Crunch - Where has all the money gone?

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Where has all the money gone?



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WHO, WHAT, WHY?

The Magazine answers...
Billions of pounds have been wiped off property values and share prices remain volatile, while the debt-laden banks are being bailed out. But where has all this money gone? Economist

John Sloman explains.

Money consists of two main elements.
The first is cash (notes and coins). The total amount of cash in the UK is just over ?50bn, with about ?43bn circulating outside the banks and ?7bn in banks' safes, tills and cash machines.
But cash is a relatively small proportion of the total amount of money. So what is the rest?
The bulk of money is in the form of bank deposits not backed by cash. This totals around ?1,800bn. The point is that the main purpose of money is for buying things. And for most large purchases - and many small ones too - we don't use cash.

Instead, we access the money in our accounts by using debit cards, direct debits, standing orders and cheques. When you pay for something with your debit card in Tesco, your account is debited and Tesco is credited. Money is transferred between the two accounts - but no cash has been used. It is similar with credit cards. When you buy something with a credit card, the shop's account is credited. You get a monthly bill and when you pay it, your account is debited. The bulk of money, then, is simply a record of deposits - entries on balance sheets. But isn't all this very worrying? The answer is: not in normal times. Of course, times have not been "normal" recently. So let's look first at what banks do in normal times and then we'll look at the abnormal times of recent days and weeks.

Worst case scenario

Banks are not giant safes. When you pay in ?100 in cash, the bank does not just hold on to it, waiting for you to withdraw it. Banks know that in normal times, only a small fraction of money deposited in them will be withdrawn in cash. The vast bulk of people's balances in their accounts will stay there. Even when people do spend some, most of it involves plastic or electronic transfer, not cash. Even when people do withdraw cash, other people are paying in cash.

So what do banks do with their deposits? The answer is that they lend to individuals and firms, and to each other. When people spend these loans - say in shops - the shops then deposit the money back into the banks. These deposits are used as the basis of further loans to other people. These, in turn, generate more deposits and yet more loans. And so the process goes on and on. More and more deposits get generated. And these deposits count as money. Thus money grows. But there is no more cash. Feeling worried? You shouldn't be for two reasons:
? 1. Banks are normally careful to keep enough cash to meet the demands of their customers
? 2. If they do start running short of cash, they can always borrow money from the Bank of England

But what about abnormal times? What happens if people start getting worried that their bank will not have enough cash, or worse still, if it could go out of business? What happens if banks stop lending to each other, fearing they might not get their money back?

The worst-case scenario is a "run on the bank". This is what happened with Northern Rock. People queued to take their money out. In the end, it's up to the government and central banks (the Bank of England in the case of the UK). They have to guarantee that deposits are safe.
And this is what's been happening these past few days. Central banks have been lending vast sums of money to the banking system. Central banks are backed by governments and can always print enough cash to meet all demands.

Governments themselves have been pumping mind-boggling sums of money into banks by buying shares in them. In the UK, the government has promised to purchase ?37bn of new shares in banks if it cannot be raised from private investors - ?20bn in the Royal Bank of Scotland alone. In addition, the government has guaranteed everyone's personal deposits in banks up to ?50,000. In practice, as with Northern Rock and Bradford & Bingley, the government would almost certainly guarantee all deposits if a bank ran into difficulties. Even private deposits in the failed Icelandic banks have been guaranteed by the UK government. Disappearing wealth So where has all the money gone? Your money is still there. So don't worry about that.



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When people withdraw cash, other people are paying in cash

Nevertheless, money is being eroded in value by inflation. ?100 today can buy only about 95% of what it could last year and only about half as much as it could 20 years ago. This is one reason why we need to be paid interest to save money..

But what about so-called "sub-prime debt"? This was money lent to people unlikely to be able to pay it back. The problem is that the loans were mainly to buy houses and houses have fallen in value. Thus if people sold their house, they would not get their money back. It's the same with stocks and shares. If you had bought ?1,000 worth of shares a year ago, they would be worth only around ?670 today.

But houses and shares are not money. They are assets whose value varies with market forces. If demand rises and/or supply falls, their price will rise. If demand falls and/or supply rises, their price will fall. Don't forget that warning in small print: "prices can go down as well as up".
Thus your money as bank deposits may not have disappeared. But some of your wealth may well have. But declining wealth feeds back into money creation. If banks are worried about bad debts, they may not lend so much. With a deepening credit crunch, there would be less spending and less money would be deposited by shops and businesses. There would be even less lending and the economy could fall into recession.

After all, less spending leads to less production and less employment. No wonder governments feel they have act. No wonder vast sums are being pumped into the banking system. John Sloman is director, Economics Network, the Economics subject centre of the Higher Education Academy, based at the University of Bristol. He is author of Economics, Essentials of Economics and various other textbooks.



Why do we need stock markets? (http://news.bbc.co.uk/1/hi/magazine/7672274.stm)

Thats where the money has gone kwa alijojo

[mwanakijiji]

This is crazy.. what is going on..

[deny_all]

Where has all the money gone?


.............Higher Education Academy, based at the University of Bristol. He is author of Economics, Essentials of Economics and various other textbooks.

Why do we need stock markets? (http://news.bbc.co.uk/1/hi/magazine/7672274.stm)

Thats where the money has gone kwa alijojo

Good article, it explained the situation quite well.

[mwanakijiji]

Hata mimi hii nimeipenda sana; najaribu kuona kama naweza kujaribu kuandika suala hili na kulifafanua kwa lugha ya kiswahili kwa wasomaji wetu wa Tanzania.

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Gordon Brown will abandon Labours promise of not raising tax in the UK. He will raise the higher erners (?150 000 per year) income tax to 45%. Lower the VAT by 2.5% which will marginally reduce the prices, The game is up.

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Top investors 'hit by $50bn con'


Some of the world's wealthiest private and corporate investors are reported to be victims of an alleged $50bn fraud by Wall Street broker Bernard Madoff. Mr Madoff is alleged to have confessed to a huge Ponzi scheme (pyramid fraud). Reports say the main owner of the New York Mets baseball team, Fred Wilpon, and former American football team owner Norman Braman are among the victims.


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Worried investors gathered at the offices
of Bernard Madoff in New York


Others facing losses reportedly include French bank BNP Paribas, Japan's Nomura Holdings and Zurich's Neue Privat Bank. Prosecutors say Mr Madoff, ex-head of the Nasdaq stock market, has described the fraud as "one big lie". A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts, while the 70-year-old banker has been released on $10m bail.

Shares drop

Hundreds of people are thought to have invested with Mr Madoff, among them international banks, hedge funds and wealthy private investors - who are all trying to find out the cost of the alleged fraud. Spanish newspapers said the leading bank Santander had invested with Mr Madoff. Bramdean Alternatives, a UK-based asset management company run by Nicola Horlick, saw its share value drop by over 35% after it revealed that nearly 10% of its holding was exposed to the New York broker. One hedge fund, Fairfield Greenwich Group, said its clients had invested $7.5bn with the firm.


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Investors have withdrawn from hedge
funds amid market volatility


'Major disaster'

Lawyers for worried investors fearful that they had lost their savings, attended court on Friday for a hearing on the disposition of Mr Madoff's remaining assets. The hearing was cancelled after an agreement was reached to appoint a receiver. Brad Friedman, a lawyer for some of the investors, said: "There are people who were very, very well off a few days ago who are now virtually destitute. "They have nothing left but their apartments or homes - which they are going to have to sell to get money to live on," he told the New York Times.

One investor, Lawrence Velvel, 69, told the Associated Press that he and a friend may have lost millions of dollars between them. "This is a major disaster for a lot of people. You work all your life, you finally manage to save up something ... lots of people are getting fully or partially wiped out."

'Pyramid scheme'

Mr Madoff founded Bernard L. Madoff Investment Securities in 1960, but also ran a separate hedge fund business. According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn under management - was a fraud and had been insolvent for years, losing at least $50bn. He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.
He told them that he planned to surrender to the authorities but not before he used his last $200m-$300m to pay "selected employees, family and friends".

Under a Ponzi scheme, also known as a pyramid scheme, investors are promised very high returns on their investment, while in reality early investors are paid with money collected from later investors. If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

Do not get suprised when Barrick et al wants to close their operations in Tanzania! The reason behind ni Utapeli wa Executives. (without forgetting shareholders in Bongo)

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Most Big U.S. Banks `Bankrupt,' Says Prominent Investor






Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded. Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK). Some of the funds are being used for acquisitions. "Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Rogers said he shorted shares of Fannie Mae (FNM.P) and Freddie Mac (FRE.P) before the government nationalized the mortgage financiers in September, a week before Lehman failed.
Now a specialist in commodities, Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets. While not saying how long the U.S. economic recession will last, he said conditions could ultimately mirror those of Japan in the 1990s. "The way things are going, we're going to have a lost decade too, just like the 1970s," he said.

Goldman Sachs & Co analysts this week estimated that banks worldwide have suffered $850 billion of credit-related losses and writedowns since the global credit crisis began last year. But Rogers said sound U.S. lenders remain. He said these could include banks that don't make or hold subprime mortgages, or which have high ratios of deposits to equity, "all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned."

Many analysts cite Lehman's Sept 15 bankruptcy as a trigger for the recent cratering in the economy and stock markets. Rogers called that idea "laughable," noting that banks have been failing for hundreds of years. And yet, he said policymakers aren't doing enough to prevent another Lehman. "Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phony.... All these guys are bankrupt, they're still worrying about their bonuses, they're still trying to pay their dividends, and the whole system is weakened."

Rogers said is investing in growth areas in China and Taiwan, in such areas as water treatment and agriculture, and recently bought positions in energy and agriculture indexes.

Tanzanians bado wanaikumbatia dollar wakati karatasi iliyoandikwa hiyo dola haina thamani, Je serikali ina mikakati gani kuona Watanzania hawalipi madeni ya wamarekani?

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?440 million loss.......Sheikh Mansour




BANK of England deputy governor Sir John Gieve warned yesterday Britain faces the worst recession for ?decades.? MANCHESTER City owner Sheikh Mansour lost ?440MILLION yesterday ? nearly DOUBLE what he is set to spend on Brazilian soccer ace Kaka.
The Arab tycoon, who hopes to sign AC Milan?s Kaka in a ?243million deal, was stunned as Barclays shares crashed by 25 per cent ? wiping ?27BILLION off the bank?s market value.
The Sheikh, 38, had plunged ?3.5billion of his estimated ?33billion fortune into Barclays last October, giving him a 16.3 per cent stake.

But a banking insider said last night: ?It?s fair to say Sheikh Mansour had a day from hell.
?Talk about being in the Kaka. He must have watched the news with his head in his hands.
?You wake up preparing to make history with the biggest ever offer to a footballer. Hours later, you?re down ?440million.?

Hopes

A ?440million loss is equivalent to the gross domestic product of African nation Gambia.
Abu Dhabi royal Mansour bought Man City, managed by Mark Hughes, last September ? raising hopes of an influx of star players. The Sun revealed yesterday that he hopes to take Kaka, 26, to the club by splashing ?108million on a transfer, another ?108million on the attacker?s wages and ?27million in fees. He bought into Barclays when it raised ?7billion from investors rather than lose independence in a British government bail-out. His stake is now worth ?1.3billion. Barclays insisted last night it was not in any financial difficulty.

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Davos Debt & Denial

In an age of illusion, the guise of truth is often heresy?



February 13, 2009

The gathering of the world?s economic elites in Davos, Switzerland is a reflection of the reigning power dynamic of the modern world. Officially titled, the World Economic Forum, Davos is sponsored by the world?s most powerful and wealthy corporations and presents itself as a ?not-for-profit? entity.

However, if you believe the annual gathering in Davos is not-for-profit, you probably also believe that JFK died of natural causes while sightseeing in Dallas. Those who attend Davos?the Davo?tees of Mammon?are the winners in the game of capitalism, a game based on debt controlled by bankers through their issuance of credit.

Investment bankers by virtue of their privileged position at the spigots of credit haveover the years garnered for themselves a disproportionate slice of the world?s wealth. The best description of their wealth is from a banker himself, Sir Josiah Stamp, at the time in1927 the 2nd richest man in England and former head of The Bank of England:

Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.

The fact that in 2008 bankers became victims in the game they created has profound implications for capitalism itself. Capitalism, which began in 1694 with the issuance of debt-based money from The Bank of England, has now over three hundred years later reached its last and final stage. Capitalism is not ending because those enslaved by bankers revolted. Capitalism is ending because the bankers? insatiable greed destroyed the mechanism by which bankers indebt others. The sad truth is that those enslaved by debt still wish to remain the slaves of bankers and pay the cost of [their] own slavery [and] let them [the bankers] continue to create money.

Although debtors fervently hope the bankers? system of debt will continue, they will not have a say in the matter. Neither will the bankers. Davos will never again be the same.

DAVOS & THE LAST GASP OF CAPITALISM

The World Economic Forum in Davos was founded in 1971, the same year in which all currencies became fiat, sic not backed by gold or silver. Perhaps this is coincidence. Perhaps not. Nonetheless, Davos will be always associated with the end of capitalism where the charade of the banker?s paper money was revealed to be what it was, a confidence game where in the end everyone would lose everything?including the bankers.

The charade/con-game actually began in 1694 when the Bank of England was granted the right to issue England?s coinage in the form of paper money. This paper money was declared to be as good as gold or silver coins. Of course, it wasn?t; but in the beginning it was much better than it was to be later. Previous to 1694 the bankers were known as goldsmiths who profited by charging interest on the loaning of gold and silver coins. After 1694, the goldsmiths, now called bankers, profited by charging interest on the loaning of paper money, and thus the true alchemy of modern finance was born.

The substitution of paper ?money? for gold and the charging of interest on such ?money? is the secret of the banker?s wealth. It is also the secret of capitalism as it is the process whereby bankers? indebt others (businesses, consumers, governments, etc.) through the loaning of paper ?money? created by central banks resulting in paper IOUs, IOUs which are then resold as investments to savers, savers being all who need to protect the value of their paper ?money? from eroding because of the constant inflation of the paper money supply by bankers.

That such a system has lasted over three hundred years is extraordinary; but it was not until the 20th century when the linkage between paper money and gold began to fail that the problems inherent in paper money systems became more apparent. England, the major recipient and beneficiary of the banker?s paper money for the previous two hundred years, had been very careful to maintain the fiction that paper money was as good as gold or silver. But in the next century, the 20th, the US the surrogate successor to England, was to be far less considerate of the considerable and questionable ?gift? bequeathed to it by England?s bankers.

In 1933, the US government by executive order confiscated the gold of all Americans thus ending the belief that paper money was interchangeable with gold and silver and was therefore a trustworthy medium of exchange. This confiscation of gold by the US was to be later repeated on an international level. But instead of only forcing Americans to abandon gold as it had in 1933, in 1971 the US would force the entire world to do so.

CONFIDENCE IN PAPER MONEY BECOMES A CON

By the end of WWII, the US had accumulated the largest amount of monetary gold reserves in history; and under the 1944 Bretton-Woods Agreement, the US dollar was to be convertible upon demand to gold and all currencies were to be tied to the US dollar. Thus, through the gold-convertible US dollar, the international monetary system was stable and anchored to gold. But by 1971, the US had overspent its entire hoard of gold. In 1958 alone, US gold reserves fell by 10 %. The reason is between 1949 and 1971 US overseas military expenditures and US overseas corporate expansion had left far more dollars in the hands of foreign nations than the US had gold to exchange.

In their book, The Commanding Heights (1997 ed., pp. 60-64), Daniel Yergin and Joseph Stanislaw explain what happened next:

But the growing U.S. balance-of-payments deficit meant that foreign governments were accumulating large amounts of dollars -- in aggregate volume far exceeding the U.S. government's stock of gold. These governments, or their central banks, could show up at any time at the "gold window" of the U.S. Treasury and insist on trading in their dollars for gold, which would precipitate a run. The issue was not theoretical. In the second week of August 1971, the British ambassador turned up at the Treasury Department to request that $3 billion be converted into gold.

?The gold window was to be closed. Arthur Burns argued vociferously against it, warning, "Pravda would write that this was a sign of the collapse of capitalism." Burns was overruled. The gold window would be closed. But this would accentuate the need to fight inflation; for shutting the gold window would weaken the dollar against other currencies, thus adding to inflation by driving up the price of imported goods. Going off the gold standard and giving up fixed exchange rates constituted a momentous step in the history of international economics.

The previous sentence bears repeating;

Going off the gold standard and giving up fixed exchange rates constituted a momentous step in the history of international economics.

Yergin and Stanislaw were right. It was to be a momentous?and ultimately fatal step?for as a result of the US default on its international gold obligations, all currencies in the world instantly became fiat. The security that gold and silver afforded the use of paper money would be no more?and when a con game is being run, nothing, absolutely nothing is more important than confidence.

The last and most critical piece in the banker?s carefully constructed charade was eliminated by the US when it overspent it entire gold reserves leaving the international monetary system bereft of any intrinsic value. Only monetary momentum and residual confidence has allowed paper-based capitalist economies to function since the last vestige of gold was removed in 1971. Now, the postponed but inevitable destructive consequences of 1971 are about to make the demolition of the World Trade Center Twin Towers and Building 7 look like a spring day in Paris. A collapse of world economies caused by the default on trillions of dollars of paper debts and obligations has never before happened. Soon, it will.

The consequences will be as devastating as they will be widespread as personal savings will be wiped out. Personal savings entrusted to banks have been invested in the same paper IOUs, sic bonds, owned by pension funds, investment funds, and insurance companies all over the world. Savers forced by the constant depreciation of paper money have given their savings to banks, pension funds, insurance companies and investment funds in the hopes of salvaging the value of those savings. But those hopes will prove to be false as the escalating financial collapse reveals such investments, e.g. corporate, government and consumer IOUs, to be increasingly worthless.

Governments that allowed this crisis to occur will then be forced to indemnify such losses in order to maintain civil and social order. But, when done, the indemnification of trillions of dollars of lost savings will cause what remains of the international monetary system to collapse. Paper ?money? is but a paper tiger and when exposed to the twin disasters of economic deflation and central bank hyperinflation, fiat ?money? will ultimately revert to its intrinsic value?zero.

PANDORA?S BOX AND THE RISE AND FALL OF DAVOS

Economies built on credit and debt are by nature unstable. Caught between cycles of expansion and contraction, they are also vulnerable to the vagaries of man and the dictates of nature, i.e. war, famine, greed, drought, etc. When the backing of gold was finally removed from paper money, it was the final straw that was to bring down the bankers? house of cards. But before the house of cards collapsed, capitalism was to erupt in one last display of shameless glory.

The 25 years between 1982 and 2007 was the longest expansion in capitalism?s history. It was, however, to be its last; for the expansion was built on misallocated and historically excessive amounts of credit?and Davos occupied center stage in the display of this excessive ?achievement?. It is natural that at the end of the banker?s system, bankers would have garnered the largest share of the spoils and so it was, at least for a short while. The greatest spectacle of Davos was in 2007, the momentary triumph of bankers standing atop the world of global commerce whose profits and productivity they had increasingly purloined as their own.

The triumph of the bankers, however, was to be as short as it was spectacular. The era of billion dollar bonuses paid to bankers was to occur at the apogee of their triumph, a triumph that was to be as short as it was lucrative, for soon after, both banks and the capital markets would collapse.

DAVOS THEN AND NOW

In January 2008 when I wrote Davos, Debt & Systemic Failure, the August credit contraction was but six months old. But that year, the escalating effects of the credit contraction were to sweep through Wall Street, the City, and the world?s financial centers with the same destructive ferocity as the recent wildfires in Melbourne, Australia. In the previous year, 2007, it had appeared the endless liquidity provided by central banks would ensure endless profits for investment bankers. How wrong they were. But, at the time, they didn?t know it. Soon, they would.

This is an excerpt from my 2008 article Davos, Debt & Systemic Failure which explains why it would be only a matter of time before the foundations of capital markets would fail:
Davos, Debt & Systemic Failure


When West Meets East

The preferred diet of most Davos attendees is a fusion inspired composition of individual, government, and corporate debt combined with a free-market frisee of lax regulatory oversight held together by a roux of central bank credit that dissolves instantly when paired with matching counter-party risk.


The January 2008 gathering in Davos, Switzerland at the World Economic Forum is similar to the 1957 meeting in Palermo, Sicily of American and Sicilian Cosa Nostra crime families who met to discuss mutual problems and opportunities. The notable difference being that those in the Cosa Nostra live outside the law; while those at the World Economic Forum in Davos make them. Those in Davos, however, share with the Cosa Nostra a common problem?the success of both depends on inherently unstable systems. The Cosa Nostra model is based on violence and greed which is both its strength and weakness. Capitalism, the source of wealth for those in Davos, is based on greed and leveraged debt, a combination as powerful and effective as the system of the Cosa Nostra?and just as unstable.


WHEN SYSTEMS FAIL

Unstable systems can function for years without serious problems. But over time, unstable systems will always break down. We are witness to such a systemic failure today. Global credit markets are slowing and contracting. The capitalist system responsible for economic expansion and wealth is in disarray. Debt, in capitalist systems, is a wondrous device. That is, until it can?t be paid back. Under capitalism, credit fuels expansion but it does so at a cost. As capitalism expands, credit becomes debt and the greater the expansion, the greater the debt.

EXPANSION BEGETS DEMISE

Capitalism?s fatal flaw is apparent only in its later stages. As capitalism matures, its inherent systemic instability manifests. The very expansion of capitalism sets in motion its demise. The Achilles heel of capitalism is its perpetual need to expand. Only perpetual capital expansion can create sufficient capital flows to service and retire previously created debts, the amounts of which are always increasing because of the accruing compound interest being charged. While any slowdown is cause for worry, a contraction bodes far worse.
FEAR IN DAVOS

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WHAT A DIFFERENCE A YEAR MAKES

One year ago, the mood at Davos was one of quiet, almost smug, confidence. The on-going economic expansion appeared to be endless, the profits of investment bankers skimmed off the top of productive enterprise was greater than ever. Private equity, the investment banker?s equivalent of flipping real estate, was the hottest game in town.

It is no longer. Today in Davos, the scent of Armani is now mixed with the acrid smell of anxiety produced by falling markets and uncertain futures. Concern has replaced confidence. The major phernome in Davos today is fear. Davos will not be the same next year. If you?re planning on going, be sure to take some air freshener.

That was then. Now, the major phernome in Davos is panic. Wall Street institutions such as Bear Stearns and Lehman Bros. have vanished into thin air (appropriately Davos is the highest city in Europe) and the financial sector, formerly the king of predators, is struggling to survive. Air freshener will be no more effective at Davos than central bank credit will be successful at reversing now deflating economies.

CENTRAL BANKS AND SYSTEMIC COLLAPSE

Central banks are now engaged in a life and death struggle, a struggle which they cannot win. When the US removed gold from the fictional foundation of central bank fiat currencies, the death warrant of fiat currencies was signed. The execution itself would be only a matter of time. The central bank struggle to maintain the fiction that paper money is as good as gold is as doomed as the hope that more central bank credit will solve the problem that too much central bank credit created.

The last and only remaining hope of central banks is to prolong the value of paper money by the use of smoke and mirrors in order to hide their declining value. The strategy is to remove as much evidence of that decline as possible. There is perhaps no better description of the central banks strategy than the following excerpt from Peter Warburton?s April 2001 essay, The Debasement Of World Currency--It Is Inflation But Not As We Know It:

Central banks are engaged in a desperate battle on two fronts

What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.

[Note: Warburton?s explanation of central bank strategy is important, to wit: ?Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the US dollar, but of all fiat currencies. Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.?]

It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November, I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world?s large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil and commodity prices.

[Note: Here, Warburton has given us the motive underlying the investment bank role in keeping commodity prices low. This especially pertains to gold as gold is the traditional measure of monetary distress.]

Central banks, and particularly the US Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years [since 1994]. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.

Again, in this instance, Warburton?s last sentence bears repeating:

?For as long as these objectives can be achieved, the value of the US dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.?

Warburton wrote the above in April 2001 and the relevance of Warburton?s commentary is even greater today than it was then. Then, the two central bank objectives were: (1) making sure bond investors continue to finance the private sector bond market, and (2) making sure a technical break in the Dow Jones did not occur.

Now, both have happened despite the best efforts of central banks. The 2007 credit contraction froze the corporate bond markets where the private sector obtains most of its financing and the second objective, to keep the Dow from breaking down, was violated in October and September of 2008. Systemic collapse as predicted by Warburton is now in the process of occurring.

Where does this leave the central bankers? In my opinion, they had better start looking for jobs. As long as people believe bankers can solve their problems, they will continue to be employed. But when people finally understand the role bankers played in the current crisis, they and their cohorts in government may very well be indicted for their unconscionable plundering at the public trough and, also now for the added insult of destroying the trough when done plundering.

When this era has ended, it is not known what bankers will do as bankers are notoriously bad businessmen. Bankers achieve their considerable success not by entrepreneurial talent but by their unique proximity to credit and their ability to leverage that proximity into excessive profit. Stripped of this advantage, bankers would be forced to earn a living on a level playing field?an ability which has never before been tested.


THE ASCENT OF GOLD

Professor Antal Fekete stated when the price of gold begins to move rapidly upwards towards its final highs, it will be a time of tragedy; for when gold explodes upwards, the economies built around paper money and paper assets will collapse. The human suffering then and afterwards will be immense. The smoke and mirror attempts of central bank to postpone the inevitable day of reckoning have failed. The smoke is now clearing from the central banks? purposive obfuscation of economic truths and their mirrors which previously reflected pure fiction are now broken and muddied.

It is now only a matter of time before people realize what has occurred in the absence of their understanding. The considerable bill is now due and owing for all debts incurred at the bankers? window. It will be paid. Already, gold and silver coins have disappeared from the supplies of retail dealers as the public increasingly seeks to protect the declining value of what they have saved. Soon, the same will be true for the 1,000 ounce gold bullion bars being purchased by the very wealthy.

The day people realize that paper money is worthless is the day economic activity as we know it will come to a halt. What happens next has happened before. Barter begins the movement of goods and services until a trustworthy medium of exchange arises to take the place of the bankers? debased paper. Currency collapse is a reoccurring story. Because we denied its reality does not mean it would not happen. Denial is very powerful but, in the end, it changes nothing except the ability to effectively respond.

Our wish that gold achieve its rightful price level in today?s accelerating crisis is tempered by our realization that when that day is reached, the human carnage and suffering will be without precedence. It is best, then, to buy gold and silver whenever possible and to wait patiently for things to unfold as they will. And they shall.
ECONOMIC TRUTHS

In his wonderful and final and most readable book (at least for me), Grunch of Giants, (Design Science Press, 1983) Buckminster Fuller writes about the history of power and money in a way that explains our present economic system.

Bucky?s word ?Grunch? is an acronym for gross (GR) universal (UN) cash heist (CH) and the word Giant is a reference to modern corporations and those who control them. On page 18, Bucky recounts a conversation with one of the ?giants?, a friend of his who was a scion of the JP Morgan family.

He said to me, ?Bucky, I am very fond of you, so I am sorry to have to tell you that you will never be a success. You go around explaining in simple terms that which people have not been comprehending, when the first law of success is, ?never make things simple when you can make them complicated.?

The roots of modern economics are intertwined with institutional deceit on a massive scale because the material rewards are so great. Therefore, the attempt to ascertain the truth about money is not an easy task; and it is not made easier by those who benefit by its deceit.

This is why the discussion of ideas antithetical to those in positions of power are now found only at the edges of society. Writers and readers alike must search for truth in books not easily found, such as Buckminster Fuller?s Grunch of Giants (out of print, still available at www.bfi.org, Peter Warburton?s Debt & Delusion?Central Bank Follies That Threaten Economic Disaster (reissued and currently available in a deluxe edition from WorldMetaView Press) and Bernard Lietaer?s The Future of Money (published in 1999 by Random House and never made available in the US, currently out of print).

Those in power maintain their power because those without power do not understand the power dynamics operant in the world in which they live. Thus, the economic control over the many for the benefit of the few has continued irrespective of the form the economy takes.

We are at the end of an extraordinary epoch, the end of the age of credit. In 1981, Bucky Fuller predicted the collapse of the present power structures in tandem with an unprecedented crisis that would transform humanity.

That time, the collapse of the world power structures, has now arrived. Transformation comes next; and when the crisis finally passes?and it will?tomorrow will be a far better day. Awareness, community, faith and a bit of gold and silver will be invaluable in the days to come.

Now who said the dollar is worth anything more! Only idiots at Magogoni or at our local central bank who schemed the tax payers from left, right, top and bottom. Lets end this evil, Lets just end it.

[Mpita Njia]

Hizi theories zinazidi kutuchanganya

[Ach-F]

Hizi theories zinazidi kutuchanganya


Tunatakiwa kuziba ule uchochoro ulio pale Magogoni kwani hawa wazungu wanafikiri miafrika yote mijinga. Time is now to ditch the American dollar and value our own currency with our own control. I mean proper control.

[Mpita Njia]

Tunatakiwa kuziba ule uchochoro ulio pale Magogoni kwani hawa wazungu wanafikiri miafrika yote mijinga. Time is now to ditch the American dollar and value our own currency with our own control. I mean proper control.

Mkuu, ukiwapa wazo hilo wanaweza kuadhani kuwa umepatwa na wazimu

[Ach-F]

Mpita Njia

Hakuna kisichowezekana kuhaha kote kwa CCM ni kwa sababu wanatambua kwamba wakati wowote tonge litanyang'anywa kutoka kwenye domo lao.

[Ach-F]

The Looming Collapse of European Banking



Lew Rockwell.com
Thursday, Feb 19, 2009

The banking system of Europe is at the edge of the abyss. A brief story by The Telegraph revealed this last week. The original was almost immediately deleted. [2] A new version was substituted.

You can see the original headline [3] on Google:

European banks may need ?16.3 trillion bail-out, EC document warns ? There are dozens of these links. I read the story last week. I saved the link. But, lo and behold, when I clicked my saved link on Monday morning, the story did not mention a specific figure. There was a reason for this.

[4] The editors at The Telegraph had taken out the following paragraphs:

European Commission officials have estimated that impaired assets may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the trading book total ?12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets. In addition, so-called ?available for sale instruments? worth ?4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of ?16.3 trillion.

Fortunately, web sites around the globe have posted the deleted paragraphs.
Converted into dollars, ?16.3 trillion euros are the equivalent of $25 trillion. The original paragraphs can be found in several links in the Google list of headlines. Why did the editors do this? A call from some government bureaucrat? Or the realization that the article might start a bank run? I think the latter. In either case, it?s scary. The current article begins with a lie: ?Last updated: 6:34 GMT, 11 Feb 2009.?
WHAT THE EUROPEAN ESTABLISHMENT IS FACING NOW The original February 11 story was a shocker. The author claims to have seen a secret European Commission report. The report estimates that losses (write-downs) by European banks will be in the range of $25 trillion.

[5] If true, then to save the banking system, European governments will have to find an extra $25 trillion, fast. There is only one source of such funding: the central banks, mainly the European Central Bank (ECB). For comparison?s sake, consider the $700 billion banking bailout in the United States last fall. Of this, only about half has been spent. That was sufficient bailing wire and chewing gum to keep the American banking system going. More will be needed, but so far, this has sufficed. The Federal Reserve did a lot of asset swaps in 2008 ? Treasury debt for toxic assets ? and pumped in an extra trillion dollars or so. But the system has held.

Adding these together ? the increase in the monetary base and $350 billion in bailout money ? the total is around $1.5 trillion. Then think ?$25 trillion.? This is a sobering thought for some, and a reason to get unsober, fast, for others. The European Central Bank will have to serve as the lender of last resort. There are over a dozen national EC governments. How will they coordinate their respective bailouts? Think of a dozen Barney Franks and a dozen Nancy Pelosis. Think of a dozen Henry Paulsons. Think of a dozen Gordon Browns. Terrifying, isn?t it?

Here is the story, as airbrushed by the editors. ?Estimates of total expected asset write-downs suggest that the budgetary costs ? actual and contingent ? of asset relief could be very large both in absolute terms and relative to GDP in member states,? the EC document, seen by The Daily Telegraph, cautioned.

Very large? That?s it? Just very large? Twenty-five trillion dollars in losses are merely very large? That is twice the size of the gross domestic product of European Union. It is not as though there is a lot of time to deal with this. Bank runs can take place very fast. What if Europeans try to pull out currency? There will not be enough currency. So, they will move their assets to American or Japanese banks. They will have to sell their domestic currencies to buy dollars and yen. The euro will crater.

?It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.? Wait a minute. If asset relief is not on this scale, then what will sustain a bankrupt European banking system? You are telling me that these banks are sitting on top of $25 trillion in losses, and this can be concealed? Does no one audit these banks?

The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday. National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors ? particularly those who lend money to European governments ? have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

National leaders apparently have a clear perception of the public?s lack of faith in the in specific governments? ability to repay. But that does not answer the crucial question: ?What are the depositors? fears regarding their individual banks?? It?s one thing for a government to be unable to pay back loans over the next two decades. Of course they will not pay it back. No national debt is ever paid back. It is rolled over. It?s another thing to deal with bank runs.

The Commission figure is significant because of the role EU officials will play in devising rules to evaluate ?toxic? bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries. In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.

Ministers and officials have got the picture. They are facing a breakdown of Europe?s economy. If the bailouts are insufficiently large in every nation to reduce depositors? fears regarding their banks, there will be a rush out of the euro and into dollars and yen. If the bailouts are sufficiently large to stem the tide on bank fears, then there will be a rush by bond investors out of government bonds. This will make the existing recession much worse. If each country has widely different rates, the euro will break down. The poorer countries will borrow at low rates from the European Central Bank. The Germans will revolt. They could demand an end to the ECB, which will have become a welfare agency for the Mediterranean governments. That would end the euro. That would end the attempt to create a new European order. This thought brings to mind one of Johnny Mercer?s masterpieces.

So you met someone who set you back on your heels ? goody, goody
You met someone and now you know how it feels ? goody, goody
You gave him your heart too, just as I gave mine to you
And he broke it in little pieces, now how do you do? You lie awake just singing the blues all night ? goody, goody
And you think that love?s a barrel of dynamite
Hooray and hallelujah, you had it coming to y?a

[Ach-F]

Goody goody for him, goody goody for me
I hope you?re satisfied, you rascal you,
I hope you?re satisfied ?cause you got yours
But I digress.

?Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,? the EC paper warned. These considerations are indeed important. But solutions are a lot more important. The report is 17 pages long. The solutions ? if any ? will be a lot longer. SO FAR, SO GOOD
So far, the euro has not collapsed. It has fallen, but there is no rush for the exits. Why not?

These answers come to mind.

1. The story is not true: no such document.

2. The document is wrong: banks are not really that much in the hole.

3. The banks are in the hole, but public faith in their governments remains high
.
4. The report is true, but it is not believed by currency speculators.

5. The report is true, but currency speculators believe that the governments and central banks can handle it without major shifts in currency values.

European bank stocks have fallen since the article was published, but they are not in free-fall.
In my view, the European public still has faith that the governments and the central banks will successfully intervene to restore commercial banks. But if the original article was correct, that 44% of bank balance sheets have disappeared, then the public is living in la-la land. The entire structure of Europe?s capital markets is at risk. Or, I should say, what remains of the capital markets is at risk.

How are governments going to replenish lost capital? It?s gone. It?s missing in action.

EASTERN EUROPE

Ambrose Evans-Pritchard has explained this is a Telegraph article published on February 15.
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Gotterdammerung.

He was referring to loans to Eastern Europe. He used Austrian banking as the example.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a ?monetary Stalingrad? in the East. . . . Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay ? or roll over ? $400bn this year, equal to a third of the region?s GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.
?This is the largest run on a currency in history,? said Mr Jen.

This reminds me of the bankruptcy of Long-Term Capital Management in 1998. That hedge fund had bought ruble-denominated assets on a leveraged basis: 30 to one. When the Russian central bank failed to defend the ruble, LTCM went bust in a few days. It had to be bailed out by $3.6 billion in loans from New York banks. Today, the European banks are gutted, not a lone hedge fund. Russia is going belly-up. It will have to liquidate most or all of its reserves of Western currencies. It has stopped buying U.S. Treasury debt. It is selling. In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly ? by lenders and borrowers ? it matches America?s sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not. Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.
They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

This is the ringing of the bell. The bell of the Great Depression of the 1930?s rang on Wall Street in October 1929. But that was not the cause of the Great Depression. The causes were these: (1) monetary base expansion in the 1920s, (2) the cessation of this expansion in 1929; (3) the governments? raising of tariff and trade barriers in 1930 all over the West, and (4) the collapse of the Austria?s Credit Anstalt Bank in 1931. In the USA, we saw the first two, 2000?2007.

Central banks will inflate to keep any major bank from collapsing. But the trend is ominous. Russia and Eastern Europe are gonners. European banks that lent to them are, too. So is the purchasing power of the euro ? and maybe even the actual euro. I can see Germany cutting and running sometime before 2011. Evans-Pritchard pulls no punches. This is a gutsy forecast.
Whether it takes months, or just weeks, the world is going to discover that Europe?s financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

If he is correct about the inability of the ECB to imitate the Federal Reserve System, this means a collapse of the banks. That means the collapse of Europe?s economy. ?This is much worse than the East Asia crisis in the 1990s,? said Lars Christensen, at Danske Bank. ?There are accidents waiting to happen across the region, but the EU institutions don?t have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU.?

[6] He ends with this: ?If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?? The capital markets do not indicate agreement with his assessment. People still trust the banking system. Generally, I trust capital markets rather than journalists. But I think the report is too explosive to ignore. I think the optimism of investors is greater than the optimism of European bankers, bureaucrats, and newspaper editors.

CONCLUSION

The West?s economy really is at the edge of a leveraged disaster. The politicians know only one answer: deficit spending. The central bankers have only on significant tool: monetary inflation. The speed of events is increasing.

The markets don?t reflect this yet. This gives time to a few people to get out. But the vast majority cannot get out. There are too few escape hatches open.

Research related articles:

1. [7] Banking crisis: Central banks pump billions in to ease the strain

2. [8] Evidence of the US Banking System Teetering on the Brink of Collapse

3. [9] No Joint European Strategy On Banks

4. [10] Roubini: Banking System is ?Bankrupt?, ?Effectively Insolvent?

5. [11] A Wave of Mergers Could Hit Banking Sector

6. [12] European Economic Collapse: ?It May Already be Too Late to Prevent Social Unrest?
7. [13] FDIC Key to Stop Banking Collapse

8. [14] Another top European bank falters

9. [15] Financial Cycle and the Coming Collapse

10. [16] Futures Plunge on More Banking Fears

11. [17] Dollar Rises to One-Year High Against Euro on Growth Outlook

12. [18] Mandelson at centre of ?ditch the pound? row as European Commission president claims Britain is ready for the euro

Food for thought for countries like ours, thats why we want to see measures taken immediately to safeguard the walalahoi who are hoi already - with this idiots who think shamba la bibi will provide.

[Mpita Njia]

Food for thought for countries like ours, thats why we want to see measures taken immediately to safeguard the walalahoi who are hoi already - with this idiots who think shamba la bibi will provide.

Lakini sisi tunafanyaje? Ingawa wanasema uchumi wetu hauko connected sana na walioathirika, lakini bajeti yatu kwa kiasi kikubwa (34 percent) inategemea haow alioathirika. Wenzwetu wanatenga stimulus package kwa ajili ya wafanyabiashara wao na wananchi, sisi tutafanya nini kwa sababu hata bajeti yetu hatuwezi kuitosheleza bila misaada?

[Ach-F]

Lakini sisi tunafanyaje? Ingawa wanasema uchumi wetu hauko connected sana na walioathirika, lakini bajeti yatu kwa kiasi kikubwa (34 percent) inategemea haow alioathirika. Wenzwetu wanatenga stimulus package kwa ajili ya wafanyabiashara wao na wananchi, sisi tutafanya nini kwa sababu hata bajeti yetu hatuwezi kuitosheleza bila misaada?


Hii ndiyo pesa wanayokula na mabwenyenye na kuagiza washangingi kama vile wamepagawa sidhani kama tunahitaji hii pesa ya misaada ukitilia maanani tuna kila nyenzo ya kutuwezesha kukusanya kodi vizuri kutoka kwenye rasilimali zetu zote. Utalii, Madini, Kilimo cha mazao ya chakula na Biashara na manpower tuliyonayo. Ni aibu kuona vijana wenye nguvu wanashindwa kupata shughuli maalum za kufanya na kubaki kuzurura mchana kutwa wakati mazao mengi yanaoza na tunabaki kuwa taifa la wachuuzi.

[Ach-F]

The British and Americans are busy printing their useless paper money to prop up their fledgling economies what about us? Should we continue to value their currencies?

[Ach-F]

Quantitative easing


The Bank of England has cut its official bank rate for the sixth month in a row to just 0.5%, the lowest in the bank's 315-year history.

The aim of this dramatic series of interest rate cuts was to ease the credit crunch and get the banks to lend again. We won't feel the full impact of these cuts for a year or so, but the economic conditions have deteriorated so rapidly that the Bank believes it may have to do more. The Bank is to expand the amount of money in the system by ?75bn in an attempt to boost bank lending - a process known as "quantitative easing".

What is quantitative easing?

Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates. Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, their only option is to pump money into the economy directly. That is quantitative easing. The way the central bank does this is by buying up assets - usually financial assets such as government and corporate bonds - using money it has simply created out of thin air.

The institutions selling those assets (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which theoretically should boost the money supply.

How will it work?

Even economists who agree with the quantitative easing policy often disagree on how exactly it will work. But there are two main ways it could boost the economy, which are really two sides of the same coin. The first channel is through the direct effect on the banks' bank accounts. With more money sloshing about in their accounts, the banks may decide to lend more to businesses and individuals, and increase the amount of activity in the economy that way.
The second channel is through the effect on the cost of borrowing. When the Bank buys bonds, it reduces the supply of those bonds in the economy. That should increase the demand for new bonds and, at the same time, make it cheaper for businesses to borrow. Having taken very short-term interest rates as low as possible, the idea would be for the Bank to push down longer-term rates as well (which are the rates that companies and individuals borrow at).

Are there any risks?

Quantitative easing is a high-risk strategy. If it is not done aggressively enough, banks will remain unwilling to lend and the crisis could drag on. To some extent that is what happened in Japan when this was tried 10 years ago. Like old-fashioned money printing, QE also runs the risk of going too far: pumping too much money into the economy and causing high inflation - even hyperinflation - as seen in 1920s Weimar Germany and modern-day Zimbabwe. But in those cases, the government was printing money simply to pay the government's bills. They were not responding to the risk of deflation as the Bank of England is today.

Is this printing money?

Of course, these days the Bank of England doesn't have to literally print money to do QE. It's all done electronically. However, economists would still argue however that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base.

Why is it different from Weimar and Zimbabwe?

Printing money can be defined as the central bank financing of government debts. This is what happened in both Weimar and Zimbabwe and what the British government will insist it is not doing, although the short-term effect is similar. According to the Maastricht Treaty, EU member states are not allowed to finance their public deficits by printing money. That is one reason why the Bank of England will buy government bonds from financial institutions, not directly from the government.

The Bank believes this form of QE is different because they are "printing money" as part of monetary policy - to prevent deflation. They are not printing money to help the government finance its deficit. Also, unlike Zimbabwe, this is a temporary policy: the Bank expects to sell the government bonds back into the market when the economy recovers.

How do we know if it has worked?

If QE works, credit growth will pick up and businesses will find it easier to get credit. That, in turn, should help stimulate the economy and help push inflation back up to the Bank of England's target figure of 2%, thus staving off the threat of deflation.

Cheaters will always cheat to get what they do not deserve!

[Dua]

US backing for world currency stuns markets



The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance. "The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said. Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world's dominant reserve currency ... for a long period of time" but the seeds of doubt have been sown.

The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar. "I don't believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world," he said. The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a "super-sovereign reserve currency" under IMF management, turning the Fund into a sort of world central bank. The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a "widely-accepted means of payments".

Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world's $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling. Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money. Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. "China holds almost 30pc of the world's entire reserves. What they say matters," he said.

Mr Geithner's friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.

At the end of the day, Africans will be the only losers.

[Dua]

Zimbabwe's impoverished pensioners

http://newsimg.bbc.co.uk/media/images/45825000/jpg/_45825003_khzimhelpage042dollarbill.jpg

Dollarising in Zimbabwe has forced the local dollar to be abandoned.
Is Tanzania following the same trend?

[Ach-F]

What is GDP?


GDP, or Gross Domestic Product, is arguably the most important of all economic statistics as it attempts to capture the state of the economy in one number. Quite simply, if the GDP measure is up on the previous three months, the economy is growing. If it is negative it is contracting. And two consecutive three-month periods of contraction mean an economy is in recession.

What is GDP?

GDP represents the value of goods and services produced in the country from all sections of the economy; agriculture, manufacturing, energy, construction, the service sector and government. GDP can be measured in three ways:

? The value of the goods and services produced; which is known as the output measure

? The value of the goods and services purchased by households, by government, from overseas and by business in terms of investment in machinery and buildings. This is the expenditure measure

? The value of the income generated mostly in terms of profits and wages; which is known as the income measure.

In theory all three approaches should produce the same number.
In the UK the Office for National Statistics (ONS) publishes one single measure of GDP, based on a best estimate using all three ways of measuring. Usually the main interest in the UK figures is in the quarterly change in GDP in real terms, that is after taking account of changes in prices (inflation).
How is GDP calculated?

Calculating a GDP estimate for all three measures is a huge undertaking every three months.
The output measure alone - which is considered the most accurate in the short term - involves surveying tens of thousands of UK firms. The main sources used for this are ONS surveys of manufacturing and service industries.

Information on sales is collected from 6,000 companies in manufacturing, 25,000 service sector firms, 5,000 retailers and 10,000 companies in the construction sector.
Data is also collected from government departments covering activities such as agriculture, energy, health and education. This is augmented by a wide range of sources which ensure that activity in the economy is well covered. New GDP figures are released every three months, but they get revised in the interim. Why?

The UK produces the earliest estimate of GDP of the major economies, around 25 days after the quarter in question.

This provides policymakers with an early, or "flash", estimate of the real growth in economic activity, but this is revised as more information is gathered.

They are two revisions at monthly intervals. But this isn't the end.

Revisions can be made as much as 18 months to two years after the first "flash" estimate. The ONS publishes more information on on its website.

What is GDP used for?

GDP is the principal means of determining the health of the UK economy and is used by the Bank of England and its Monetary Policy Committee (MPC) as one of the key indicators in setting interest rates each month.

So for example, if there are concerns the rate of GDP growth is too great and could be inflationary, the MPC is more likely to consider raising interest rates.

The treasury also uses GDP when planning economy policy. When an economy is contracting, tax receipts tend to fall, and the government adjusts its tax and spending plans accordingly.
UK GDP is used internationally by the various financial bodies such as OECD, IMF, and the World Bank to compare the performance of different economies.

The European Union also uses GDP estimates as a basis for determining different countries' contributions to the EU budget.

Pamoja na kuchapisha mabillioni ya pounds waingereza wanaiona joto ya jiwe, uchumi wao unachechemea. Wataweza kweli kujiunga kimoja na EU sasa? Au huu ni mchezo wa kuigiza wa kuleta serikali moja ya dunia? etc etc. ....

[Dua]

Extra ?25bn to stimulate economy (http://news.bbc.co.uk/1/hi/business/8344189.stm)


The Bank of England's rate-setters have decided to pump an extra ?25bn into the economy in their quantitative easing (QE) programme. They also kept interest rates unchanged at 0.5% for an eighth month. The Bank has already spent ?175bn on QE, which involves printing money to buy assets from banks and other companies to stimulate the economy.
The extra ?25bn will be spent over the next three months, which is a slower rate of spending than before.

In the previous three months the Bank had spent ?50bn. "It would be interesting to learn why the committee has gone for a smaller expansion of asset purchases than previously," said Philip Shaw, economist at Investec. "That might reflect some concerns over the medium-term inflation background or a big split on the committee." Bank of England governor Mervyn King had to write to Chancellor Alistair Darling for permission to allocate the extra money.
"Households have reduced their spending substantially and business investment has fallen especially sharply," Mr King wrote to Mr Darling.

"A number of indicators of spending and confidence, however, suggest that a pickup in economic activity may soon be evident." Economists have suggested that the slowing in QE spending could mean the programme will end when this latest ?25bn has been spent.
"We suspect this will mark the last stimulus effort from the Bank of England, with the next move being to rate hikes, possibly starting in August after the Bank has assessed the impact from any potential fiscal policy changes in the wake of next year's election," said James Knightley, an economist at ING.

'Finely balanced'

Business groups welcomed the extension, saying that without it there would be a danger of the economy losing momentum. "Today's decision was always going to be finely balanced, but the MPC has clearly seen through the recent upbeat data and recognised the underlying fragility of the economy," said Steve Radley, chief economist at the manufacturers' organisation EEF.
Earlier on Thursday, data from the Office for National Statistics showed that manufacturing output in September had grown at its fastest rate since July 2002. The bigger-than-expected 1.7% growth in the month followed August's hefty drop of 2%.


When you have imbeciles in the government you know you are in a serious trouble. The British government has printed a lot of useless papers and we are still maintaining the same exchange rate ? ? ? ....

[Dua]

New name for a new economy? (http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/)


Do we need a new name for the kind of economy we live in today? I ask because it's becoming a bit of an issue. We started the week celebrating the 20th anniversary of the fall of the Berlin Wall. It was, everyone agreed, ironic to be marking the fall of communism, when less than a year ago capitalism itself had seemed to be on its knees. Capitalism has survived. But it's not the capitalism we thought we had. When you consider the scale and scope of government involvement in most of the advanced economies right now, "free market capitalism" seems a bit of a stretch.

Today we had confirmation that the eurozone economy had moved out of recession in the third quarter. But the public sector was almost entirely responsible for the modest growth that the major European countries have achieved since the spring. The last 20 years were supposed to be about the end of the era of big government. And yet, public borrowing in the leading "free market" economies - Britain and the US - has never been as high as it is today, outside times of war.

You might see that as the statistical counterpart to the intellectual journey that economists have been forced to make as a result of the crisis, which I discussed on my radio programme last week (Analysis: The Economist's New Clothes).

Mainstream economists didn't assume that markets - or their participants - were perfect. But for decades they did assume, in effect, that they were good enough: that markets were competitive enough, and people were rational and well-informed enough, for market-led outcome usually to turn out best. Especially in matters of finance.

Now, it turns out that real-life financial markets were much, much, messier than they thought - and much much worse at self-regulation. The biggest short-term consequence of that mistake is that the government has suddenly become responsible for most of our economic growth.

In the US, economists agree that without the federal stimulus package, the US would still technically be in recession.

We're getting used to this post-crisis landscape. But don't forget to be surprised that decades of the "free market" have ended up here.

John Cassidy tells the story in How Markets Fail: the Logic of Economics Calamities. There have been plenty of books about the crisis landing on my desk in recent weeks, but Cassidy's is the only one I've seen that pulls together the what and the why quite so clearly. He covers some of the same ground as my radio programme, but in much more depth.
As Cassidy comments:

"[T]he combination of a Fed that can print money, deposit insurance, and a Congress that can authorize bailouts provides an extensive safety net for big financial firms. In such an environment, pursuing a policy of easy money plus deregulation doesn't amount to free market economics: it's a form of crony capitalism."

The outcome, he says, it's not just unfair - it doesn't work. John Lanchester, the London Review of Books' chronicler of the crisis, said recently that "bankocracy" might be a better name for the current system. If you think that sounds inflammatory, remember that Mervyn King, Lord Turner and Martin Wolf of the FT have all made essentially the same point. Unless the rules of the game change fundamentally, it's not really capitalism that we have today. Especially not for banks.

Any other ideas for a new name?

Now lets turn to our economies - should we continue ooops should they continue to listen to the West with their capitalism I mean CAPITALISM? Walahi wanamkumbuka marehemu Julius Kambarage Nyerere.

[Dua]

　Greece's austerity measures
　

Austerity measures planned by the Greek government have been met with violent protests in Athens. A whole raft of measures, which include huge cuts to Greece's public sector, have been announced since December last year, when the Greek government acknowledged the need to tackle Greece's dire public finances. The plans hope to achieve budget cuts of 30bn euros over three years - with the goal of cutting Greece's public deficit to less than 3% of GDP by 2014. It currently stands at 13.6%. Implementing them is also a condition of Greece receiving the billions of euros in loans it needs as part of the EU-IMF rescue deal agreed this month. So what are the measures being proposed?


PAY CUTS

The government is planning a freeze pay for all public sector workers. Some pay cuts will also be implemented, and public sector contract workers are set to lose their jobs. This follows several years of continuous increases in pay, with salaries rising by an average of 30% since 2006. Annual bonus payments - paid as 13th and 14th month salaries - will also be scrapped for high earners and capped for lower earners. Other bonuses will be scrapped. In the private sector, the legal maximum number of people companies can lay off each month will be doubled from 2% of personnel to 4%.
　
PENSIONS

The reforms seek to prevent early retirement. Currently the average age of retirement in Greece is 61, though it is not uncommon for public sector workers to retire in their 50s. Under the planned changes, the retirement age, which is currently 65 years for men and 60 years for women, will be linked to average life expectancy. In addition, the minimum number of years someone will have had to have worked to qualify for a full pension will rise to 40 years from 37. Pensions will also be reduced so that they reflect a worker's average working pay rather than their final salary.

TAX REFORM

VAT will be increased to 23% from 21% - just the latest in a series of recent increases. Indirect taxes - including those on alcohol, fuel and cigarettes - will see a 10% rise. There will also be a clamp-down on tax evasion - widely regarded as a big problem in Greece - and on untaxed illegal construction.
Tax-evasion alone is estimated to cost the Greek government at least 20bn euros a year.

PRIVATISATION

In the longer-term, the government will look to reduce the reliance of the Greek economy on the public sector, reducing the number of people on the public payroll. This will require growth in the private sector, and possible privatisation of some industries.
　
EU ministers offer 750bn-euro plan to support currency

Emergency measures worth 750bn euros ($975bn; £650bn) have been agreed to prevent the Greek debt crisis from affecting other eurozone countries. The 16 members of the single currency bloc will have access to 440bn euros of loan guarantees and 60bn euros of emergency European Commission funding. The International Monetary Fund (IMF) will also contribute up to 250bn euros. Global stock markets surged, with London 5% up at midday, and the euro recovering after last week's tumble. Hours after the emergency package was announced central banks in Europe reportedly began buying government bonds issued by economies in greatest difficulty. "The eurozone is certainly regaining confidence," said EU Commission President Jose Manuel Barroso. "Our fundamentals are certainly good."

Markets soar

There had been fears that without the measures, the euro might have come under pressure on markets as investors grew concerned about financially-troubled states such as Portugal and Spain. The euro strengthened in early trading, surging above $1.30, after hitting a 14-month low against the dollar last week. At midday in London, the FTSE 100 share index was trading up 255.5 points at 5,314. This followed a rise in Asian stock markets, with the Japan's Nikkei 225 index up 1.3% and Hong Kong's Hang Seng index climbing 0.8%. The risk premium on some eurozone government bonds fell sharply, as did the price of insuring them against default. The rate on two-year Greek bonds fell immediately, from 18.1% to 4.9%. On Friday, eurozone leaders approved an 110bn-euro loan package to Greece, which will be backed by the EU and IMF.

Marathon talks

Speaking early on Monday after 11 hours of talks, Spanish Finance Minister Elena Salgado said an agreement had been reached on a package to defend the euro and eurozone economies. Under the aid plan, the European Commission would make 60bn euros available to support member states experiencing "difficulties caused by exceptional circumstances beyond their control", she said. Ms Salgado said eurozone member states would complement such resources through a Special Purpose Vehicle (SPV), known as the European Financial Stabilisation Mechanism and worth 440bn euros, which they would guarantee. The IMF will contribute an additional sum of at least half of the EU's contribution to the SPV - a total of 250bn euros. "It shows through this decision that we are placing considerable sums in the interest of stability in Europe," she said. "Our conclusions also reiterate yet again the need for progress to be made on regulating the financial system, on oversight and the supervision of the financial system, in particular derivatives and the role of rating agencies." The European Central Bank (ECB) also announced that it would buy eurozone government and private debt "to ensure depth and liquidity in those market segments which are dysfunctional". EU Monetary Affairs Commissioner Olli Rehn said: "The fiscal efforts of the EU member states, the financial assistance by the commission and by the member states, actions taken today by the ECB prove we shall defend the euro whatever it takes."

'Overwhelming force'

Analysts were surprised at the magnitude and co-ordination of the package. "This truly is overwhelming force, and should be more than sufficient to stabilise markets in the near term, prevent panic and contain the risk of contagion," said Mario Annunziata at UniCredit bank. The Federal Reserve later said it would re-open currency swap facilities with other major central banks "to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centres". In an interview with Russian media, US President Barack Obama said: "I am very concerned about what's happening in Europe. "But I think it is an issue that the Europeans recognise is very serious."


The true colours of the white.

[Ach-F]

What went wrong in Greece?

http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s1.gif

Greece's economic reforms that led to it abandoning
the drachma as its currency in favour of the euro in 2002
made it easier for the country to borrow money.



http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s2.gif

Greece went on a debt-funded spending spree,
including high-profile projects such as
the 2004 Athens Olympics, w
hich went well over budget.



http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s3.gif

It was hit by the downturn, which meant it had
to spend more on benefits and received less in taxes.
There were also doubts about the accuracy of its economic statistics.



http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s4.gif

Greece's economic problems meant lenders started
charging higher interest rates to lend it money and
widespread tax evasion also hit the government's coffers.

[Ach-F]

http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s5.gif

There have been demonstrations against
the government's austerity measures to deal
with its 300bn euro (£267bn) debt,
such as cuts to public sector pay.



http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s6.gif

Now the government is having to access
a 110bn euro (£95bn; $146.2bn) bail-out package
from the European Union and International Monetary Fund.



http://news.bbc.co.uk/nol/shared/bsp/hi/dhtml_slides/10/greece/img/s7.gif

Greece's problems have made investors nervous,
which has made it more expensive for other European
countries such as Portugal to borrow money

[Dua]

Euro in turmoil .... ..... Cameron refuse to shore up currency


　
Cameron tells Merkel: I'll veto any new EU treaty
designed to shore up the eurozone




David Cameron signalled today he was ready to veto any attempt to create a new EU treaty designed to shore up the ailing eurozone. Speaking at a press conference alongside German chancellor Angela Merkel in Berlin, the Prime Minister insisted Britain would not be "drawn further" into supporting the currency area. Mrs Merkel has suggested that all European countries need to be willing to surrender more sovereignty to give the EU powers to prevent another Greek-style eurozone crisis.



http://i.dailymail.co.uk/i/pix/2010/05/21/article-1280196-09B11E35000005DC-79_634x532.jpg
　
'Positive engagement': German Chancellor Angela Merkel chats with Prime Minister David Cameron during a welcome ceremony in Berlin today
But, on the second leg of his first foreign trip as Premier, Mr Cameron was quick to pour cold water on the idea. "There is no question of agreeing to a treaty that transfers power from Westminster to Brussels. That is set out 100 per cent clearly in the coalition agreement," Mr Cameron said. "Britain obviously is not in the euro and Britain is not going to be in the euro, and so Britain would not be agreeing to any agreement or treaty that drew us further into supporting the euro area." The Prime Minister went on: "It goes without saying that any treaty, even one that just applied to the euro area, needs unanimous agreement of all 27 EU states including the UK, which of course has a veto.

"I think these are very important points to understand." Mr Cameron stressed he wanted a "successful" euro area that was "able to deliver growth and stability". But as political tensions over the euro crisis rumble on, Mrs Merkel is unlikely to take kindly to Mr Cameron repeating his 'I told you so' remarks last night in Paris. There he told President Sarkozy: 'I think we were right not to join the euro and I think we were right to stay out of the euro. I always had concerns about the euro on a fundamental level.'

President Sarkozy retorted that the euro had been a 'success' and it was wrong to judge it on its recent performance. In both capitals the key message is the new coalition Government's 'positive engagement' in Europe.
But that did not stop Mr Cameron last night - nor is it expected to stop the Prime Minister making clear in Berlin that Chancellor Merkel's call for 'Treaty change if necessary' to provide a European fund to bail out the single currency is a non-starter in the UK. Mr Cameron's message is the coalition's commitment to a 'constructive engagement' with the rest of the EU - but that stops short of Britain offering a contribution to the massive 500 billion-euro bail-out which the 16 single currency member states agreed.

http://i.dailymail.co.uk/i/pix/2010/05/21/article-1280196-09B11FB1000005DC-871_634x474.jpg


Mrs Merkel greeted Mr Cameron with a lavish ceremony before the Reichstag today amid political tensions over the euro

The problem is that the bail-out promise failed to steady markets, and finance ministers - including Chancellor George Osborne - are gathering in Brussels tomorrow to begin work on closer "economic governance in Europe". Mr Cameron and Mr Osborne are both making clear Britain will play its part in helping the overall economy recovery, not least by taking drastic domestic financial measures to cut the domestic deficit. But they are putting down markers in Berlin and Brussels against any attempt to open up national budget plans to EU scrutiny even before they are approved by Parliament - part of the 'economic governance' agenda. The idea mainly concerns the eurozone countries, but Mr Cameron is wary of the euro's troubles triggering a panic towards placing all national Treasuries in the EU under the beady eye of Brussels.

Chancellor Merkel, under intense domestic political pressure over Germany's involvement in the bail-out, insists that the high deficit and debt levels which helped trigger the euro crisis must never be allowed to happen again.


http://i.dailymail.co.uk/i/pix/2010/05/21/article-1280196-09AE25AC000005DC-440_634x398.jpg
　
Smile and smile and... :French President Nicolas Sarkozy and Prime minister David Cameron give a press conference after their dinner at the Elysee Palace last night


http://i.dailymail.co.uk/i/pix/2010/05/21/article-1280196-09AE1EFF000005DC-520_634x340.jpg
　
Mon ami: Mr Sarkozy pulls a Clegg and gives Mr Cameron a pat on the back last night


If that means more Treaty change and redoubling EU regulation, she says it is a price which must be paid. Mr Cameron acknowledged that it was in Britain's national interest that the single currency recovers but insisted the UK, as a non-member of the eurozone, should not bear the costs of any bail-out. He said: 'Obviously as we are outside the eurozone, it is not the same call on us in terms of financial support - it shouldn't be because we are not members of the euro. 'But certainly we should work well together with countries that are in the eurozone to ensure that stability, that progress, the deficit reduction and other things are there.'

Mr Cameron wants to convince key partners he is not banging the table in Europe - a message that may be helped by the presence of senior Liberal Democrats in the coalition as a stabilising European influence against the eurosceptic Tory wing. However, both President Sarkozy and Chancellor Merkel remain furious at Mr Cameron's decision as opposition leader to pull his Tory MEPs out of the mainstream centre-right political bloc in Strasbourg. Both leaders warned at the time that Mr Cameron would isolate his party and lose influence at the EU negotiating table by moving his MEPs into a eurosceptic, hard-right bloc in the European Parliament. It was noted on the continent that Mr Cameron's deputy, Nick Clegg, denounced the Tories' political bedfellows in Strasbourg as 'a bunch of nutters'. But any suggestions in Paris and Berlin that Mr Cameron should reverse the decision are cutting no ice - and the new Prime Minister's 'friendly' EU credentials are being approached with caution.

The truth will set us free! This is what our politicians fail to tell other members of EA