Jun 12, 2008

Market slide

The market slide that began on July 26, 2007 is far from over; indeed it is poised on the brink of a precipice with no bottom in sight.

Lehman Bros is the next bank due to go belly up, and after that the kingpin, Goldman, Sachs, but essentially all financial institutions are caught in the same bear squeeze, with no visible way out, and with the only support the jaw boning of the happy talkers, technically known as “confidence,” at present a commodity in very short supply. “Fractional reserve banking,” under which harmless sounding system any bank can create as much money as it wishes simply by lending it to you or me, without any need to demonstrate that it has the cash to lend to anybody has been going on far too long to be reversible, and the government has made no move to prevent banks from making a tidy profit by investing in oil futures options, relentlessly driving the price of oil ever higher and cutting out the floor from under their own feet.

The Politics
With the majority of world trade in the hands of Brazil, India, and China, there is very little the USA can do about Iran’s reply to the US “Declaration of war on Iran,” when the US attempted to cut Iran out of the world banking network entirely by claiming that Iran’s banks like Bank Melli were involved in funding the nuclear enrichment project. Iran has now moved massive amounts of capital out of European into Asian banks. Like the mutual declaration of the CIA and the Quds Iranian military as “terrorists,” it is a tit for tat exercise, but one that the US is very badly positioned to win.
The Financial Position
This is if anything even more horrendous. The main western banks, if referred “to market,” i.e., if actually challenged to draw up a balance sheet of their assets and liabilities, and offering these on the open market, would all be bankrupt, with very few exceptions, because their main assets are invariably in items (Level three according to the Congressionally mandated guidelines) on which they themselves have to assess a value, since there are no buyers, which value they have allowed to creep inexorably upward during past profitable times. Ambac and MBIA, the main “bond insurers,” with ten times total world GDP in “derivatives” to insure, have deservedly been reduced to junk bond status. Moody’s and Standard and Poor’s, the main “rating” agencies, have so far failed to explain how triple A status was assigned to assets which turned out to be worthless, or to produce a better system, and Mr. Bernanke’s printing press continues to churn out more dollars every day to keep the stock market and the US dollar looking as healthy as possible, a proceeding of which any first year economics student can predict the outcome. “Running out the clock,” i.e., getting through to January 2009, after which all disasters can be blamed on the incoming Democrat administration, is the only policy objective visible.
Physical Assets
That climate change, even in a La Nina year, has long ago passed its tipping point, and the line of storms, floods, and tornadoes regularly stretching from Texas to Boston are a small foretaste of what we can expect, wreaking untold havoc on the real physical assets of the country, is never allowed to intrude on financial discussions. Perhaps better so.
The contrast between China, which has successfully evacuated from flood zones and relocated a million and a half residents in the middle of preparing for the Olympic Games, and the USA where President Bush viewed the Katrina flooded city of New Orleans from an airliner window and played golf the next day needs no words.
Brazil achieved energy independence some years ago. Sugar cane ethanol, seven times as powerful as corn ethanol, drives its Flex cars, and Brazil imports no oil at all.
India concluded its agreement with Iran for a pipeline running through Pakistan.
The bill for impeachment of the president for high crimes and misdemeanors read by Senator Kucinich for 290 minutes to the US Senate and supported by Senator Waxman received no mention from any of the presidential candidates, nor rated a report as a news item from any of the tightly controlled conglomerate of US news channels.

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