$700 Bn not enough? What about $5 trillion? What...still not enough?

This time I will be brief and its one of the few times that I will allow myself the empathy-induced weakness embedded when arguing morals.

They had it all...money, drugs, women, youth, ignorance, arrogance. The masters of the (capitalist) universe had it all. And they decided to take us for a looooong ride.

What I would like to start with is this 'dude' called Henry Paulson. The guy is simply unbelievable. Consider the following:
He was happy (and on his knees to Democratic 'big chief' Pelosi) when asking for a $700 bn bailout for Goldman Sachs....sorry... I meant the US banks and the US economy putting forward the 'mainstream' economy as the main reason that the taxpayer should give that money (and to amplify the urgent need for the bailout we started hearing to words like systemic risk, too-big-to-fail etc.).

So good old Henry-boy gets his $700 bn check (by the way remember that this figure was derived only by the means of scientific and rigorous analysis of the style "a figure that seems large enough to calm the markets"), takes it to his banking mates, they give him a bone (or sugar cubes -not sure) and off he goes living happily after.

In the meanwhile the rest of the world follows suit and the whole money available for banks amounts to a staggering $5,000bn. That is 5 Trillion people!!! I mean its 1/6 of the global economic output....HEEEEYY!! you read that? 1/6 of the GLOBAL ECONOMIC OUTPUT is available at the banks. But of course this is for the sake of prosperity of the mainstream not the bankers.

I really wonder how much would it cost to buy and give away -for free- all the subprime mortgages (I mean the actual houses and not derivative products). Wouldn't this fix the problem?

Back to Henry-boy, his mates are unrest and bankers lurk at the darkness...

They use with abundance all the money they need (around $290bn of the first $350bn) and they declare they do not need anymore. What they now need is a rising economy and most important customers and a fresh wave of consumption!!!

Remember, not everyone got the money they needed...only the one's Henry-boy chose to give the money to and by doing so eliminating most of his buddies small competitors, and now is the time of the larger one's (citi-cough-group-cough).

So good old Henry-boy takes the 'change' (60bn) back and also has some slack to spare ("mommy mommy...see what a good boy I am, I didn't gave away all the 700bn ").

But of course there is some collateral damage associated with such financial manipulations. And the crises moves on to the real mainstream economy (what?? 700bn didn't do it? neither did $5tr)? And the name of the likes is GM and Chrysler. Can you imagine these two filling for bankruptcy? Well that would signify the capitulation of a depression. I am not saying that they should survive as they currently are (bloated and arrogant), what I am saying is that if you give $290bn to ensure the wellbeing of banks and prosperity (supposedly) based on the need to safeguard the real and mainstream economy, you might as well give 25bn to ensure that the real blue-collar employers remain in the game.

But noooooooo!!! Good'old Henry-boy declares that the automotive industry is not to be assisted with that money!! So what is the deal? There is systemic risk if GS fails and there's no systemic risk if GM fails? Can you imagine the market sentiment if GM fails? Can you imagine the feeling and moral of a whole nation if GM fails? Oh and by the way, following the congress hearings if one fails another one will definitely fail (probably Chrysler) . And if they file for chapter 11 (bankruptcy) it automatically means that they will file for chapter 7 (liquidation) since nobody would buy a car from a bankrupt company further spirallng down.

I would prefer nobody would get any money from the taxpayer in the first place, that's the free market economy that for so many years US was adopting (and rubbing it in Europe's nose as not being 'entrepreneurial' enough), so what happened now? Oh, you screwed up? Oh your model does not work now? Then sod off, remain isolated, arrogant and ignorant and do not hand the bill to Europe and the BRIC economies. But since I am forced to pay for the banks cock ups, I prefer GM and Chrysler to be saved on 1/20 the price alongside the money mongering institutions that Henry-boy works for.

GM and Chrysler hand out $70k decent pension plans to millions of people and are in the shite.
Goldman Sachs and the likes hand out £50m indecent bonuses and golden parachutes to a handful of people and are in the clear....

Think of the following:
GM employs 900,000 people and its assembly workers payroll in 2005 (booming economy) was 8.7bn.
Goldman employs 29,905 people and its bonus pool ALONE (not the total payroll --just bonus) on 2007 (credit crunch period) was more than $18 billion.

Who do you think that if left unemployed will be better to weather the financial crisis storm? Who do you think is more responsible for the financial crisis ? Automotives or banks? Why save the banks and not the automotives? Damn me!! If you save the banks first then you should be willing to save the rest of the world as far as I am concerned.

And with rational empathy I say the following, US I used to respect you, I used to think you are smart, I used to think that you can do it....US I do not think that anymore...I now think that you are a puppet government for lobbyists, feeding your people fake promises and fat lies. One of your best and brightest, Edward Luttwak wrote a an excellent book titled "Coup d'Etat: A Practical Handbook". If one reads it, it is easy to make the connection between how to create a real coup using means of force and how to create an economic coup against a country's entire population.

But my god I should't be thinking that!!!! Now, I am a conspiracy theorist and ipso facto whatever I write is invalid...as if by definition.

Ok, back to reality (and because I do not want to be left without friends and social belonging): scrap the above...I was lying...all is good..the governments are perfect and they are working for the ordinary person's prosperity. There is no such thing as the collapse of a whole politicosocioeconomic system (namely capitalism and free market economy), just a credit crunch.

Am I your friend again?

P.S. Told you I would be brief, didn't I?

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History in the making--A detailed and highly informative view.

I read the following from Global Research at

http://www.globalresearch.ca/index.php?context=va&aid=10651

It is a nice long article about the crisis with interesting parallelisms and insight. Also the synthesis of the data is quite interesting and some detailed insight is offered. Most of it you will probably know but the details are illuminating.

A thoroughly enjoyable and highly recommended read.

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Death of the American Empire

America is self-destructing & bringing the rest of the world down with it

by Tanya Cariina Hsu

I believe that banking institutions are more dangerous to our liberties than standing armies. (Thomas Jefferson, US President; 1743 - 1826)

America is dying. It is self-destructing and bringing the rest of the world down with it.

Often referred to as a sub-prime mortgage collapse, this obfuscates the real reason. By associating tangible useless failed mortgages, at least something 'real' can be blamed for the carnage. The problem is, this is myth. The magnitude of this fiscal collapse happened because it was all based on hot air.

The banking industry renamed insurance betting guarantees as 'credit default swaps' and risky gambling wagers were called 'derivatives'. Financial managers and banking executives were selling the ultimate con to the entire world, akin to the snake-oil salesmen from the 18th century but this time in suits and ties. And by October 2009 it was a quadrillion-dollar (that's $1,000 trillion) industry that few could understand.

Propped up by false hope, America is now falling like a house of cards.

It all began in the early part of the 20th century. In 1907 J.P. Morgan, a private New York banker, published a rumour that a competing unnamed large bank was about to fail. It was a false charge but customers nonetheless raced to their banks to withdraw their money, in case it was their bank. As they pulled out their funds the banks lost their cash deposits and were forced to call in their loans. People now therefore had to pay back their mortgages to fill the banks with income, going bankrupt in the process. The 1907 panic resulted in a crash that prompted the creation of the Federal Reserve, a private banking cartel with the veneer of an independent government organisation. Effectively, it was a coup by elite bankers in order to control the industry.

When signed into law in 1913, the Federal Reserve would loan and supply the nation's money, but with interest. The more money it was able to print, the more 'income' for itself it generated. By its very nature the Federal Reserve would forever keep producing debt to stay alive. It was able to print America's monetary supply at will, regulating its value. To control valuation however, inflation had to be kept in check.

The Federal Reserve then doubled America's money supply within five years, and in 1920 it called in a mass percentage of loans. Over five thousand banks collapsed overnight. One year later the Federal Reserve again increased the money supply by 62%, but in 1929 it again called the loans back in, en masse. This time, the crash of 1929 caused over sixteen thousand banks to fail and an 89% plunge on the stock market. The private and well-protected banks within the Federal Reserve system were able to snap up the failed banks at pennies on the dollar.

The nation fell into the Great Depression and in April 1933 President Roosevelt issued an executive order that confiscated all gold bullion from the public. Those who refused to turn in their gold would be imprisoned for ten years, and by the end of the year the gold standard was abolished. What had been redeemable for gold became paper 'legal tender', and gold could no longer be exchanged for cash as it had once been.

Later, in 1971, President Nixon removed the dollar from the gold standard altogether, therefore no longer trading at the internationally fixed price of $35. The US dollar was now worth whatever the US decided it was worth because it was 'as good as gold'. It had no standard of measure, and became the universal currency. Treasury bills (short-term notes) and bonds (long-term notes) replaced gold as value, promissory notes of the US government and paid for by the taxpayer. Additionally, because gold was exempt from currency reporting requirements it could not be traced, unlike the fiduciary (i.e. that based upon trust) monetary systems of the West. That was not in America's best interest.

After the Great Depression private banks remained afraid to make home loans, so Roosevelt created Fannie Mae. A state supported mortgage bank, it provided federal funding to finance home mortgages for affordable housing. In 1968 President Johnson privatised Fannie Mae, and in 1970, Freddie Mac was created to compete with Fannie Mae. Both of them bought mortgages from banks and other lenders, and sold them onto new investors.

The post World War II boom had created an America flush with cash and assets. As a military industrial complex, war exponentially profited the US and, unlike any empire in history, it shot to superpower status. But it failed to remember that, historically, whenever empires rose they fell in direct proportion.

Americans could afford all the modern conveniences, exporting its manufactured goods all over the world. After the Vietnam War, the US went into an economic decline. But people were loath to give up their elevated standard of living despite the loss of jobs, and production was increasingly sent overseas. A sense of delusion and entitlement kept Americans on the treadmill of consumer consumption.

In 1987 the US stock market plunged by 22% in one day because of high-risk futures trading, called derivatives, and in 1989 the Savings & Loan crisis resulted in President George H.W. Bush using $142 billion in taxpayer funds to rescue half of the S&L's. To do so, Freddie Mac was given the task of giving sub-prime (below prime-rate) mortgages to low-income families. In 2000, the "irrational exuberance" of the dot-com bubble burst, and 50% of high-tech firms went bankrupt wiping $5 trillion from their over-inflated market values.

After this crisis, Federal Reserve Chairman Alan Greenspan kept interest rates so low they were less than the rate of inflation. Anyone saving his or her income actually lost money, and the savings rate soon fell into negative territory.

During the 1990s, advertisers went into overdrive, marketing an ever more luxurious lifestyle, all made available with cheap easy credit. Second mortgages became commonplace, and home equity loans were used to pay credit card bills. The more Americans bought, the more they fell into debt. But as long as they had a house their false sense of security remained: their home was their equity, it would always go up in value, and they could always remortgage at lower rates if needed. The financial industry also believed that housing prices would forever climb, but should they ever fall the central bank would cut interest rates so that prices would jump back up. It was, everyone believed, a win-win situation.

Greenspan's rock-bottom interest rates let anyone afford a home. Minimum wage service workers with aspirations to buy a half million-dollar house were able to secure 100% loans, the mortgage lenders fully aware that they would not be able to keep up the payments.

So many people received these sub-prime loans that the investment houses and lenders came up with a new scheme: bundle these virtually worthless home loans and sell them as solid US investments to unsuspecting countries who would not know the difference. American lives of excess and consumer spending never suffered, and were being propped up by foreign nations none the wiser.

It has always been the case that a bank would lend out more than it actually had, because interest payments generated its income. The more the bank loaned, the more interest it collected even with no money in the vault. It was a lucrative industry of giving away money it never had in the first place. Mortgage banks and investment houses even borrowed money on international money markets to fund these 100% plus sub-prime mortgages, and began lending more than ten times their underlying assets.

After 9/11, George Bush told the nation to spend, and during a time of war, that's what the nation did. It borrowed at unprecedented levels so as to not only pay for its war on terror in the Middle East (calculated to cost $4 trillion) but also pay for tax cuts at the very time it should have increased taxes. Bush removed the reserve requirements in Fannie Mae and Freddie Mac, from 10% to 2.5%. They were free to not only lend even more at bargain basement interest rates, they only needed a fraction of reserves. Soon banks lent thirty times asset value. It was, as one economist put it, an 'orgy of excess'.

It was flagrant overspending during a time of war. At no time in history has a nation gone into conflict without sacrifice, cutbacks, tax increases, and economic conservation.

And there was a growing chance that, just like in 1929, investors would rush to claim their money all at once.

To guarantee, therefore, these high risk mortgages, the same financial houses that sold them then created 'insurance policies' against the sub-prime investments they were selling, marketed as Credit Default Swaps (CDS). But the government must regulate insurance policies, so by calling them CDS they remained totally unregulated. Financial institutions were 'hedging their bets' and selling premiums to protect the junk assets. In other words, the asset that should go up in value could also have a side-bet, just in case, that it might go down. By October 2008, CDS were trading at $62 trillion, more than the stock markets of the whole world combined.

These bets had absolutely no value whatsoever and were not investments. They were just financial instruments called derivatives - high stakes gambling, 'nothing from nothing' - or as Warren Buffet referred to them, 'Weapons of Financial Mass Destruction'. The derivatives trade was 'worth' more than one quadrillion dollars, or larger than the economy of the entire world. (In September 2008 the global Gross Domestic Product was $60 trillion).

Challenged as being illegal in the 1990s, Greenspan legalised the derivatives practise. Soon hedge funds became an entire industry, betting on the derivatives market and gambling as much as they wanted. It was easy because it was money they did not have in the first place. The industry had all the appearances of banks, but the hedge funds, equity funds, and derivatives brokers had no access to government loans in the event of a default. If the owners defaulted, the hedge funds had no money to pay 'from nothing'. Those who had hedged on an asset going up or down would not be able to collect on the winnings or losses.

The market had become the largest industry in the world, and all the financial giants were cashing in: Bear Stearns, Lehman Brothers, Citigroup, and AIG. But homeowners, long maxed out on their credit, were now beginning to default on their mortgages. Not only were they paying for their house but also all the debt amassed over the years for car, credit card and student loans, medical payments and home equity loans. They had borrowed to pay for groceries and skyrocketing health insurance premiums to keep up with their bigger houses and cars; they refinanced the debt they had for lower rates that soon ballooned. The average American owed 25% of their annual income to credit card debts alone.

In 2008, housing prices began to slide precipitously downwards and mortgages were suddenly losing value. Manufacturing orders were down 4.5% by September, inventories began to pile up, unemployment was soaring and average house foreclosures had increased by 121% and up to 200% in California.

The financial giants had to stop trading these mortgage-backed securities, as now their losses would have to be visibly accounted for. Investors began withdrawing their funds. Bear Stearns, heavily specialised in home loan portfolios, was the first to go in March.

Just as they had done in the 20th century, JP Morgan swooped in and picked up Bear Stearns for a pittance. One year prior Bear Stearns shares traded at $159 but JP Morgan was able to buy in and take over at $2 a share. In September, Washington Mutual collapsed, the largest bank failure in history. JP Morgan again came in and paid $1.9 billion for assets valued at $176 billion. It was a fire sale.

Relatively quietly over the summer Freddie Mac and Fannie Mae, the publicly traded companies responsible for 80% of the home mortgage loans, lost almost 90% of their value for the year. Together they were responsible for half the outstanding loan amounts but were now in debt $80 to every $1 in capital reserves.

To guarantee they would stay alive, the Federal Reserve stepped in and took over Freddie Mac and Fannie Mae. On September 7th 2008 they were put into "conservatorship": known as nationalisation to the rest of the world, but Americans have difficulty with the idea of any government run industry that required taxpayer increases.

What the government was really doing was handing out an unlimited line of credit. Done by the Federal Reserve and not US Treasury, it was able to bypass Congressional approval. The Treasury Department then auctioned off Treasury bills to raise money for the Federal Reserve's own use, but nonetheless the taxpayer would be funding the rescue. The bankers had bled tens of billions from the system by hedging and derivative gambling, and triggered the portfolio inter-bank lending freeze, which then seized up and crashed.

The takeover was presented as a government funded bailout of an arbitrary $700 billion, which does nothing to solve the problem. No economists were asked to present their views to Congress, and the loan only perpetuates the myth that the banking system is not really dead.

In reality, the damage will not be $700 billion but closer to $5 trillion, the value of Freddie Mac and Fannie Mae's mortgages. It was nothing less than a bailout of the quadrillion dollar derivatives industry which otherwise faced payouts of over a trillion dollars on CDS mortgage-backed securities they had sold. It was necessary, said Treasury Secretary Henry Paulson, to save the country from a "housing correction". But, he added, the $700 billion taxpayer funded takeover would not prevent other banks from collapsing, in turn causing a stock market crash.

In other words Paulson was blackmailing Congress in order to lead a coup by the banking elite under the false guise of necessary legislation to stop the dyke from flooding. It merely shifted wealth from one class to another, as it had done almost a century prior. No sooner were the words were out of Paulson's mouth before other financial institutions began imploding, and with them the disintegration of the global financial system - much modelled after the lauded system of American banking.

In September the Federal Reserve, its line of credit assured, then bought the world largest insurance company, AIG, for $85 billion for an 80% stake. AIG was the largest seller of CDS, but now that it was in the position of having to pay out, from collateral it did not have, it was teetering on the edge of bankruptcy.

In October the entire country of Iceland went bankrupt, having bought American worthless sub-prime mortgages as investments. European banks began exploding, all wanting to cash in concurrently on their inflated US stocks to pay off the low interest rate debts before rates climbed higher. The year before the signs had been evident, when the largest US mortgage lender Countrywide fell. Soon after, the largest lender in the UK, Northern Rock, went under - London long having copied Wall Street creative financing. Japan and Korea's auto manufacturing nosedived by 37%, global economies contracting. Pakistan is on the edge of collapse too, with real reserves at $3 billion - enough to only buy a month's supply of food and oil and attempting to stall payments to Saudi Arabia for the 100,000 barrels of oil per day it provides to the country. Under President Musharraf, who left office in the nick of time, Pakistan's currency lost 25% of its value, its inflation running at 25%.

Meanwhile energy costs had soared, with oil reaching a peak of almost $150 per barrel in the summer. The costs were immediately passed on to the already spent homeowner, in rising heating and fuel, transport and manufacturing costs. Yet 30% of the cost of a barrel of oil was based upon Wall Street speculators, climbing to 60% as a speculative fear factor during the summer months. As soon as the financial crisis hit, suddenly oil prices slid down, slicing oil costs to $61 from a high of $147 in June and proving that the 60% speculation factor was far more accurate. This sudden decline also revealed OPEC's lack of control over spiralling prices during the past few years, almost squarely laid on the shoulders of Saudi Arabia alone. When OPEC, in September, sought to maintain higher prices by cutting production, it was Saudi Arabia who voted against such a move at the expense of its own revenue.

Europe then decided that no more would it be ruined by the excess of America. 'Olde Europe' may have had enough of being dictated to by the US, who refused to compromise on loans lent to their own broken nations after WWII. On October the 13th, the once divided EU nations unilaterally agreed to an emergency rescue plan totaling $2.3 trillion. It was more than three times greater than the US package for a catastrophe America alone had created.

By mid October, the Dow, NASDAQ and S&P 500 had erased all the gains they made over the previous decade. Greenspan's pyramid scheme of easy money from nothing resulted in a massive overextension of credit, inflated housing prices, and incredible stock valuations, achieved because investors would never withdraw their money all at once. But now it was crashing at break-neck speed and no solution in sight. President Bush said that people ought not to worry at all because "America is the most attractive destination for investors around the globe."

Those who will hurt the most are the very men and women who grew the country after WWII, and saved their pensions for retirement due now. They had built the country during the war production years, making its weapons and arms for global conflict. During the Cold War the USSR was the ever-present enemy and thus the military industrial complex continued to grow. Only when there is a war does America profit.

Russia will not tolerate a new cold war build-up of ballistic missiles. And the Middle East has seen its historical ally turn into its worst nightmare, be it militarily or economically. No longer will these nations continue to support the dollar as the world's currency. The world's economy is no longer America's to control and the US is now indebted to the rest of the world. No more will the US be able to demand its largest Middle Eastern oil supplier open up its banking books so as to be transparent and free from corruption and terrorist connections lest there be consequences - the biggest act of criminal corruption in history has just been perpetrated by the United States.

It was the best con game in town: get paid well for selling vast amounts of risk, fail, and then have governments fix the problem at the expense of the taxpayers who never saw a penny of shared wealth to begin with.

There is no easy solution to this crisis, its effects multiplying like an infectious disease.

Ironically, least affected by the crisis are Islamic banks.

They have largely been immune to the collapse because Ilamic banking prohibits the acquisition of wealth via gambling (or alcohol, tobacco, pornography, or stocks in armaments companies), and forbids the buying and selling of a debt as well as usury. Additionally, Shari'ah banking laws forbid investing in any company with debts that exceed thirty percent.

"Islamic banking institutions have not failed per se as they deal in tangible assets and assume the risk" said Dr. Mohammed Ramady, Professor of Economics at King Fahd University of Petroleum & Minerals. "Although the Islamic banking sector is also part of the global economy, the impact of direct exposure to sub-prime asset investments has been low" he continued. "The liquidity slowdown has especially affected Dubai, with its heavy international borrowing. The most negative effect has been a loss of confidence in the regional stock markets." Instead, said Dr. Ramady, oil surplus Arab nations are "reconsidering overseas investments in financial assets" and speeding up their own domestic projects.

Eight years ago, in May 2000, Saudi Islamic banker His Highness Dr. Nayef bin Fawaaz ibn Sha'alan publicly gave a series of economic lectures in Gulf states. At the time his research showed that Arab investments in the US, to the tune of $1.5 trillion, were effectively being held hostage and he recommended they be pulled out and reinvested in the tangibles of the Arab and Islamic markets. "Not in stocks however because the stock market could be manipulated remotely, as we have seen in the last couple of years in the Arab market where trillions of dollars evaporated" he said.

He warned then that it was a certainty that the US economic system was on the verge of collapse because of its cumulative debts, ever-increasing deficit and the interest on that debt. "When the debts and deficits come due, they just issue new Treasury bonds to cover the old bonds due, with their interest and the new deficit too." The cycle cannot be stopped or the debt cancelled because the US would no longer be able to borrow. The consequence of relieving this cycle would be a total collapse of their economic system as opposed to the partial, albeit massive, crash of 2008.

"Islamic banking", said Dr. Al-Sha'alan, "always protects the individuals' wealth while putting a cap on selfishness and greed. It has the best of capitalism - filtering out its negatives - and the best of socialism - filtering out its negatives too." Both systems inevitably had to fail. Additionally, Europe and Japan did not need to be held accountable and indebted to America anymore for protection against the Soviets.

"The essential difference between the Islamic economic system and the capitalist system", he continued "is that in Islam wealth belongs to God - the individual being only its manager. It is a means, not a goal. In capitalism, it is the reverse: money belongs to the individual, and is a goal in and of itself. In America especially, money is worshipped like God."

In sum, the crash of the entire global economic system is a result of America's fiscal arrogance based upon one set of rules for itself and another for the rest of the world. Its increased creative financing deluded its people into a false sense of security, and now looks like the failure of capitalism altogether.

The whole exercise in democracy by force against Arab Muslim nations has almost bankrupted the US. The Cold War is over and the US has nothing to offer: no exports, no production, few natural resources, and no service sector economy.

The very markets that resisted US economic policies the most, having curbed foreign direct investments into America, are those who will fare best and come out ahead.

But not before having paid a very high price.

Tanya Cariina Hsu is a political researcher and analyst focusing on Saudi Arabian and US relations. One of the contributors to recent written testimony on the Kingdom of Saudi Arabia for the US Congressional Senate Judiciary Committee on behalf of FOCA (Friends of Charities Association) in its Hearing on Capitol Hill in Washington D.C., her analysis has been published and critically acclaimed throughout the US, Europe and the Middle East.

The first to break the barrier against public discussion of the Israeli influence upon US foreign policy decision making, in Capitol Hill's "A Clean Break" Symposium in Washington D.C. in 2004, as the Institute for Research: Middle East Policy (IRmep) Director of Development and Senior Research Analyst, Ms. Hsu remains an International Fellow with the Institute.

Born in London, she re-located to Riyadh, Saudi Arabia in 2005 and is currently completing a book on US policy towards Saudi Arabia.

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Nice huh?

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No light at the end of the tunel (?) by Ektoras

There’s no reason to pretend any more. The economic news that poured out during October suggests that the US economy is indeed in a recession and Europe is likely to follow. The upcoming news that refer to job losses clearly indicate what follows… A DEEP decline in corporate profits and possible losses; We should stop hiding and finally admit that losses will reach almost all types of companies and not only the automobile sector. It is funny that we need to start reading our university books again in order to find out which goods are determined as “Giffen Goods”... A good investment idea would be stocks of companies whose production is based on such goods. One should keep in mind that “Giffen Goods” have changed since the theory was established BUT the idea remains the same. On macro grounds now, the unemployment rate shot up to 6.5% and 8% in the US and EU respectively. Unfortunately this is a lagging indicator, so we should expect that it will increase in the near future. Emerged economies had not witnessed such unemployment figures since the early 1980s. The situation is worse for the emerging economies. As our demand dwindles for products, those jobs that were created in Asia and Eastern Europe over the last ten years, will be just that amount of foreign jobs that will be terminated. The US and the EU exported jobs and credit and now they will be exporting unemployment and financial instability.
Retail stores in London and New York bombard potential consumers with “40 – 60% OFF” sale signs, and it is not even Christmas. Even if people increase their consumption during these days, there won’t be much profit associated with these sales. Companies just need cash and they are willing to pay a lot for acquiring it. In Europe, many car manufacturers promise that in two years they will buy back - at the same price - the car that they will sell during November. Obviously, under these conditions, they do not bet on inflation. They need CASH NOW!
It would be unfair not to blame governments at this point, especially the European ones. Cutting taxes is a measure, but you need to cut taxes at the right point in time. Last month, most of the governments reduced taxes. I would not expect that they will gain a lot out of that. Households have already reduced their spending on house-cleaners, their hairdresser’s appointments, their lawn services, their manicures and even how often they use their cars. It is not likely that they will start financing these activities soon. It is also very sad to mention that some countries, like Greece, have not even considered cutting taxes yet. They keep imposing new taxes which will –mathematically – lead to credit crunch and economic slowdown! How short sighted.
It is impossible for me, and whoever does not believe in miracles, to find a way for this recession to be anything but long and deep. We expect a major stimulus package from almost every government in Europe but this will not make the recession disappear – or the up coming depression. It will ease the consequences but the duration will be longer.
Year 2009 will be a miserable year for the economy and for corporate profits. It is likely though for the stock market to react or at least keep the current levels. During the next 12 months it is likely that we will see the stock markets trying to gain their lost “prestige”. But before that we should not be surprised if we see increased volatility and even lower prices. After all, past experience dictates that stock markets lead the way and the real economy follows.

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USD FX: Obama Priced In

From a confidential source(copy-cough-cough-righted):

USD: Obama priced in

USDJPY fell to below 96.50 levels on Friday before recovering through the European session and then traded sideways for most of the US session around current levels of 98.50. In that time period EURUSD has traded sideways, oscillating around 1.2750 levels. Equity markets finished higher on Friday, with the S&P500 rising by 1.5%, but still posted its worst monthly performance since Oct '87. Libor markets showed some further signs of normalization, with the 3-month libor over OIS spreads narrowing to 2.38%, but still a far cry from 6-8bp that characterised pre-credit crunch trading. Curiously, while libor-OIS spreads are contracting for the US, Australia and New Zealand, they are widening in the UK.

Economic data on Friday in the US was recession-like. The Chicago PMI for October fell to 37.8, down from 56.7 in September, and the weakest reading since 2001. The final reading on the October Uni of Michigan consumer sentiment index was 57.6, down from 70.3 in September, and the largest decline since the survey was initiated in the 1950s. Finally, personal spending fell by 0.3% m/m in September - the worst monthly decline since May 2005.

In the week ahead, markets will be distracted by the presidential election on Tuesday, with on-line bookies giving a 87% chance that Senator Barack Obama will secure the presidency. The congressional elections will also be very important, as the Democrats could potentially get a filibuster-proof majority of 60 seats. The Carter administration was the last time the president had the benefit of the filibuster-proof majority. With the result largely priced in, we are not expecting a significant impact on the currency markets. Longer term arguably the prospect of a more rapid exiting of Iraq could be construed as positive for the dollar, while concerns over Obama's attitudes towards free trade could be viewed as negative for the dollar.

On the data front, we have some important updates for October. We expect Friday's payrolls to show a 250k decline, while the ISMs should register well below the 50 level that demarcates contraction and expansion. Finally, pending home sales will also likely show a decline. We remain bullish on the US dollar, and rate cuts by the BoE and the ECB on Thursday should help to support the currency.

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