[Archived] The End Of Global Capitalism?

[philipl]

Looking at the state of things at the moment, there are the following imponderables:

1) The ECB has driven the eurozone precipitately into an early inflation through its raising of interest rates when the Fed was slashing its rates make the Euro economies far weaker than they should be and less able to withstand the shocks to the real economy.

2) The only thing the European leaders agreed to last night was the suspension of the rules on individual state intervention meaning rampart individual protectionism is back starting in the airline industry which is the last industry which needs protecting.

3) The German guarranteeing of all bank deposits puts enormous pressure on the UK Government to do the same. Problem is that the weight of bank deposits in the UK is in Icelandic proprtions in terms of multiples of GDP so the Government guarranteeing deposits in the UK is largely symbolic/meaningless and a rapid way of destroying the worth of UK Government paper. Even guarranteeing only the UK-based banks in London is an exercise in underwriting a figure that is four times UK GDP! For a meaningful guarrantee to be given, the UK would have to join the Euro but current events could tear the Euro apart.

The effects of the last three weeks means deflation and not inflation is the threat.

- there is minimal wage inflation pressure

- commodities are now in retreat rapidly and even mining stocks are down by between a quarter and a third

- oil is down by over a quarter on its peak price

Therefore the one bright spark is the scope for Europe to slash interest rates to give the system a jolt. That at least should have been agreed by the politicians meeting at the week-end.

[AussieinUk]

Looking at the state of things at the moment, there are the following imponderables:

1) The ECB has driven the eurozone precipitately into an early inflation through its raising of interest rates when the Fed was slashing its rates make the Euro economies far weaker than they should be and less able to withstand the shocks to the real economy.

2) The only thing the European leaders agreed to last night was the suspension of the rules on individual state intervention meaning rampart individual protectionism is back starting in the airline industry which is the last industry which needs protecting.

3) The German guarranteeing of all bank deposits puts enormous pressure on the UK Government to do the same. Problem is that the weight of bank deposits in the UK is in Icelandic proprtions in terms of multiples of GDP so the Government guarranteeing deposits in the UK is largely symbolic/meaningless and a rapid way of destroying the worth of UK Government paper. Even guarranteeing only the UK-based banks in London is an exercise in underwriting a figure that is four times UK GDP!

The effects of the last three weeks means deflation and not inflation is the threat.

- there is minimal wage inflation pressure

- commodities are now in retreat rapidly and even mining stocks are down by between a quarter and a third

- oil is down by over a quarter on its peak price

Hey Philip, May I ask where you dervied, the figure of 'depoists as four times GDP' from?

Do you also think (and I know you only that based this on the last three weeks), that the UK is looking at 'deflation' rather than 'inflation'? Over what period?

Just curious.

[philipl]

Hey Philip, May I ask where you dervied, the figure of 'depoists as four times GDP' from?

Do you also think (and I know you only that based this on the last three weeks), that the UK is looking at 'deflation' rather than 'inflation'? Over what period?

Just curious.

Sorry, I took the figure from one of the week-end qualities but have looked it up myself now. UK banking liabilities are about £2 trillion or roughly 1.5 times GDP.

There was endemic deflation in the '30s which is the risk now. Credit has seized up, commercial lending is stopping which leads to jobs being slashed and lack of demand. Lack of demand means prices cannot be sustained and deflation happens.

One of the big inflationary drivers has been cut-off as commodity prices are falling- Oil is currently below $90.

Once deflation sets in, it can last a long time. It was best part of a decade in the '30s and Japan had zero and negative inflation through much of the '90s.

[Paul]

What is the media supposed to do - ignore the biggest worldwide financial crisis for 70 years ? Stick their head in the sand and pretend it's not really happening because it might upset a few people ? Shooting the messenger is just a brainless response.

The BBC reporting of the crisis has been very good and I don't know you can say it is "hysterical". Please explain. The reporting in the national press has also been very good - even the Mail - while the Financial Times as you would expect has excelled itself.

I'm not suggesting anyone should stick their head in the sand but equally it is relatively simple to increase the problem via the media. Thinking specifically of the BBC I've heard some very good stuff which has explained things I didn't understand but equally some presenters even appear to be enjoying the doom and gloom. It seems the reporting journalists are giving good information but the presenters are far less responsible. Nicky Campbell on Five Live being a prime example. If people "hear" without listening often enough they believe they're in trouble.

In my industry we deal direct with retailers and one thing which stands out is no one is using the word "recession." The last time we went through similar, as it now appears not so difficult, times we had customers cancelling orders or not ordering purely on the basis of "the recesssion." I have yet to hear this in 2008. I have customers who are in trouble but none who are panicking, several who are asking for ways we can work together to trade through this period but none ready to simply stop buying as was the case in the mid-nineties. What I am hearing, and is most worrying, is banks failing to support small business with whom they have traded for many, many years. Overdrafts being a prime example, companies used to being able to take an extra few £000 suddenly cannot. It's all very well the Bank of England looking to improve liquidity but this badly needs to trickle down to small business. The problem we face at the moment is cash flow because customers are struggling to pay accounts after a difficult trading season (weather related not economy driven). Interestingly I have two customers who are being actively courted by banks who are offering to take on their business and to provide the facilities required if the retailer will move to them.

Now you can pooh-pooh this if you like but it's the real experience of one small business supplying into the retail market.

On a personal level I was looking around for a mortgage when my 5 year fix ended two weeks ago. It was not a problem to find one with a major high street lender. I am though concerned as to the value of my pension etc in a few years time as part of the funds track the financial markets.

[yoda]

I'm not suggesting anyone should stick their head in the sand but equally it is relatively simple to increase the problem via the media. Thinking specifically of the BBC I've heard some very good stuff which has explained things I didn't understand but equally some presenters even appear to be enjoying the doom and gloom. It seems the reporting journalists are giving good information but the presenters are far less responsible. Nicky Campbell on Five Live being a prime example. If people "hear" without listening often enough they believe they're in trouble.

In my industry we deal direct with retailers and one thing which stands out is no one is using the word "recession." The last time we went through similar, as it now appears not so difficult, times we had customers cancelling orders or not ordering purely on the basis of "the recesssion." I have yet to hear this in 2008. I have customers who are in trouble but none who are panicking, several who are asking for ways we can work together to trade through this period but none ready to simply stop buying as was the case in the mid-nineties. What I am hearing, and is most worrying, is banks failing to support small business with whom they have traded for many, many years. Overdrafts being a prime example, companies used to being able to take an extra few £000 suddenly cannot. It's all very well the Bank of England looking to improve liquidity but this badly needs to trickle down to small business. The problem we face at the moment is cash flow because customers are struggling to pay accounts after a difficult trading season (weather related not economy driven). Interestingly I have two customers who are being actively courted by banks who are offering to take on their business and to provide the facilities required if the retailer will move to them.

Now you can pooh-pooh this if you like but it's the real experience of one small business supplying into the retail market.

On a personal level I was looking around for a mortgage when my 5 year fix ended two weeks ago. It was not a problem to find one with a major high street lender. I am though concerned as to the value of my pension etc in a few years time as part of the funds track the financial markets.

Regarding your pension, have a look at your potential annuities if you take it early, you can take it age 50 now, it might surprise you!

http://www.fsa.gov.uk/tables

[philipl]

This Wall Street Journal article neatly explains the impact of the current crisis on ordinary people

Paul, cit is very important that the EU package for SMEs is fleshed out and implemented rapidly.

[philipl]

A report by the Chartered Accountants Institute carried out before the crash says 62% of SMEs in London saw worsening conditions.

By contrast, just read leading articles in Korea and India saying what is happening is a golden opportunity for both those countries.

[philipl]

Pinching a bit from the BBC to answer an earlier question:

Hedge fund

A private investment fund with a large, unregulated pool of capital and very experienced investors.

Hedge funds use a range of sophisticated strategies to maximise returns - including hedging, leveraging and derivatives trading.

Hedging

Making an investment to reduce the risk of price fluctuations to the value of an asset.

For example, if you owned a stock and then sold a futures contract agreeing to sell your stock on a particular date at a set price. A fall in price would not harm you - but nor would you benefit from any rise.

[AussieinUk]

Hedging - For example, if you owned a stock and then sold a futures contract agreeing to sell your stock on a particular date at a set price. A fall in price would not harm you - but nor would you benefit from any rise.

To also add to that - You can actually purchase certain financial instruments (that act as a hedge/insurance) and still make a profit. An example of this is a covered call/put option.

There was endemic deflation in the '30s which is the risk now. Credit has seized up, commercial lending is stopping which leads to jobs being slashed and lack of demand. Lack of demand means prices cannot be sustained and deflation happens.

One of the big inflationary drivers has been cut-off as commodity prices are falling- Oil is currently below $90.

Once deflation sets in, it can last a long time. It was best part of a decade in the '30s and Japan had zero and negative inflation through much of the '90s.

I do agree with your analysis, but if credit markets do become 'loose' again, then the above scenario is reversed..

Current long term Oil futures are still up at around the $100 and winter has not set in yet...

[philipl]

At the moment, credit markets are jammed fast.

A significant cut in interest rates can always be reversed when Libor is back to historic levels.

Paradoxically, it is the situation in Iceland that needs watching the closest now. All bank and financial stock trading has been suspended and the ISKr has dropped so far that inflation there must be headed well into double figures (they don't quite import everything- I've eaten an Icelandic banana grown in a geo-thermally heated greenhouse).

At least the Icelanders invested heavilly in real assets with their currency spread profits but in this market, what are the real assets worth? And many of their real assets rely on continuing flows of finance from their Icelandic financier owners in what was a virtuous circle but is now an embrace of death.

There is a major restoration and development project here in Malta that for sure will not start under its current Icelandic ownership.

The other biggie is the non-availability of funds for routine financings such as the California bonds that get issued this time each year to cash flow the State Government until the taxes are collected. A whole lot of people are going to regret they do their regular roll/overs in the Fall because there is nobody there to offer loans or buy paper at the moment.

[AussieinUk]

At the moment, credit markets are jammed fast.

A significant cut in interest rates can always be reversed when Libor is back to historic levels.

Not jumping on your back, but I wouldn't be surpirsed that BBA libor, drops down to reasonable levels in the next five-six weeks or so. Its only 127bps above base..

[philipl]

Not jumping on your back, but I wouldn't be surpirsed that BBA libor, drops down to reasonable levels in the next five-six weeks or so. Its only 127bps above base..

That's why I say a sharp reduction in interest rates with the willingness to put them back up again.

The other wild card is Congress starting its hearings into what has gone wrong today. This could get very nasty and very political very quickly. There are already more than enough settled civil cases in the USA against brokers which beg the question of why didn't the Feds get involved and the banks blackball the people involved.

I'd prefer to see the credit crisis battle over before the wounded combatants get bayonetted.

[AussieinUk]

Paradoxically, it is the situation in Iceland that needs watching the closest now. All bank and financial stock trading has been suspended and the ISKr has dropped so far that inflation there must be headed well into double figures (they don't quite import everything- I've eaten an Icelandic banana grown in a geo-thermally heated greenhouse). Iceland's FX rates (across the board) and the base interest rates have been a problem for the last six month or so. I mean the current the official inflation rate, stands at around 14% and rising - those poor buggers...

At least the Icelanders invested heavilly in real assets with their currency spread profits but in this market, what are the real assets worth? And many of their real assets rely on continuing flows of finance from their Icelandic financier owners in what was a virtuous circle but is now an embrace of death. From my understanding, most of those assets are from foreign investment.. I mean the NAB in Australia is owed closed to $750m USD

There is a major restoration and development project here in Malta that for sure will not start under its current Icelandic ownership. What are they doing in Malta? if you dont mind me asking - just curious

The other biggie is the non-availability of funds for routine financings such as the California bonds that get issued this time each year to cash flow the State Government until the taxes are collected. A whole lot of people are going to regret they do their regular roll/overs in the Fall because there is nobody there to offer loans or buy paper at the moment. Cailforna was always buggered, when they sold their utilites off. I am quite annoyed that the Fed didn't come up with a viable plan eight months ago, when the signs were showing..

The other wild card is Congress starting its hearings into what has gone wrong today. This could get very nasty and very political very quickly. There are already more than enough settled civil cases in the USA against brokers which beg the question of why didn't the Feds get involved and the banks blackball the people involved.

I'd prefer to see the credit crisis battle over before the wounded combatants get bayonetted.

Totally agree with you on that. Do you think the $700+billion bailout will help in freeing up credit lines? I just read an aricle that the current global bank wirte-offs to date, have just hit the $500billion USD mark... The article also lists the banks at fault and how much capital has been raised by each to to offset this.

[JAL]

Hope this isnt too stupid a question but when did the credit crunch begin and what caused it ?

[Damage]

The crime is simple - its called FRACTIONAL RESERVE BANKING aided by the collusion of corrupt CENTRAL BANKS and power-at-all-costs GOVERNMENT!

I am not a formally-educated economist but I understand politics and I undertsand power and now after some basic research I think I better understand money. For those that are unaware of how our western financial system works check out this simple but very informative animated film "money as debt". And then when you are staggered at the simplicity and audacity of the fraud and the debt-slavery imposed on our society by the banking/financier criminal fraternity, you should remember that it is sadly so very very true! The banks create money(debt) out of nothing! In UK banks reserve requirements used to be 20% or so in the 1960s, since the big-bang deregulation of 1987 reserve requirements have dwindled to negligible amounts (less than 1%!!). And on top of that our central banks cant even be bothered to monitor money supply any more (the federal reserve stopped reporting M3 in 2006 ffs). The commercial banks have created money(debt) out of nothing based on reserves of assets that are worthless! The whole damned merry-go-round is bloody bankrupt!

So what can we do about it now!?

Well for starters we can identfiy the criminals and string the buggers up! But thats not going to happened without some serious civil strife and disorder, because the bankers and financiers are the law! They will get away with it (again!) without a change to our social structures.

If you have watched the film you will understand that this crisis cannot be resolved unless the money(debt) supply is reduced drastically - the only way that can happen is to write off colossol debts of commercial banks or inject massive new amounts of money(debt) into the system. Either way it will mean that the savings (cash deposits/pensions/property assets/etc) of us all will be seriously wiped out! So you can forget about government guarantees of savings deposits because they will default or say "you can have it in 20 years" or just print loads of worthless extra currency which will be worthless!

Anyone who thinks we aren't going into serious economic trouble should take their blindfolds off! Depression, deflation, hyperinflation .... who knows the course this may take!

Or the whole system may just fail - so much for your fiat-money savings then!

And then when you've digested all that, and if you're a bit of a conspiracy-theorist you may just want to do some more research into the US Federal Reserve, and more on the Fed. The fraud has been happening for a long time - check out the South Sea Bubble for evidence of swindling by the Bank of England with collusion of the government and monarchy nearly 300 years ago! Its been going on for centuries! The boom and bust of western economies is a direct result of our corrupt banking system - and it goes hand in hand with the destructive cycle of trade-protectionism-and war! Maybe this all sounds a bit far-fetched for you but who do you think is pulling the strings!?

[yoda]

The crime is simple - its called FRACTIONAL RESERVE BANKING aided by the collusion of corrupt CENTRAL BANKS and power-at-all-costs GOVERNMENT!

I am not a formally-educated economist but I understand politics and I undertsand power and now after some basic research I think I better understand money. For those that are unaware of how our western financial system works check out this simple but very informative animated film "money as debt". And then when you are staggered at the simplicity and audacity of the fraud and the debt-slavery imposed on our society by the banking/financier criminal fraternity, you should remember that it is sadly so very very true! The banks create money(debt) out of nothing! In UK banks reserve requirements used to be 20% or so in the 1960s, since the big-bang deregulation of 1987 reserve requirements have dwindled to negligible amounts (less than 1%!!). And on top of that our central banks cant even be bothered to monitor money supply any more (the federal reserve stopped reporting M3 in 2006 ffs). The commercial banks have created money(debt) out of nothing based on reserves of assets that are worthless! The whole damned merry-go-round is bloody bankrupt!

So what can we do about it now!?

Well for starters we can identfiy the criminals and string the buggers up! But thats not going to happened without some serious civil strife and disorder, because the bankers and financiers are the law! They will get away with it (again!) without a change to our social structures.

If you have watched the film you will understand that this crisis cannot be resolved unless the money(debt) supply is reduced drastically - the only way that can happen is to write off colossol debts of commercial banks or inject massive new amounts of money(debt) into the system. Either way it will mean that the savings (cash deposits/pensions/property assets/etc) of us all will be seriously wiped out! So you can forget about government guarantees of savings deposits because they will default or say "you can have it in 20 years" or just print loads of worthless extra currency which will be worthless!

Anyone who thinks we aren't going into serious economic trouble should take their blindfolds off! Depression, deflation, hyperinflation .... who knows the course this may take!

Or the whole system may just fail - so much for your fiat-money savings then!

And then when you've digested all that, and if you're a bit of a conspiracy-theorist you may just want to do some more research into the US Federal Reserve, and more on the Fed. The fraud has been happening for a long time - check out the South Sea Bubble for evidence of swindling by the Bank of England with collusion of the government and monarchy nearly 300 years ago! Its been going on for centuries! The boom and bust of western economies is a direct result of our corrupt banking system - and it goes hand in hand with the destructive cycle of trade-protectionism-and war! Maybe this all sounds a bit far-fetched for you but who do you think is pulling the strings!?

I've said it before and will say it again

The Bilderbergs are pulling the strings and money is their secret weapon for keeping the population in check!

[grizfoot]

I'm assuming this US $700bn bail-out bill will take sometime to take effect?

After all the effects we are feeling now are from a number of years of dodgy lending for the banks. Like with most things in economics there's always a time-lag before decisons take effect. A cut in the interest rate, like philipl keeps suggesting could help. But even cutting the interest rates would take a couple of weeks maybe a month or so to take effect by then we could be even more trouble. But maybe the mere message sent out by cutting interest rates could help reassure people.

The problem at the moment is confidence. The stock market basically runs and relies on confidence and we can see that people are becoming increasingly worried and seemingly want to take their money elsewhere and I for one don't blame them.

and whats this about the Germans agreeing to guarantee all deposits in their banks only to withdraw on that comment later

If a big country like Germany guarantees all its deposits it would but great pressure on the UK government to do the same here.

[JAL]

I've said it before and will say it again

The Bilderbergs are pulling the strings and money is their secret weapon for keeping the population in check!

Is it just a resetting of the western worlds financial clock or is there a far wider reaching plan designed to impact on the new emerging economic powers?

[vintageadidas]

We have £xx,xxxx in two accounts with Icesave. What is going to happen? I read that it will be covered but will have to claim from the Icelandic government and the FSA top up the rest! Can we seriously lose this money? The problem is that both accounts are fixed for another 12 months.

Also, where is the safest place to invest money at the moment - have tried to spread over as many banks as possible up to the new threshold level.

Worrying times.

[grizfoot]

We have £xx,xxxx in two accounts with Icesave. What is going to happen? I read that it will be covered but will have to claim from the Icelandic government and the FSA top up the rest! Can we seriously lose this money? The problem is that both accounts are fixed for another 12 months.

Also, where is the safest place to invest money at the moment - have tried to spread over as many banks as possible up to the new threshold level.

Worrying times.

They had a guest on Channel 4 news who said he can't touch his money for 6 months because it's a fixed rate account. The Icelandic government have confirmed that there will be an unlimited guarantee for all bank customers' savings accounts. Although I don't think this stretches to savings accounts held by people here in the Uk for example. Well that's the jist of what I understood from the news item on it. So there is probably a possiblity that the money will be lost, you'll just have to wait and see how things turn out I guess.

The safest place to invest money at the moment is probably Northern Rock, no chance of that going bust since it's been nationalised.

[philipl]

A good point made here that the shift in global economies arising from China's rise shifted the paradigms of the banking world. Still doesn't excuse Fuld's $484m in six years paid to him to run Lehman Bros smack into the buffers.

[philipl]

Twenty reasons for the crisis- one of the better short hand guides.

[dave birch]

That's the greatest 20/20 hindsight vision yet.

Well done phil on such a pick up.

In the mean time those that want to get ahead are already making plans.

There are sooo sooo many oportunities out there

[yoda]

That's the greatest 20/20 hindsight vision yet.

Well done phil on such a pick up.

In the mean time those that want to get ahead are already making plans.

There are sooo sooo many oportunities out there

spot on

[thenodrog]

Yes much wringing of hands and renting of cloth with reporters doing what they do best.... reporting with retrospective analysis. I guess any journo's / reporters with clear vision simply aren't reporters.