
Economy has worst slide since `82 -- and tailspin is accelerating as Americans ax spending

WASHINGTON (AP) -- Battered by layoffs, debts and dread of worse to come, shoppers clutched ever tighter to their wallets in the final three months of 2008 and thrust the economy into its worst downhill slide in a quarter-century. Americans cut spending on everything from cars to computers, and it's only getting worse so far in the new year.

All told, the economy staggered backward at a 3.8 percent pace at the end of last year, the government said Friday. And the tailspin could well accelerate in the current quarter to a rate of 5 percent or more as the recession churns into a second year and consumers and businesses buckle under a relentless crush of negative forces.

Spending cutbacks hit everywhere last quarter. Shoppers chopped spending on cars, furniture, appliances, clothes, food, transportation and more. Businesses dropped the ax on equipment and computer software, home building and commercial construction. And overseas sales of U.S.-produced goods and services tanked as foreign buyers grappled with their own economic woes.

It's "a continuing disaster" for the nation's families, declared President Barack Obama, making what has become an increasingly urgent daily pitch for his $819 billion stimulus package to revive the economy.

No one thought he was overstating. "It's an economic hurricane," said Richard Yamarone, economist at Argus Research.

On Wall Street, stocks tumbled for a second straight day. The Dow Jones industrial average slid 148 points.

With fallout from the housing, credit and financial crises -- the worst since the 1930s -- ricocheting through the economy, analysts predict up to 3 million jobs will vanish this year -- even if Congress quickly approves the stimulus measure.

Just this week, tens of thousands of new layoffs were announced by companies including Ford Motor Co., Eastman Kodak Co., Black & Decker Corp., Boeing Co., Pfizer Inc., Caterpillar Inc., Home Depot Inc. and Target Corp.

"Everybody is trying to figure out how to survive," said Brian Bethune, economist at IHS Global Insight.

The fourth quarter was by far the weakest in 2008. And the 3.8 percent figure is likely to be revised even lower as the government gathers more complete data. The economy is expected to remain feeble this year and into next year even if the recession ends in the fall, a best-case scenario.

Friday's report tallied gross domestic product, the value of all goods and services produced within the United States. It is considered the broadest barometer of the country's economic health.

The initial fourth-quarter result, released by the Commerce Department, showed the economy sinking at a much faster clip in the October-December period than the 0.5 percent decline logged in the prior quarter. It marked the first back-to-back quarterly contractions since 1991.

A buildup in business inventories, adding to economic activity in calculating GDP, masked even deeper weakness. If inventories were stripped out, the economy would have contracted at a 5.1 percent pace in the fourth quarter. Businesses couldn't cut production fast enough as customers stopped buying and got stuck with excess inventories, economists explained.

Consumers are cutting back on spending as jobs disappear and major investments -- homes, stocks, retirement accounts -- drop in value. Businesses are retrenching, too, as profits shrivel and demand wanes from customers in the U.S. and overseas.

The list of discouraging figures is a long one:

-- Beaten-down consumers slashed spending at a 3.5 percent pace following a 3.8 percent cutback in the third quarter, the first back-to-back declines of more than 3 percent since records began in 1947.

-- Spending for big-ticket "durable" goods, including cars, appliances and furniture, plunged at a rate of 22.4 percent, the most since early 1987.

-- The annualized cutback in spending on "nondurables," such as food and clothing, was 7.1 percent last quarter. The last time it was deeper was at the end of 1950.

Caution was clear everywhere.

Americans' savings rate rose to 2.9 percent in the fourth quarter. That was up from 1.2 percent in the third quarter and matched the rate in early 2002, when the country was still struggling to recover from the 2001 recession.

Big cutbacks by homebuilders, reeling from the collapsed housing market, and other companies also figured into the fourth-quarter weakness. Homebuilders slashed spending at a 23.6 percent pace. That was even deeper than the 16 percent annualized cut in the prior three months.

Spending by businesses on equipment and software dropped at a whopping 27.8 percent pace in the fourth quarter, the most since early 1958.

Meanwhile, U.S. exports, whose growth earlier last year helped to keep the economy afloat, turned negative.

Exports plunged at a rate of 19.7 percent in the fourth quarter, the most since 1974. Economic slowdowns in other countries have bitten into demand for U.S goods and services.

For the economy as a whole, the 3.8 percent annualized drop was weakest quarterly showing since a 6.4 percent plunge in the first quarter of 1982, when the country was suffering through a severe recession.

Last year, the economy grew just 1.3 percent. That was down from a 2 percent gain in 2007 and marked the slowest growth since the last recession in 2001. This year, analysts predict the economy will shrink anywhere from 2 to 2.5 percent, the worst performance since 1946.

To stop the free-fall, Obama and Congress are racing to enact a recovery package of increased government spending that includes big public works projects and tax cuts. The House passed a $819 billion package on Wednesday, and the bill is working its way through the Senate.

Trying to ride out the storm, businesses are scrambling to cut costs, and that's taking a painful toll on the nation's workers. The unemployment rate jumped to a 16-year high of 7.2 percent in December and could hit 10 percent or higher by the end of this year or early next year.

The recession also has caused once-surging prices to retreat.

An inflation gauge tied to the report showed prices dropping at a rate of 5.5 percent in the fourth quarter -- a turnaround from the 5 percent growth in the prior period. Stripping out food and energy, prices inched up at a rate of 0.6 percent. That compared with the 2.4 percent growth rate in the third quarter.

The most severe spending pullback in decades is sending retailers, including Circuit City and discount clothing chain Goody's Family Clothing, into liquidation. Stores were battered by the weakest holiday period in four decades by one measure.

Retail sales appear to be deteriorating further this month. The National Retail Federation predicts that sales will fall 0.5 percent this year, well below last year's meager 1.4 percent gain.

Singapore, Investor in UBS, Citigroup, Says Worst Yet to Come

By Shamim Adam and Haslinda Amin

Jan. 29 (Bloomberg) -- Singapore, whose state-owned funds invested about $24 billion in UBS AG, Citigroup Inc. and Merrill Lynch & Co. in the past 14 months, said the worst of the credit crunch is yet to come.

The world’s biggest banks still have toxic assets on their balance sheets, which are clogging up their ability to lend, Singapore Finance Minister Tharman Shanmugaratnam said in an interview with Bloomberg Television yesterday. The finance ministry oversees Government of Singapore Investment Corp. and Temasek Holdings Pte, each managing more than $100 billion.

Banks are still focusing on replenishing capital “and estimates of the extent of bad assets on their books are still on the upswing,” he said. “We haven’t seen the worst yet.”

Bank losses worldwide from U.S.-originated bad assets may reach $2.2 trillion, the International Monetary Fund said yesterday, more than the $1.4 trillion it predicted in October. U.S. President Barack Obama’s administration and federal regulators are considering setting up a “bad bank” that would absorb illiquid assets from otherwise healthy financial firms.

Governments across Europe have injected capital into banks to ensure that lending to companies and consumers doesn’t freeze up. European Union regulators yesterday approved France’s plan to increase its funding for recapitalization of banks including BNP Paribas SA and Societe Generale SA to 11 billion euros ($14.5 billion), from an initial proposal for 10.5 billion euros.

Ireland’s government last month said it would invest 2 billion euros in Allied Irish and Bank of Ireland, the country’s biggest lenders.

‘Foot the Bill’

“It’s right that governments are focusing on recapitalization in the West and they’re trying their best to incentivize new lending,” Shanmugaratnam said. “It’s too early to say how successful this will be. Governments have to take more risk, and that means taxpayers have to be willing to foot part of the bill.”

The IMF report released yesterday signaled that writedowns and losses at banks totaling $1.1 trillion so far are only half of what’s to come. Losses on that scale would leave banks needing at least $500 billion in fresh capital to restore confidence in their balance sheets, the fund said.

Singapore’s leaders have defended the performance of the city’s state-owned investment companies after a plunge in the value of their stakes in Citigroup, Merrill Lynch and other global banks.

GIC, which manages the country’s reserves, invested about $18 billion in UBS and Citigroup since December 2007. Temasek, which has a $130 billion portfolio, increased investments in Merrill Lynch and Barclays Plc as the credit market collapsed in 2007 and 2008.

‘Well Diversified’

Temasek was the biggest shareholder in Merrill Lynch before the securities firm was taken over by Bank of America Corp. It is also the largest shareholder of banks including London-based Standard Chartered Plc and Singapore’s DBS Group Holdings Ltd., and has holdings in India’s ICICI Bank and other lenders in Indonesia, South Korea and Pakistan.

Temasek and GIC remain “well diversified” enough in their portfolios to offer the long-term returns the government seeks, Shanmugaratnam said.

“We would be very worried if global banks comprise a large proportion of the portfolios of GIC or Temasek, or for that matter, any of the highly vulnerable industries globally,” the minister said. “But these are diversified portfolios.”

Performed ‘Credibly’

Temasek and GIC have performed “credibly by international standards,” he said. Temasek had an average 18 percent annual return on investment since its inception in 1974. GIC said in September that annual returns in the past 20 years averaged 7.8 percent in U.S. dollar terms, compared with about 6 percent for the MSCI World Index.

GIC last year also said it’s boosting investments in emerging markets, private equity and other asset classes to raise returns after cutting back stocks and holdings in developed nations.

“I’m comfortable with the actions both Temasek and GIC have taken early in this crisis to reduce risk, to move into more liquid asset allocation and to prepare for opportunities in this downturn,” Shanmugaratnam said. “We’ve got to make sure we maintain that record of prudent investments for the portfolio as a whole, diversifying risks, and being prepared for crises from time to time.”

Friday, 30 January 2009

Business outlook darkens

BUSINESS sentiments in Singapore's manufacturing and services sectors have further darkened in the face of the worsening global economic downturn.

More companies expect the business situation to deteriorate in the first six months and orders to further weaken due to the steep global economic decline.

The firms most affected are those in the electronics, precision engineering and chemical clusters.

Outlook for the services sector is also less upbeat, with firms expecting business conditions to become less favourable.

The dismal expectations were borne out in two government surveys released on Friday.

In the survey carried out by the Singapore Economic Development Board (EDB) between December and January, which polled 412 manufacturing firms, 63 per cent anticipate deterioration in the sector, with only 6 per cent expecting the situation to improve from January to June.

Overall, 57 per cent of manufacturers expect a less favorable business outlook in the first half year compared to the fourth quarter of 2008.

'The weak business sentiment is broad-based, affecting all clusters in the manufacturing sector,' said the EDB in a statement.

'The transport engineering cluster shows less optimism in the first half of 2009 compared to a quarter ago. Within the cluster, the marine & offshore segment expects a drop in orders, resulting from credit tightening and falling oil prices. The aerospace segment also foresees lower maintenance, repair and overhaul activities with the slowdown in the airline industry.'

The rest of the manufacturing clusters are also significantly less optimistic as they foresee further weakening of orders in the next six months, brought about by the steep decline in global economic conditions.

The firms most affected are those in the electronics, precision engineering and chemical clusters.

Compared to the fourth quarter of 2008, 52 per cent of manufacturers expect output to decline in the first three months of this year.

About 70 per cent of manufacturers expect employment in the first quarter to remain similar to the fourth quarter of 2008, but 29 per cent anticipate a reduction in headcount. Only 1 per cent expect to hire more workers.

In the survey on the services sector conducted by the Department of Statistics from December to mid-January, firms expect the business situation ahead to be less favourable.

Overall, 53 per cent expects business conditions to deteriorate in the next six months, compared to the previous six months, when 15 per cent were more pessimistic.

Within the wholesale trade industry, 45 per cent is less upbeat about business prospects for the next six months.

These include wholesalers of household electrical appliances and equipment, petroleum and petroleum products, chemicals and chemical products, other non-agricultural intermediate products and electronic components.

Expectations among firms in the retail trade industry project were also less favourable.

Department store owners as well as retailers of motor vehicles, pharmaceutical and medical goods, wearing apparel and footwear, furniture, furnishings, jewellery and watches are among those who foresee a drop in business activity in the coming months.

The transport and storage industry also expects slower business, as do shipping lines, firms providing air transport services, storage and warehousing services, ship and boat leasing services as well as freight forwarding, packing and crating services.

Mass job cuts lead to violence

BELEM (Brazil) - LAY-OFFS around the world brought on by the economic crisis will result in social upheaval and violence that could herald the death of capitalism, unions meeting at the World Social Forum in Brazil said.

Such unrest would be a painful but necessary step towards a new world order that is being delayed by efforts to save the old, crippled one, argued the labour organizations, mostly from Latin America.

'It's obvious the effects of this crisis will be large-scale social conflicts,' Martha Martinez, the Americas director for the World Federation of Unions, told trade unionists here on Thursday.

Governments were already making moves to forcibly repress 'social fragmentation,' she said, citing conservative-ruled Colombia and Peru as examples.

Long-cherished hopes of a workers' revolution were bubbling up all over the forum, which had gathered 100,000 people from left-wing groups as a counterweight to the World Economic Forum in Davos, Switzerland where presidents and corporation chiefs from around the planet were meeting.

Julio Gambina, the head of the research centre for the Argentine Judicial Federation, accused developed countries - particularly the United States - of trying to save a neoliberalism he said was 'broken.'

The role models now to be followed, Mr Gambina said, were Cuba, Venezuela and Bolivia, all of which had rewritten their constitutions along socialist lines to redistribute wealth to the poor.

The force of the Marxist rhetoric here stemmed from the jolt countries from Finland to the Philippines have experienced as they confront an abrupt and widespread decline in employment.

According to the International Labour Organisation, global unemployment could grow by up to 50 million workers by the end of this year.

'I think that social unrest is here already,' ILO Director-General Juan Somavia told reporters in Geneva.

Germany announced its number of jobless has surged to 3.5 million.

In France, more than a million workers went on strike to protest against conservative President Nicolas Sarkozy's handling of the crisis, and against fears of job losses.

Japan is feeling the strain, too, with big companies readying the axe as all-important exports plummet.

The United States, the epicentre of the crisis, was still struggling to get a grip on the meltdown of its credit and financial markets. Reports suggested a US$800 billion (S$1.2 trillion) rescue package could be expanded significantly, perhaps through fresh aid to banks trying to dump so-called toxic assets.

Russia's ruble was sinking rapidly, and China has warned it was in for a 'very severe' year.

In Brazil, Latin America's biggest economy, there were concerns that a decade of economic growth was coming to an end because of the corrections in the developed world.

A loss of 650,000 jobs in December - the worst monthly number since 1999 - has galvanised the government.

'We need to prepare ourselves so that we avoid in 2009 having a big level of unemployment,' President Luiz Inacio Lula da Silva said Monday in his weekly radio program.

He and other leftwing leaders in Latin America, from Venezuela, Bolivia, Ecuador and Paraguay, were scheduled to attend the World Social Forum as a sign of how unsettled they were by the situation.

Through it all, though, unions are clinging to the hope that the inferno will clear away three decades of consumerism and the concentration of wealth.

'The crisis is something good and positive, because it has opened the way to discuss and to revise the (world economic) model,' Sonia Latge, the political science director for Brazil's Workers' Central of Brazil, told AFP.

'I think the future of the planet is socialist,' she said. -- AFP

Mini-Madoffs appearing

NEW YORK - BERNARD Madoff allegedly ran the mother of all pyramid schemes. Now meet the kids.

Call them mini-Madoffs - men less ambitious, perhaps, but copying the same alleged fraud and, like Madoff himself, being hauled before judges.

The latest is Long Island financier Nicholas Cosmo, arrested on Monday and told by a court Thursday that he must remain in detention while lawyers and prosecutors negotiate bail terms.

Cosmo's alleged $370 million (S$557.6 million) pyramid, or Ponzi fraud, would be peanuts compared to Madoff's alleged $50 billion scam.

But in essence, the two alleged frauds were the same and so were others emerging across the country, as investment pyramids collapse from New York to Florida and Georgia to Pennsylvania.

The Ponzi scheme, named in honour of 1920s fraudster Charles Ponzi, is one of the oldest tricks in the book.

A conman promises investors big returns, steals their money, then disguises the theft by using some funds to pay out phony profits.

When the US economy withered last year, the frauds began to come to light: investors asked for their capital back, only to find out there was none.

First came Madoff, arrested December 11 for a possibly record-breaking alleged fraud that fooled investors worldwide. Then came the mini-Madoffs.

Cosmo, 37, allegedly bilked 1,500 clients through Agape World Inc, many of them friends and associates.

He had already done prison time for fraud and undergone therapy for gambling addiction, but, like Madoff, was apparently a charming man and respected in his community.

A Long Island under-13-year-olds' soccer team that he coached 'loves him, he's a great guy', the local daily Newsday quoted the club's president as saying.

Charm was also something that Haitian immigrant George Theodule reportedly put to great effect when he told churchgoers in Florida's Haitian community he could double their money in three months.

Prosecutors accuse Theodule of operating a Ponzi scheme with thousands of victims.

The New York Times quoted one victim, a deliveryman who lost his entire savings of 35,000 dollars, remembering that Theodule looked the part.

'The offices were beautiful and I was told it was a limited liability corporation,' Mr Reggie Roseme said.

This Tuesday, the FBI in Florida arrested another alleged pyramid builder, Arthur Nadel, a 76-year-old hedge fund manager who claimed to be managing $342 million. Turned out he had just one million dollars.

Nadel went on the lam for two weeks before finally turning himself in - an attempted flight outdone only by another white collar fugitive who tried and failed earlier this month to fake his death by parachuting from a crashing airplane.

Then in mid-January, the authorities broke what they say was a 25 million dollar Ponzi scheme run by Georgia financier James Ossie. In this case investors were offered 10 percent returns in just 30 days. As many as 120 people took the bait.

And a week before that an alleged $50 million Ponzi scheme was dismantled near Philadelphia, this time with about 80 investors attracted by dizzyingly high profits of up to 38 percent.

US Attorney Benton Campbell in New York state said the best protection for investors is old-fashioned common sense.

'In these difficult economic times, it bears repeating that if an investment opportunity seems too good to be true - promising unusually high returns and virtually no risk - it is probably not on the level,' he said. -- AFP

Global economic woes deepen

BERLIN - A SURGE in German unemployment and Asian job cuts signalled deeper distress in the world economy on Thursday but an index of European confidence beat expectations and traders took heart from a US economic rescue package.

Official figures showed the jobless total in Germany jumped 387,000 in January over the previous month to almost 3.5 million, well above forecasts for Europe's largest economy.

The unemployment rate surged to 8.3 per cent of the workforce from 7.4 per cent in December.

There was also dismal news on the labour front in Asia's largest economy with Japan's Nippon Sheet Glass Company saying it will shed 5,800 jobs by 2010 and Toshiba announcing plans to cut 4,500 jobs this year after going into the red.

Toshiba chief executive Atsushi Nishida told reporters that the company aimed to cut 300 billion yen (S$5 billion) in costs in the next financial year to weather the global crisis.

Other titans of Japanese industry were also showing the strain with Sony Corporation warning it remained on course for its biggest ever loss in the year to March following a fall in demand for televisions, cameras and games consoles.

Even Nintendo, which has enjoyed spectacular growth in earnings in recent years thanks to surging sales of the Wii and other game consoles, cut its annual net profit forecast by one-third to 230 billion yen.

The news in Europe, despite the German jobless rate, was not uniformly grim.

The European Commission's economic sentiment indicator dropped to 68.9 points in January from 70.4 in December, hitting the lowest level since the survey began in January 1985.

But the slide, less sharp than declines seen in recent months, was also not as deep as economists had expected, with their forecasts - as polled by Dow Jones Newswires - anticipating a decline to 64.9 points.

Recent business and consumer surveys in Germany and France have also shown marginal improvements, fuelling hopes that the recession may have hit bottom.

More than a million French workers nevertheless walked off the job on Thursday on a national day of strikes and protests against President Nicolas Sarkozy's handling of the economic crisis.

Many in France fear they will lose their jobs in a crisis they blame on bankers and the failures of the market and are demanding protection from layoffs, a boost to low wages and an end to public sector cutbacks.

Investors and analysts were meanwhile pinning hopes on President Barack Obama's US$819 billion plan to spark some life into the recession-strapped US economy.

The US House of Representatives approved the measure on Wednesday, without support from the opposition Republican Party, and the Senate will now vote on its own version of the bill before a final draft reconciling the two goes to Mr Obama for signature.

'I hope that we can continue to strengthen this plan before it gets to my desk,' the president, who has pushed the Congress to pass a final measure by mid-February, said in a statement.

The stimulus plan includes about $275 billion in tax cuts, including a credit worth $500 for each worker and $1,000 for couples. Most of the package's value however is in infrastructure spending.

'The progress through the House of Representatives of the package with a comfortable margin will be cheering US sentiment but certainly no one will be under the illusion that this is the turning point for the economy,' said analyst James Hughes at CMC Markets in London.

Asian markets were lifted on Thursday by news of the plan's progress.

But Europe's main stock markets fall sharply in early trade, dragged down by the banking sector, which ended a brief rally on profit-taking.

In late morning deals, London fell 1.67 per cent. Frankfurt dropped 0.95 per cent and Paris lost 1.0 per cent nearing the half-way mark. -- AFP

Thursday, 29 January 2009

Worst yet to come

SINGAPORE'S Finance Minister has warned that the worst of the credit crunch is yet to come.
The world's biggest banks still have toxic assets on their balance sheets, which are clogging up their ability to lend, Mr Tharman Shanmugaratnam said in an interview with Bloomberg Television on Wednesday.

The finance ministry oversees Government of Singapore Investment Corp. and Temasek Holdings Pte, each managing more than $100 billion. The state-owned funds invested about US$24 billion (S$36 billion) in UBS AG, Citigroup Inc. and Merrill Lynch & Co in the past 14 months, said Bloomberg,

Banks are still focusing on replenishing capital 'and estimates of the extent of bad assets on their books are still on the upswing,' said Mr Tharman. 'We haven't seen the worst yet.'

Bank losses worldwide from US-originated bad assets may reach US$2.2 trillion, the International Monetary Fund said on Wednesday, more than the US$1.4 trillion it predicted in October. US President Barack Obama's administration and federal regulators are considering setting up a 'bad bank' that would absorb illiquid assets from otherwise healthy financial firms.

Governments across Europe have injected capital into banks to ensure that lending to companies and consumers doesn't freeze up. European Union regulators yesterday approved France's plan to increase its funding for recapitalisation of banks including

BNP Paribas SA and Societe Generale SA to 11 billion euros (S$21.6 billion), from an initial proposal for 10.5 billion euros.

Ireland's government last month said it would invest 2 billion euros in Allied Irish and Bank of Ireland, the country's biggest lenders.

'Foot the bill'

'It's right that governments are focusing on recapitalisation in the West and they're trying their best to incentivise new lending,' Mr Tharman said. 'It's too early to say how successful this will be. Governments have to take more risk, and that means taxpayers have to be willing to foot part of the bill.'

The IMF report released on Wednesday signalled that writedowns and losses at banks totaling US$1.1 trillion so far are only half of what's to come. Losses on that scale would leave banks needing at least US$500 billion in fresh capital to restore confidence in their balance sheets, the fund said.

Singapore's leaders have defended the performance of the city's state-owned investment companies after a plunge in the value of their stakes in Citigroup, Merrill Lynch and other global banks.

GIC, which manages the country's reserves, invested about $18 billion in UBS and Citigroup since December 2007. Temasek, which has a $130 billion portfolio, increased investments in Merrill Lynch and Barclays Plc as the credit market collapsed in 2007 and 2008.

Temasek was the biggest shareholder in Merrill Lynch before the securities firm was taken over by Bank of America Corp. It is also the largest shareholder of banks including London-based Standard Chartered Plc and Singapore's DBS Group Holdings Ltd, and has holdings in India's ICICI Bank and other lenders in Indonesia, South Korea and Pakistan.

Temasek and GIC remain 'well diversified' enough in their portfolios to offer the long-term returns the government seeks, Mr Tharman said.

'We would be very worried if global banks comprise a large proportion of the portfolios of GIC or Temasek, or for that matter, any of the highly vulnerable industries globally,' the minister said. 'But these are diversified portfolios.'

Temasek and GIC have performed 'credibly by international standards,' he said. Temasek had an average 18 per cent annual return on investment since its inception in 1974. GIC said in September that annual returns in the past 20 years averaged 7.8 per cent in US dollar terms, compared with about 6 per cent for the MSCI World Index.

GIC last year also said it's boosting investments in emerging markets, private equity and other asset classes to raise returns after cutting back stocks and holdings in developed nations.

'I'm comfortable with the actions both Temasek and GIC have taken early in this crisis to reduce risk, to move into more liquid asset allocation and to prepare for opportunities in this downturn,' Mr Shanmugaratnam said. 'We've got to make sure we maintain that record of prudent investments for the portfolio as a whole, diversifying risks, and being prepared for crises from time to time.'

Wen, Putin lash out at US

DAVOS - CHINESE and Russian leaders Wen Jiabao and Vladimir Putin on Wednesday blamed the United States for causing the global economic crisis on a gloomy first day of the Davos forum.

Both called for a new attitude by President Barack Obama, while deepening pessimism over the future of the global economy enshrouded the World Economic Forum.

Chinese premier Wen said America's voracious appetite for debt and 'blind pursuit of profit' had led to the worst recession since the Great Depression which has rocked the 2,500 strong political and business elite gathered in the Swiss mountain resort.

Mr Putin said the disappearance of some Wall Street titans over the past six months testified to the errors committed.

Mr Wen blamed the crisis on 'inappropriate macroeconomic policies of some economies' and 'prolonged low savings and high consumption,' in a lightly veiled attack on the United States.

He blasted the 'excessive expansion of financial institutions in blind pursuit of profit and the lack of self-discipline among financial institutions and ratings agencies' while the 'failure' of regulators had allowed the spread of toxic derivatives.

Mr Wen said the crisis had posed 'severe challenges' for China and that it needed 8.0 per cent growth in 2009 to maintain social stability while the International Monetary Fund predicted 6.7 per cent for this year.

The Chinese leader called for faster reform of international financial institutions and for a 'new world order' for the economy.

The Russian prime minister followed him to the podium and said the crisis had been a 'perfect storm'.

He also took aim at US banks and the outgoing US administration.

'Although the crisis was simply hanging in the air, the majority strove to get their share of the pie, be it one dollar or one billion, and did not want to notice the rising wave.'

Mr Putin insisted that he would not join critics of the United States, but added: 'I just want to remind you that just a year ago, American delegates speaking from this rostrum emphasised the US economy's fundamental stability and its cloudless prospects.'

Condoleezza Rice, when US secretary of state, gave a speech in Davos last year saying the US economy was safe.

'Today investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism,' said Mr Putin.

Mr Putin called for a constructive attitude from Mr Obama in international affairs. 'We wish the new team success. I hope they are willing to cooperate constructively,' he said.

US tensions with China have been raised in recent days with new US Treasury Secretary Timothy Geithner saying Mr Obama believes China manipulates its currency to gain an edge in trade.

'In meeting the international financial crisis, it is imperative for the two countries to enhance cooperation, that is my message to the US administration,' Mr Wen said.

Three decades of formalised ties between the United States and communist China had shown that 'a peaceful and harmonious relationship will make both sides winners, while a confrontational one will leave both losers,' he added.

Germany's Chancellor Angela Merkel and the British and Japanese prime ministers Gordon Brown and Taro Aso - who have between them spent hundreds of billions of dollars battling the crisis - were also among about 40 heads of state or government who will speak this week.

But with much attention on Mr Obama's efforts to get a US$825 billion (S$1.24 trillion) stimulus package through Congress and grim new IMF predictions for the world economy, the forum has been a dark affair.

There were plenty of critics among the record attendance at Davos of the measures against the crisis taken so far.

South Africa's Finance Minister Trevor Manuel said wealthy nations appeared to be adopting a 'lemming-like approach, trying to get to the precipice without knowing what their money would buy.'

'The crisis is getting worse,' said the News Corp media tycoon Rupert Murdoch. 'It's going to take drastic action to turn it around, if it can be turned around quickly. Personally, I believe it will take some time.' -- AFP

51m jobs may go

GENEVA - UP TO 51 million jobs worldwide could disappear by the end of this year as a result of the economic slowdown that has turned into a global employment crisis, a United Nations agency said on Wednesday.

The International Labour Organisation (ILO) said that under its most optimistic scenario, this year would finish with 18 million more unemployed people than at the end of 2007, with a global unemployment rate of 6.1.

More realistically, it said 30 million more people could lose their jobs if financial turmoil persists through 2009, pushing up the world's unemployment to 6.5 per cent, compared to 6.0 per cent in 2008 and 5.7 per cent in 2007.

In the worst-case economic scenario, the Global Employment Trends report said 51 million more jobs could be lost by the end of this year, creating a 7.1 per cent global unemployment rate.

'If the recession deepens in 2009, as many forecasters expect, the global jobs crisis will worsen sharply,' it said.

'We can expect that for many of those who manage to keep a job, earnings and other conditions of employment will deteriorate.'

Caterpillar, Sprint, Philips, Texas Instruments and ING are among the companies that have cut thousands of jobs in response to the financial crisis and economic downturn that has spread around the world.

The ILO's previous employment estimate, released in October, was that 20 million jobs would disappear by the end of 2009 as a result of the financial crisis.

Infrastructure projects
Developing countries will suffer most from additional job losses, according to the ILO, whose governing structure includes governments, employers and workers groups.

'Sub-Saharan Africa and South Asia stand out as regions with extremely harsh labour market conditions and with the highest shares of working poor of all regions,' the report said.

According to ILO estimates, North Africa and the Middle East had the highest unemployment rate at the end of 2008, at 10.3 per cent and 9.4 per cent respectively.

Central and southeastern Europe and the former Soviet states ended last year with a jobless rate of 8.8 per cent, sub-Saharan Africa's was 7.9 per cent and Latin America's was 7.3 per cent.

East Asia fared best of the world's regions at 3.8 per cent.

Most job creation in 2008 came from South Asia, Southeast Asia, and East Asia, while developed economies and the European Union lost some 900,000 jobs on a net basis.

The ILO said that government works projects, like those recently announced in Argentina, could help create and sustain jobs until the private sector starts to rebound.

Construction and rehabilitation of public infrastructure such as roads, bridges, schools, hospitals and public buildings could be especially helpful in poorer countries with high levels of joblessness, the report found.

'While major capital-intensive new infrastructure projects take time to translate into increased employment, labour-based approaches can generate jobs and much-needed infrastructure quite quickly,' it said, also noting the World Bank has launched an infrastructure crisis facility that could support this work.

The ILO also urged governments to extend unemployment and health insurance programmes to help people endure the crisis. -- REUTERS

Spain in recession for 1st time

MADRID - THE Spanish economy is in recession for the first time since 1993, contracting during the final two quarters of 2008, an estimate by the central bank here showed on Wednesday.

Spanish gross domestic product (GDP) shrank by 1.1 per cent in the fourth quarter of 2008 compared with output in the previous three-month period, when it contracted 0.2 per cent on a quarterly basis, the bank said.

The negative 'tendency' for the Spanish economy demosntrated at the beginning of the year 'intensified during the fourth quarter, after the international crisis worsened,' the bank said.

The generally-used technical definition of a recession is two quarters running of negative economic growth.

Spanish GDP rose by 1.1 per cent on an annual basis in 2008 but the bank said this represented a 'sharp slowdown from the annual growth of 3.7 per cent observed in the previous year'.

The national statistics institute INE will publish its official estimate for fourth quarter Spanish GDP on February 12.

Spain's once-buoyant economy, the fifth-biggest in Europe, has suffered as the global financial crisis hit the key construction sector, which was already weakened by oversupply and rising interest rates.

On Friday, the Spanish government slashed its forecast for the economy to a contraction of 1.6 per cent this year from the growth of 1.0 per cent previously forecast.

It predicts the unemployment rate, already the highest in the 27-nation European Union, will rise to 15.9 per cent in 2009 after having dropped to 7.95 per cent as recently as the second quarter of 2007, its lowest level since 1978.

Last month the International Monetary Fund warned the Spanish economy, risks entering an extended period of stagnation unless sweeping structural reforms are carried out.

Dismissal costs must be lower to boost hiring, collective bargaining agreements need to be more flexible and the practice of indexing wages to inflation must end, the Washington-based Fund said. -- AFP

10 tips to protecting your nest egg

By the Mole, Money Magazine's undercover financial planner

NEW YORK (Money) -- In the last two years, I've been writing columns as the Mole for CNNMoney.com and Money Magazine, with the goal of helping the consumer make informed decisions, and of making financial planning a profession rather than a sales job.

I have been contacted by the Financial Planning Association and CFP - the licensing organization for Certified Financial Planners. These organizations claim to share my goals, yet I still see a wide divergence between the talk and the walk.

For example, I received an email from the CEO of the CFP Board that stated "Our professional review staff investigates each complaint it receives." I'm sad to say I tested this claim and multiple attempts haven't even been successful in getting an acknowledgement that the CFP Board received the complaint.

If there ever will be a financial planning profession to serve the public, our actions must be consistent with our statements.

Thus, the mole is now bidding you adieu and returning to my burrow . . . for now. But there is something you should know about us moles. Just when you think we are gone, we have a nasty habit of popping up again, and not always in places you'd expect. In a perfect world, it would not be necessary for me to give inside information in an effort to level the playing field between the industry and the consumer, but it's not a perfect world.

Admittedly I'm not as prolific a writer as Jonathan Clements, who wrote 1,009 incredibly useful columns for The Wall Street Journal. But, the 75 or so columns I've written over the last two years have been very rewarding for me to write, and I hope have been helpful for the consumer to build wealth for themselves, rather than for my industry.

To all the planners that sent me those emails chock-full of colorful language, you'll be happy to know that this will be my last Mole column for CNNMoney.com. Before you celebrate, however, I recommend you read on for my parting words of consumer advice.

1. Incentives matter. Nearly everyone I have met in the financial services industry believes they are a very ethical person. Thankfully there are few like Bernie Madoff, who is alleged to have taken $50 billion from investors (including charitable foundations), that now must close up. Yet, as long as money changes hands, we have incentives to transfer your wealth to ours. Stay vigilant, always question those incentives, and keep your fees low. As Vanguard founder Jack Bogle likes to say, and I like to quote, "you get what you don't pay for."

2. Understand your investment strategy. There is a strong relationship between a sophisticated investment strategy and low returns. When it comes to investing, the KISS principle (keep it simple stupid) really works.

3. Never completely trust anyone with your money. This is a corollary to understanding the strategy. Keep your adviser on her toes and keep asking questions. Trust any adviser enough to listen but never to follow blindly. It's a recipe for disaster.

4. If it looks too good to be true, it probably is. Beware of promises of high returns without risk.

5. Put yourself in someone else's shoes. Ask yourself how the party you are dealing with makes money. For example, can an insurance company really pay planners great commissions, cover their costs, make a profit and still pay you market returns?

6. To find our biggest enemy, look in the mirror. Sure, financial planners reinforce our feelings but never forget we are often our own worst enemy. This column has also focused on our human behavior that tends to make us invest in things at just the wrong moment - after they have done well.

7. Never feel too good about your investment strategy. In my experience, it's those that feel the most confident that end up taking the biggest falls. Understand the risks you take and avoid any inner voices that whisper "this has to go up."

8. Ignore the experts. How many of those TV gurus actually predicted the 2008 market plunge? They were all dead wrong, yet still we watch them and follow their advice.

9. We are not all above average. In a market almost completely "professionally invested," I have yet to meet a below average money manager. It's easy to claim we are beating the market if we don't have to show our results.

10. Use some uncommon "common sense." Before you make a major investing move, take a step back, and explain your logic to a friend. That will give you some time to think about the logic of your move (or the lack thereof). What we often think is logic turns out to be driven by how we feel about something and we ignore common sense.

I would like to express my heartfelt thanks to my readers. It has been an honor to write for Money Magazine and CNNMoney.com. As a bonus, here's an 11th piece of parting wisdom - keep reading the great advice these wonderful writers and editors have to give. I know I will.

World growth 'worst for 60 years'

World economic growth is set to fall to just 0.5% this year, its lowest rate since World War II, warns the International Monetary Fund (IMF).

In October, the IMF had predicted world output would increase by 2.2% in 2009.

It now projects the UK, which recently entered recession, will see its economy shrink by 2.8% next year, the worst contraction among advanced nations.

The IMF says financial markets remain under stress and the global economy has taken a "sharp turn for the worse".

In another gloomy view of the UK economy, the Institute for Fiscal Studies (IFS) said Britain would be saddled with government debt for more than 20 years.

IFS director Robert Chote warned that spending would have to be cut or taxes raised by more than planned to allow public finances to recover.

The predictions came as Pascal Lamy, the director general of the World Trade Organization, urged countries not to react to the global economic crisis by resorting to protectionism.

Speaking from the World Economic Forum in Davos, Mr Lamy said such a move would be "a big mistake".

'Virtual halt'

According to the IMF, the outcome of the economic slowdown has been to send global output and trade plummeting.

"We now expect the global economy to come to a virtual halt," said IMF chief economist Olivier Blanchard in a statement.

The IMF says that despite a number of policy moves, which have been carried out by many states, financial strains remain.

International co-operation is needed now to draw up new policy initiatives, and for capital injections to support "viable financial institutions".

Meanwhile, it predicts that the eurozone economy is poised to shrink by 2.0% in 2009 and the US economy by 1.6%.

Banking crisis

The report comes on the same day the International Labour Organization said that as many as 51 million jobs worldwide could be lost this year because of the global economic crisis.

It had been hoped that growth in developing nations would continue at a steady pace and help offset the recession in developed nations such as the US and UK.

But the seemingly endless crisis in the banking system has put paid to that notion.

Countries such as China are now struggling with a collapse in demand from their primary export markets.

Meanwhile, developed economies such as Japan, Spain, the US and UK are in recession, with new job losses being announced on a daily basis.

'Uncertainty'

The IMF says that growth in emerging and developing economies is expected to slow sharply, from 6.25% in 2008 to 3.25% in 2009.

It cites the main reasons for the drop as being falling export demand, lower commodity prices and much tighter external financing constraints.

The IMF points out that policy efforts to tackle the downturn so far - such as liquidity support, deposit insurance and recapitalisation - have been drawn up to address the immediate threats to financial stability.

However, it says that these emergency measures "have done little to resolve the uncertainty about the long-term solvency of financial institutions".

"The process of loss recognition and restructuring of bad loans is still incomplete," says the IMF's World Economic Outlook Update.

'Bad bank'

The IMF says future co-ordinated financial policies should concentrate on recognising the scale of financial institutions' losses and on providing public support to those institutions that are viable.

"Such policies should be supported by measures to resolve insolvent banks and set up public agencies to dispose of the bad debts, including possibly through a 'bad bank' approach, while safeguarding public resources."

The IMF says the global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3%.

"However, the outlook is highly uncertain, and the timing and pace of the recovery depend critically on strong policy actions," it warns.

Wednesday, 28 January 2009

Over 90,000 jobs lost

WASHINGTON: - A staggering 90,000 layoffs were announced over the past two days as major companies in the United States and elsewhere reeled from the effects of dwindling demand in the economic downturn.
On a day being called 'Bloody Monday', several major firms announced the job cuts - the largest culls in a single day ever.

The shedding continued yesterday. Corning alone said that it would trim its payrolls by nearly 5,000 as demand dried up for the speciality glass it produces for flat-panel TV and computer screen makers.

Grim news poured in from other corners of the world too.

In Japan, electronics maker NEC Tokin said it would slash 9,450 jobs as the government outlined a plan to inject state money into ailing companies in exchange for equity stakes. The move echoes the partial nationalisation of some troubled financial firms in the US and Europe.

In Rome, Fiat CEO Sergio Marchionne warned that Italy's auto sector could shed 60,000 jobs.

In Iceland, the Prime Minister himself was out of a job. Mr Geir Haarde resigned on Monday, becoming the first leader to fall as a direct result of the global economic crisis.

Other victims on Monday included the world's largest maker of construction and mining machinery. Caterpillar announced 20,000 job cuts as its profits plunged.

Pharmaceutical giant Pfizer shed 26,000 jobs as America's No. 3 wireless provider, Sprint Nextel, budgeted for 8,000 cuts.

Home Depot, hurt by the housing downturn, announced 7,000 positions would be closed. At Philips Electronics, the casualties stood at 6,000.

So far, 22 of the 30 companies that are part of the Dow Jones industrial average have announced job cuts since the economy went into turmoil in October.

Yet the worst may be yet to come. A new survey released by the National Association for Business Economics shows the worst business conditions in more than a quarter century and the likelihood of many more job losses this year.

As the gloom spread, President Barack Obama began an urgent charm offensive aimed at persuading Congress to support his US$825 billion (S$1.24 trillion) stimulus package. It contains measures to save or create three to four million jobs.

'We cannot lose a day, because every day the economic picture is darkening, here and across the globe,' he said as Mr Timothy Geithner was sworn in as Treasury Secretary on Monday.

Mr Geithner faced considerable opposition to his candidacy. More than a third of the Senate railed against him in a 60-34 vote, objecting to the fact that he had failed to pay some income taxes in time while he worked for the International Monetary Fund some years ago.

Although there is near unanimity among lawmakers, economists and the public that urgent and sizeable action is required to revive the US economy, serious rifts have opened in how to structure Mr Obama's economic package.

Two-thirds of the stimulus involves public spending while a third goes towards tax cuts.

Congressional Republicans want a higher tax component, arguing that would be a quicker and surer way to spur entrepreneurial activity.

Allaying another concern surrounding the spending of US$700 billion in bailout funds for the financial sector, Mr Geithner announced a crackdown on lobbyists seeking funds from the government on his first day as Treasury Secretary.

Over 90,000 jobs lost

WASHINGTON: - A staggering 90,000 layoffs were announced over the past two days as major companies in the United States and elsewhere reeled from the effects of dwindling demand in the economic downturn.
On a day being called 'Bloody Monday', several major firms announced the job cuts - the largest culls in a single day ever.

The shedding continued yesterday. Corning alone said that it would trim its payrolls by nearly 5,000 as demand dried up for the speciality glass it produces for flat-panel TV and computer screen makers.

Grim news poured in from other corners of the world too.

In Japan, electronics maker NEC Tokin said it would slash 9,450 jobs as the government outlined a plan to inject state money into ailing companies in exchange for equity stakes. The move echoes the partial nationalisation of some troubled financial firms in the US and Europe.

In Rome, Fiat CEO Sergio Marchionne warned that Italy's auto sector could shed 60,000 jobs.

In Iceland, the Prime Minister himself was out of a job. Mr Geir Haarde resigned on Monday, becoming the first leader to fall as a direct result of the global economic crisis.

Other victims on Monday included the world's largest maker of construction and mining machinery. Caterpillar announced 20,000 job cuts as its profits plunged.

Pharmaceutical giant Pfizer shed 26,000 jobs as America's No. 3 wireless provider, Sprint Nextel, budgeted for 8,000 cuts.

Home Depot, hurt by the housing downturn, announced 7,000 positions would be closed. At Philips Electronics, the casualties stood at 6,000.

So far, 22 of the 30 companies that are part of the Dow Jones industrial average have announced job cuts since the economy went into turmoil in October.

Yet the worst may be yet to come. A new survey released by the National Association for Business Economics shows the worst business conditions in more than a quarter century and the likelihood of many more job losses this year.

As the gloom spread, President Barack Obama began an urgent charm offensive aimed at persuading Congress to support his US$825 billion (S$1.24 trillion) stimulus package. It contains measures to save or create three to four million jobs.

'We cannot lose a day, because every day the economic picture is darkening, here and across the globe,' he said as Mr Timothy Geithner was sworn in as Treasury Secretary on Monday.

Mr Geithner faced considerable opposition to his candidacy. More than a third of the Senate railed against him in a 60-34 vote, objecting to the fact that he had failed to pay some income taxes in time while he worked for the International Monetary Fund some years ago.

Although there is near unanimity among lawmakers, economists and the public that urgent and sizeable action is required to revive the US economy, serious rifts have opened in how to structure Mr Obama's economic package.

Two-thirds of the stimulus involves public spending while a third goes towards tax cuts.

Congressional Republicans want a higher tax component, arguing that would be a quicker and surer way to spur entrepreneurial activity.

Allaying another concern surrounding the spending of US$700 billion in bailout funds for the financial sector, Mr Geithner announced a crackdown on lobbyists seeking funds from the government on his first day as Treasury Secretary.

Man kills 5 kids & wife

LOS ANGELES - A FATHER apparently upset over the loss of his job shot dead his wife and five young children before killing himself, police said on Tuesday.
A Los Angeles Police Department (LAPD) spokeswoman said the family of seven was found dead at a home in the suburb of Wilmington south of Los Angeles at around 8.30am.

Police believe the man killed his family and then committed suicide. The identities of the dead have not been released.

'Right now we're investigating as if the father killed his wife and five kids and then turned the revolver on himself and killed himself,' LAPD Deputy Chief Ken Garner told KFWB radio.

Mr Garner said police were originally contacted by a local television station, which apparently received a telephone call and a fax from a man saying he was going to kill his family and himself.

Mr Garner said the fax indicated the man may have recently lost his job at a west Los Angeles hospital run by US health care group Kaiser Permanente.

'He was despondent over his job situation,' Mr Garner said. 'He was going through some critical situation at the job ... and that's what prompted him to take his own life and his family, from what was said in the fax letter.'

The dead included an eight-year-old girl, five-year-old twin girls and two-year-old twin boys.

'It was a grisly scene,' Mr Garner said. 'I've been on the police department for 32 years and I've never seen anything like this ... it's horrific. It's a tragedy,' he added.

A statement from Kaiser Permanente confirmed the dead man and his wife were former employees.

'Our sympathies are with all of their extended family and friends at this time,' the statement said. 'We are also providing resources and support to our employees who are affected by this tragedy.' The Los Angeles region has seen several high-profile mass shootings in recent months.

In December, a gunman dressed as Santa Claus stormed into the home of his former in-laws on Christmas Eve and opened fire on his ex-wife and her family before setting the house alight.

Nine people were killed in the rampage before the gunman took his own life.

Last October, a 45-year-old man shot his wife, three children and mother-in-law before killing himself, reportedly because of financial woes.

After the latest killing, the LAPD's Garner urged people to use community programs and help lines if they are unable to cope with financial problems.

'That would be our hope - that people would seek that guidance, seek that assistance rather than taking this route, which is not the way to go,' Mr Garner said. 'It's clearly not the way to go.' -- AFP

Crisis more severe for Asia?

WASHINGTON - THE current global financial turmoil may take a bigger toll on emerging Asia than the 1997-1998 regional crisis despite the region's enhanced financial muscle, an international financial group warns.
Economic growth in the region 'has been severely affected by the global collapse in goods demand' resulting from the present crisis, said the Institute of International Finance (IIF), a leading association of financial firms.

'As a result, the slump in industrial production has been more significant and more rapid than in 1997-98,' it said in a report released in Washington.

'The severity of this slump relative to 1997-98 is a result of the breadth of weakness in demand components - both domestic demand and, especially, external demand have fallen this time - as well as the geographic breadth in the weakening in growth,' the report said.

Most conspicuously, rapidly growing China has been more affected in the current crisis than it was in 1997-98, IIF said.

The institute categorizes emerging Asia as China, India, Indonesia, Malaysia, the Philippines, South Korea and Thailand.

The current financial crisis, sparked by a US home mortgage meltdown, has caused a global credit crunch and sent other financial tremors, dampening exports and slamming the brakes on economic growth.

Developed economies such as the United States, Britain and Japan and those in the eurozone have plunged into recession, cutting crucial exports from emerging Asian economies which rely on them as an engine for growth.

The Asian crisis a decade ago was caused by a meltdown in regional currencies, roiling banks which took enormous risks by financing high level of investments often using foreign currency denominated loans.

'Asian manufacturers have been harder hit by the drop off in global demand than they were during the depth of the 1997-98 regional financial crisis, but domestic financial systems in the region are in far better shape today than they were in that previous episode,' the IIF said.

In sharp contrast to 1997-98, the external financing picture for Asia also remains one of relative strength, it said, noting 'huge' regional foreign exchange reserves and 'far more resilient' domestic financial institutions.

The only country that experienced any financial strains in recent months was South Korea where, despite its very large official reserves, extensive short-term external bank liabilities presented some challenges.

The present global financial turmoil is expected to slash private capital flows to emerging markets by more than 60 per cent this year to US$165 billion (S$247 billion) from an estimated US$466 billion in 2008 and a record US$929 billion the previous year, the Institute said.

The projected capital flow squeeze is in tandem with an expected fall in gross domestic product (GDP) growth in emerging markets, from a peak of 6.9 percent in 2007 to just 1.1 per cent in 2009, it said.

For emerging Asia, it said, capital flows would dip to US$65 billion in 2009 from US$96 billion in 2008 and US$315 billion the previous year.

Bank lending to emerging markets are expected to be dealt a severe blow as capital flows dry up.

'While all components of net private capital flows have recently weakened appreciably, the most significant weakness is for net bank lending,' IIF's managing director Charles Dallara said.

Banking net flows to emerging Asia declined last year to just 30 billion dollars from 156 billion dollars in 2007, it said. -- AFP

Semi-smart money stays at home

By Robert Armstrong, contributing writer

NEW YORK (Fortune) -- In his inaugural address President Obama took just a few sentences to make the simplest and most compelling possible argument for buying stocks now:

"Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year."

He may be on to something. The S&P 500 closed at 837 Monday, having lost almost half its value since October of 2007. It looks like a fire sale, and investors with cash on hand - if any are left - should think seriously about buying.

Even Robert Shiller, the noted market bear who called the dot-com and housing bubbles, has recently said that the market is cheap by historical standards for the first time in years.

But there is a simple argument for ignoring the President and Professor Shiller and staying out of the market: The lower valuations still don't reflect risk levels during the market's decline.

Flipping the ratio
Suppose companies making up the S&P 500 are going to produce, in aggregate, $60 in earnings per share in 2009 (as this would be down only slightly from expected 2008 earnings, it could prove optimistic). This $60 projection would make the market's price/earnings ratio 13.9 - low by historical standards, and attractive to be sure.

But flip the ratio over. The earnings/price ratio, aka the earnings yield, is 7.2%. What this number says is this: For every dollar I give to the companies that make up the market, those companies are going to produce a little over seven cents in earnings.

The earnings yield is a very rough proxy for estimated return on investment in equities, but is a 7% estimated return enough to get smart investors aggressively into the market? Is it worth the risk - especially when companies don't seem to have a clue as to what comes next?

Consider the earnings reports that came out Tuesday morning. Chemicals giant DuPont's projection for this year's earnings was 10% lower than the estimate it gave in early December. In this dreary season, a guidance cut won't shock anyone. What is more interesting, given that we are looking for measures of market risk, is the difference between this year's guidance and what the company said last year.

DuPont's (DD, Fortune 500) estimate for 2009 is $2 to $2.50 per share - a fifty-cent range of possibilities. At this time in 2008, the company saw the year ahead coming in between $3.35 to 3.55 - a twenty cent range, and less than half the size of this year's. It looks like DuPont is much more uncertain about what the future holds.

A realist would see a jump in uncertainty here. A cynic would say that the company's ability to predict the future has not changed since last year, but given what it can see of 2009, DuPont has provided a big range it can finish at the low end of - and still claim to have "hit its guidance."

Verizon also reported and delivered on the telecom industry's reputation for relative defensiveness. Earnings fell in line with expectations and were roughly flat with last year. But Verizon's (VZ, Fortune 500) most watched operational number, wireless retail customer adds, shows a nasty decelerating trend - the company added 40% less subscribers than it did in the fourth quarter of last year.

The stock looks inexpensive, but I don't see how an investor - or company management for that matter - could make a well-grounded guess as to where the trend was headed, given the rate of change we saw this quarter.

In the last week or so, the long list of companies that have signaled their extreme uncertainly by announcing cuts in guidance, jobs, stock buybacks, or dividends also includes international monsters like Microsoft (MSFT, Fortune 500), Nokia (NOK), and Caterpillar (CAT, Fortune 500). They all sound like companies with no clue what's going to happen - or who see a future they would rather not talk about.

This makes 7% estimated equity returns sound like they're not worth the risk.

Where the heart is
Smart equity traders and investors always find a way to make money even in volatile markets like these. Alas, I am only semi-smart, and like most people I am not in a position to watch my investments all day long, which is a requirement stock pickers must honor in turbulent times.

What I can do, given the limits on my lifestyle and my brains, is try to allocate assets intelligently. And I can't figure out how allocating heavily to equity would be intelligent right now.

Like a lot of people, I've got a mortgage. My fixed rate is 5.75%. This means that I have the option of putting money into my house (paying down the mortgage) and getting an absolutely guaranteed nominal return of 5.75% - all of 1.25% lower than the earnings yield of the S&P.

Again, the earnings yield is a rough proxy for stock market returns. And, depending on one's specific circumstances, the tax deduction for mortgage interest may provide reason to hold a good chunk of mortgage debt.

But the basic point is clear: Why would I give up a guaranteed return for a wildly uncertain one in exchange for a few miserable percentage points? Add to this the fact that mortgage rates have fallen lately, so if I put more equity into my home, it brings my "loan-to-value" ratio down, making it easier for me to refinance the mortgage at a lower rate, freeing up more money to...pay down my mortgage.

Smart money may be re-entering the market. Semi-smart money, like mine, is staying home - figuratively and literally.

China warns of economic distress and long-term ills

BEIJING - China must do more to ease public distress as it battles a slowing economy and rising unemployment, a leadership meeting said, warning officials the global slowdown was colliding with the nation's reckless mode of growth.

The warning came from a meeting on Friday of the ruling Communist Party's Politburo, a 25-member elite council, the official People's Daily reported on Saturday.

The report from the meeting chaired by President Hu Jintao did not mark a break in Beijing's judgement of the economic outlook. But it underscored the worries dogging the government as China heads into the big Lunar New Year holiday next week.

After the break, tens of millions of rural migrant workers will head to cities and factories looking for jobs - which may not be there.

'Our country's economic and social development faces some stark conflicts and problems,' said the official summary of the meeting in the People's Daily.

'At present, the main ones are the impact of the international financial crisis and the clear slowing of world economic growth,' it said.

'Businesses are in hardship and unemployment problems are stark.'

Official data released this week showed China's annual economic growth slowed to 6.8 per cent in the fourth quarter from 9.0 per cent in the third.

The pace of expansion for all 2008 was also 9.0 per cent, ending a five-year streak of double digit growth.

Officials have warned rising joblessness, falling incomes and discontent over corruption could stoke more protests this year.

'Problems concerning the interests of the public must be more vigorously addressed,' said the statement from the meeting.

But China's difficulties with struggling businesses and growing joblessness are compounded by deeper problems with the country's 'crude mode of development', which has bought growth only at a heavy cost, said the report from the meeting.

It listed an imbalanced economic structure, feeble levels of innovation, and inefficient growth as among these deeper strains.

'The price of economic growth in resources and the environment has been too great,' it said. -- REUTERS

As a new year begins, the party's over in Hong Kong

By Mark McDonald and Bettina Wassener
Published: January 26, 2009

HONG KONG: Hong Kong's gleaming past and current desperation are right there, plain to see, on Vincent Chan's wall - photographs of more than a hundred Bentleys, Rolls-Royces and Jaguars for sale, luxury cars dumped by their once-flush owners in need of some ready cash.

Chan sells only one or two cars a week now - a third of the sales traffic his dealership has done in recent years. And under pressure from his bank, he is prepared to sacrifice any of his beauties at a loss, just to free up some money. He is ready to haggle.

The Chinese Lunar New Year began Monday, and projections for the Year of the Ox from astrologers, lawyers, bankers and fishmongers are anything but auspicious.

"The mood is confused and desperate," said Kerby Kuek, a feng shui master and Chinese astrologer. "Two years ago, people would ask me if they should change from a medium house to a big house, or from a Nissan to a BMW.

"Now people ask me directly, 'When am I going to get laid off?"'

Kuek said he was getting the same fearful questions he heard from clients in 2003, when Hong Kong was rocked by the seismic epidemic of SARS, or severe acute respiratory syndrome. Foreigners fled, tourism disappeared, local people went around in surgical masks, and the economy, of course, buckled.

Hong Kong's other economic calamity came with the 1997-98 Asian financial crisis. Property values dropped 50 percent.

But Chan, 58, does not see a current parallel to that dark period, which he called "completely horrible."

"We haven't had any suicides this time!" he said brightly. "So, you see! Not so bad as '98!"

Most of his customers are expatriates, and the global crisis and the ensuing recession in Hong Kong are forcing many of them to economize (which explains the huge backlog of cars in Chan's jammed warehouse). Some expats have been recalled to their home countries, especially those in banking, law and finance, while others have been fired outright.

But gloom can be relative. There are no signs of mortgage defaults in Hong Kong, and people are not losing their homes the way they are in the United States. And even if thousands of expats have been handed one-way tickets back to New York, London and Sydney, a number have chosen to remain.

"There isn't the desperate urge to leave like there was during SARS," said Shriram Chaubal, chief operating officer of GeoClicks, which runs a popular Hong Kong Web site called GeoExpat.com. "They know Hong Kong is a lot better than wherever they'd be expatriating back to."

But Chaubal said friends and clients working in the manufacturing, retail, and food and beverage sectors were worried. And while enrollments have grown a bit at the Discovery Bay International School, the principal, Grant Ramsay, has heard plenty of gruesome layoff stories on the parental grapevine.

"We certainly know a dip is coming," he said. "So it's eyes wide open and bracing for the worst."

And the worst appears yet to come. Donald Tsang, Hong Kong's chief executive, delivered this blunt warning last Tuesday: "Hong Kong is in the grip of the financial tsunami." He predicted more layoffs and company closings after the New Year holiday.

The economic numbers - macro and micro - certainly support Tsang's baleful analysis. The Hang Seng stock index, for example, was off 48 percent in 2008.

The unemployment rate ticked up recently to 4.1 percent, a mild cough compared with the tubercular rate of 8.8 percent in 2003. But a new Citigroup analysis warns that "this cycle appears worse," with no appreciable recovery until 2011.

Personal bankruptcies, up 85 percent from a year ago, are increasing 10 percent a month, said Thomas Tse, a partner at the law firm Yip, Tse & Tang. He expects bankruptcies to double between now and late summer, eventually ensnaring 1 percent of the city's working population, largely on personal loans and credit card debt.

A dozen years ago, a bankruptcy was a traumatic loss of face, a deep humiliation in a society that prizes propriety and thrift. But now, after a dozen years of economic peaks and troughs, Tse said it carries much less of a stigma.

John Carroll, a historian of Hong Kong, said people here were "legendary for their resourcefulness and ability to recover" from economic shocks.

He pointed to rebounds from labor strife in the mid-1920s; the Japanese occupation from 1941 to 1945; United Nations and U.S. embargoes during the Korean War that prompted a shift from trade to light industry 50 years ago; and Hong Kong's more recent move to a service economy after industrial jobs were shipped to mainland China.

Anil Daswani, head of research at Citigroup in Hong Kong, wrote a strategy report last week that admired the city's transformation from a trading port into "a genuine global financial powerhouse alongside London and New York."

"Hong Kong has always prospered by being able to reinvent itself," he wrote, "and we are of no doubt that during this downturn it will do it again."

The go-go years in the middle of this decade certainly burnished the city's reputation as an Asian hub for business, banking and excess. Those were the Roman-candle days when the Peninsula Hotel, in a single order, bought 14 custom-made Rolls-Royces specially painted in "Peninsula green."

The Hong Kong wealthy remain wealthy, and stratospherically so. But for people a few rungs down the economic ladder, the impromptu weekend trips to Bali or Tokyo, the bling binges, the full-on lush life - that is mostly over.

"The whole party-party thing, the let's-go-splurge thing, that's clearly not happening now," said Chaubal of GeoClicks.

If there is any time for Hong Kongers to party, however, it is now. The New Year holiday in Asia calls for a long break from work, with money spent on new clothes, big dinners, flowers and gifts. But this year, in street markets and malls alike, the buzz of commerce is more muted. And with consumers more cautious, prices have plunged.

Caterpillar fungus, a kind of Chinese cure-all that is cooked into stews, has dropped in price by a third, down to about $250 an ounce. Crocodile jerky, sea cucumbers, shark's fin and dried fish bellies have seen similar reductions.

Kumquat trees, a traditional holiday gift that symbolizes prosperity, are the same price as last year, although more buyers are going for the lower-priced potted shrubs rather than the grander ones at one and a half meters, or five feet.

And at his showroom on Dragon Road, Vincent Chan has a '96 Rolls-Royce Silver Spur for sale - marked down from $48,000, the sticker now says $38,000, and even that is negotiable.

Chan is making other economies. He has always reserved four tables at a good restaurant where he treats his employees and a few dozen loyal customers to a New Year's dinner. This year he has cut back to one table, staff only.

He is also cutting back on the money he is putting into the red-and-gold lai see envelopes traditionally given to children, staff members and service people during the holiday. In previous years he has put in a crisp bill of 100 Hong Kong dollars, worth about $12.80. This year he will use 50-dollar notes.

"They won't be angry," Chan said. "Everybody knows the problems with the economy. They know what's happened."

A former garage mechanic, Chan bought a 1956 Vauxhall junker when he was a teenager, fixed it up and sold it for five times the money. He has been buying and flipping cars ever since.

"If I sell a car now and lose money, O.K., I'm still alive," he said. "I can always make money again." He snapped his fingers. "This is Hong Kong. We're gamblers."

Tuesday, 27 January 2009

The Collapse of Capitalism and the Safety Net of Gold

By Darryl Robert Schoon

For Ponzi schemes to succeed, they must expand faster than the request for redemptions. If they do not, they will collapse. This is what happened to Bernard L Madoff Investment Services, the largest Ponzi scheme in history. The same is about to happen to capitalism.

Although capitalism is not a Ponzi scheme, credit-based economies, sic capitalism, and Ponzi schemes share the same fatal flaw. Both must constantly expand or they are in danger of collapse. Today, because capitalist economies are no longer expanding, but contracting, their continued contraction will lead to collapse.

PUNDITS PUNDIDIOTS & PREDICTIONS

Dr. Philip Tetlock, author of Expert Political Judgment (Princeton University Press, 2005), has done remarkable work regarding the ability to accurately predict future events. In a highly disciplined scientific study, Dr. Tetlock had asked experts to predict future events and over 20 years analyzed their predictive accuracy and methodology of thinking.

Tetlock’s study concluded that experts are no better in predicting the future than anyone else; in fact, the better known the expert, often the lower the ability to accurately predict. Louis Menand’s review of Tetlock’s Expert Political Judgment in The New Yorker perhaps says it best:

..Tetlock claims that the better known and more frequently quoted they [experts] are, the less reliable their guesses about the future are likely to be. The accuracy of an expert’s predictions actually has an inverse relationship to his or her self-confidence, renown, and, beyond a certain point, depth of knowledge.

On March 2, 2007, Dr. Tetlock spoke to the Positive Deviant Network by speaker phone as he was unable to attend in person. Martha and I were in the audience along with other members of the PDN.

The previous day we had distributed my 148 page analysis of the US and global economy to the PDN. In How To Survive The Crisis And Prosper In The Process, The Time of the Vulture, I had predicted prices of US and global real estate would fall 40 to 70 % and the stock market 70 to 90 %, plunging the US and perhaps the world into another Great Depression.

At the time in the early spring of 2007, there was no evidence of an impending economic disaster. The next day when the feedback came back from the PDN, it was neither pleasant nor positive. Perhaps it was a variant of the “shoot the messenger” syndrome, but there was loud and vocal opposition to the dire economic predictions I had made.

Later that day, again by speaker phone, when PDN members were given the opportunity to engage in a dialogue with Dr. Tetlock, PDN member Dr. James Hardt, a neuroscientist and researcher on the effect of brain waves on human consciousness took the opportunity to say that he had read my economic analysis and found it remarkable.

The comment by Dr. Hardt was especially meaningful as Dr. Hardt had scored far higher than all other PDN members in both knowledge-based and predictive tests. The PDN experience underscored the fact that the truth—when unpleasant and predicted—is rarely welcome in any venue.

The reason why pundits are popular is not because they tell the truth. Pundits are popular because they tell people what they want to hear, the truth not withstanding. The unpleasant truth is that the truth when unpleasant has never been popular.

In the past, I would have laid the cause of America’s ignorance of economic issues at the foot of corporate and government interests who gain the most in today’s corrupt environment. But the truth is the present state of ignorance and corruption could not have occurred without the abiding and willing denial of the America people.

Americans themselves have chosen denial, sound bites and slogans over substantive discourse and understanding. While in the short term it has been easier to do than the alternative, i.e. to think, in the long term it will prove fatal.

The bill for collective denial and ignorance is coming due in America; and, when it is paid—as it will be—America will never be the same. Nor, will the world

THE LAST STAGE OF CAPITALISM AND PONZI FINANCE

Like Ponzi schemes, capitalist economies must constantly expand or they will collapse. This is because capitalism is a system wherein credit-based money has been substituted for real money, i.e. savings-based money such as gold and silver; and credit-based money soon turns into compounding debt.

The end of such systems has always been bankruptcy. When credit-based economies contract, governments, businesses and families are no longer able to pay the principal and compounding interest on their debt and economic collapse results.

The current system began when the Bank of England, England’s central bank, started issuing credit-based paper banknotes in place of gold and silver in 1694. This system was transferred by private bankers to America in 1913 in the form of the Federal Reserve Bank, the US central bank equivalent of the Bank of England.

The credit-based central bank system then spread after WWII to the rest of the world. As the credit-based system spread, so too did the resultant compounding debt and now, the day of reckoning for everyone has arrived.

WHY IS EVERYONE SURPRISED?

When credit-based capitalist economies contract, they are unable to pay and service previously incurred debt. This is now happening in the US, the UK, the EU and Japan. After economic contraction, corporate, individual and government bankruptcy comes next. After sustained economic contraction, systemic collapse occurs.

Alan Greenspan, the pundit’s pundit for much of the last three decades, presided over much of the expansion of global credit during and after the 1980s, an expansion that led to extraordinary and unsustainable levels of global debt.

The truth is levels of US debt have been untenable for much longer than we believe. Buckminster Fuller stated that the US was actually bankrupt in the 1930s, and that we have only postponed the realization of such and the inevitable day of reckoning by various forms of ledger sheet cheating.

While Alan Greenspan reigned as chief pundit for those who believed his economic prognostications to be true, the man who really understood our credit-based economy was Hyman Minsky, a little-known economist who, unlike Greenspan, happened to be right.

Hyman Minsky’s perhaps greatest contribution to the current economic dialogue is his “financial instability hypothesis”, which postulates that when capitalist systems mature, they became increasingly unstable.

Minsky’s theory did not sit well with those in government and Wall Street who presided over increasingly mature capitalist markets. They instead much preferred the more positive outlook of Alan Greenspan, “the thinking man’s Abby Joseph Cohen”, who publicly saw only a “bit of froth” as the greatest financial storm of the century, the next Great Depression, was brewing.

IF ALAN GREENSPAN WAS A CARDIOLOGIST ALL HIS PATIENTS WOULD BE DEAD

In Minsky’s “financial instability hypothesis”, the ability to pay the principal and interest on debt is the critical marker. There are three types of “units” in Minksy’s financial instability model, each type/unit more unstable than the previous.

The first type, hedge financing units, possess the ability to pay both principal and interest payments from existing cash flow. This is the optimal mode. The second type, speculative finance units, cannot repay principal payments but can meet their existing obligations by” rolling over” their debt.

The third type in Minsky’s model are Ponzi units which can only pay down debt by selling assets or by borrowing. This is the most common form of debt repayment today. This is because as per Minsky’s model, capitalist markets are now mature—perhaps overly mature and somewhat incontinent and beginning to smell—and have thus made the progression from hedge to speculative to Ponzi finance.

BERNARD MADOFF’S BROTHER SAM

In 1960, from the very beginning when Bernard Madoff first began soliciting money, the end of his scheme was destined. But because Bernard Madoff was unusually bright and capable, his Ponzi scheme lasted far longer and was far more successful than any such previous scam.

The same can be also said for the Ponzi scheme of Bernie’s brother, Sam, aka “Uncle Sam”. But unlike Bernie, Uncle Sam did not think up his scheme on his own. He was acting as the agent of the original schemers in England who realized that England’s economy was no longer expanding as it had previously in the 18th and 19th centuries.

So, in the early 20th century, in 1913, the original schemers convinced Uncle Sam to run the same scheme in America that had been so profitable to them in England. The scheme was capitalism, def. commerce in combination with capital markets founded on credit-based paper money issued from a central bank.

The scheme was to profit by indebting businesses, entrepreneurs, workers and savers and government and, as bankers, the schemers would get rich off the hard work, savings and productivity of others; and, in the US, their scheme worked as well as it had in England.

As the economy expanded and the nation became increasingly indebted, bankers became increasingly wealthy. It is no coincidence that the “financial services sector, sic the paradigm of parasites” recently comprised the largest share of both the UK and US economies, economies which correspondingly had the lowest rate of savings in the world.

It is also no coincidence that as the indebtedness of each nation grew the share of economic activity and the exorbitant salaries and bonuses of bankers grew as well. Unfortunately for the host and parasite in capitalist economies, there is a limit to how much a parasite can safely take from the host before the host dies, a limit only discovered after the process has gone too far.

In December 2008, the end came for Bernie’s Bernard L Madoff Investment Services. In 2009, the same will happen to his brother, Sam who is now using Ponzi finance to pay for US borrowing. In 2009 or some time shortly thereafter, the credit-based paper money scheme of bankers, sic capitalism, will bring down what but a few decades ago was the most powerful economy in the world, the United States of America. Uncle Sam, just like his brother Bernie, is toast.

“Look, they’re circling the wagons.”
“But we’re not in the circle.”
“Thought you would be?”

When wagon trains would come under attack, the wagon masters would “circle the wagons” for protection. Such is happening today as capitalism itself is now under attack.

What Americans are finding out, however, is that only the bankers are currently inside the circle—bankers are now the only ones being protected, the very ones responsible for the crisis in the first place. Observers and especially Americans might believe that something is wrong with this picture.

What they do not understand is that the picture is a perfect reflection of the power dynamic underlying capitalism. Bankers could not have accomplished their nefarious ends had they not first secured the full cooperation and protection of government.

This they did in England when they promised King William they would extend all the credit he wanted to wage his wars. This was replicated in the US when private bankers staged a midnight coup by passage of the Federal Reserve Act in 1913 which illegally transferred the right to issue money from government into the hands of private bankers.

This is the reason the US government has first protected the bankers, not the public, in this crisis. Bankers give government the unlimited credit that governments overspend, thereby indebting the nation and future generations into perpetuity. The US government bailout of bankers, TARP, is “owe-back” time.

The rest is history, or is about to become so. When people have their eyes shut and their minds closed, they will not see nor understand what is happening to them. Trust me on this, although many will not understand what is about to happen, it will not prevent it from happening.

What we are about to experience is an economic tragedy in personal terms that will exceed anything in recent memory. Even the Great Depression of the 1930s will not equal what is now about to be; and those who thought their adherence to a belief system about God was faith are now about to find out the difference.

IGNORANCE DENIAL CONSEQUENCES

Uncle Sam is now engaged in the same activity that caused Bernie’s investors so much trouble, the use of Ponzi finance to pay bills. It is estimated that the US deficit may increase this year by two trillion dollars. As recently as 1980, the total US debt after 200 years was only $980 billion dollars.

Now, 28 years later, US indebtedness will probably exceed $12 trillion, a very, very large sum—unless of course it is not going to be paid back. The truth is all countries are now running deficits and all major economies have determined that extraordinary levels of fiscal stimulus are needed to avert a global deflationary collapse.

Where is all the money going to come from? While some economic answers are difficult to come by, the answer to that question is very simple. The currencies of all countries are now fiat, meaning they are but paper coupons printed at will by their governments.

The answer is: Governments will print the money they need.

It is said that Fed Chairman Ben Bernanke studied the Great Depression and concluded the road not taken was the correct answer to what would have prevented the Great Depression, that infinite liquidity could have prevented the deflationary collapse if made available in time.

Ben Bernanke’s answer closely resembles that which would be given by a focus group of New York heroin addicts, that only an unlimited and immediate supply of heroin would offset the irreparable pain and harm that would otherwise result if nothing is done.

HELICOPTER BEN IS AFFECTIONATELY KNOWN AS
NEEDLE BEN TO THE CREDIT JUNKIES ON WALL STREET

THE EXPIRATION DATE WRITTEN IN INVISIBLE INK
ON PAPER MONEY WILL BE DETERMINED BY
THE SPEED OF THE PRINTING PRESSES

When will the yen go to zero?
When will the dollar disintegrate?
When will the pound become worthless?
When will the time be too late?

Listen to the speed of the presses
As money is made overnight
The faster the presses are running
The closer the time will be for flight

But no one can tell the hour
When money will lose its worth
For the future is still too cloudy
And tomorrow’s yet to be birthed.

But the day is coming so trust me
Don’t trust the money they print
Whether a dollar a euro or peso
It ain’t comin’ out of a mint

It’s printed with ink on some paper
But it used to be silver or gold
When money was more than a promise
Not a fraud that we’ve been sold

THE PRINTING PRESSES ARE RUNNING

This process has already begun. M1, the measure of “narrow money aggregates”, the amount of cash and coins in circulation and in overnight deposits has been rising in the past six months.

M-3, the broadest measure of monetary aggregates is no longer made public by the US government. But M-3 will explode upwards as governments seek to provide even more credit to deflating markets, a fact the US government does not want known.

M-1, NARROW MONEY AGGREGATES
13 WEEK RATE-OF-CHANGE. US FEDERAL RESERVE

Week ending June 9, 2008 - 0.1 %
Week ending July 28, 2008 + 2.9 %
Week ending Aug 25, 2008 + 6.2 %
Week ending Sept 29, 2008 + 8.8 %
Week ending Oct 27, 2008 +14.8 %
Week ending Nov 24, 2008 +22.6 %
Week ending Dec 29, 2008 +32.2 %

Ben Bernanke’s antidote to a US deflationary depression may well result in hyperinflation. Hyperinflation will spell the end of the US currency because hyperinflation removes all remaining vestiges of confidence in paper money.

Confidence is the essential ingredient in the global con game called capitalism now being run by bankers and their unwitting co-conspirators in government, a game that is now about to end.

In the near future, paper money will become increasingly worthless as all governments increase the printing of their respective currencies hoping to prevent deflationary forces from progressing. Governments will be helpless to do so but this will only cause more money to be printed in the futile hope of containing that which cannot be contained.

No experiment with paper money has every worked. The primary intent has always been to spend what does not exist. This underlying intent will in the end destroy whatever paper money has built in the interim.

Were it not for the safety concerns about the ink used in the printing of paper money, in the future the best use for paper money would be as toilet paper—of course, the quality of the paper would have to be much improved in order to gain wider acceptance.

FREEDOM VERSUS FRAUD A CRASH COURSE IN THE AUSTRIAN SCHOOL OF ECONOMICS

Bernard Madoff’s fraud lasted 48 years and took in $50 billion. However, the monetary fraud perpetrated by bankers in collusion with government has lasted far longer and has taken in far more than Bernie’s home grown Ponzi scheme—and the pain and losses will be commensurately greater as well.

Ludwig von Misis, Carl Menger, Eugen von Böhm-Bawerk, and Friedrich Hayek are the best known proponents of the Austrian School of Economics. Like Hyman Minsky, they are not as well known as John Maynard Keynes, Milton Friedman and Alan Greenspan. The reason being is that they served the truth whereas Keynes, Friedman and Greenspan served power.

From Wikipedia:

Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, the smallest possible imposition of coercive (especially government-imposed) commercial transactions and the maximum openness to individual choice (including free choice as to the voluntary means of exchange).

What most do not understand is that today’s markets are not free. Believing they are free and being told it is so is not the same as being so. Government intervention occurs no less in today’s capitalist markets than it did in yesterday’s communist markets. The only difference being method and subtlety.

The manipulation of the gold price, intervention in foreign exchange markets, the raising and lowering of interest rates, the use of tax incentives to promote/distort economic activity are all signs of government intervention. Compared to communism, capitalist markets indeed appear free. Compared to free markets, capitalism is a rigged game.

GOLD MODERN ECONOMICS AND THE TRUTH

We are now approaching the end-game, the resolution of past economic sins that cannot be banished by government intervention. Indeed, it is government intervention at the direction of bankers that caused today’s problems. More of the same will only result in more of the same.

The bankers’ scam could not have happened had not King William allowed England’s bankers to replace England’s gold and silver coins with paper bank notes in 1694. Capitalism’s resultant empire known first as imperialism and later as globalization lasted 315 years. It is now about to end.

As paper currencies increasingly lose value, the price of gold and silver will rise. As those in government know all too well, gold and silver move inversely to the value of paper assets in fiat systems.

Economics is not rocket science and neither is fraud. But “modern economics” is a misnomer, modern economics is a monetary fraud clothed in the guise of free markets. If you truly want to be free, this is something you might want to think about—that is, if you want to think.

Lies will seek you out, but the truth must be sought.

Faith, gold and silver will be priceless in the days ahead.

Darryl Robert Schoon

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