European and US governments happily guarantee most deposits and the inter-banks loans with no money upfront. As for buying up the banks, again it costs next to nothing as most of these banks' shares worth almost nothing too. The stock markets bounce up as I mentioned in my previous blog. Everything sounds too good to be true, well, you are right!
Now, the hard part, most of the banks' money had been wiped out. Money has to be injected by the central banks, so that the commercial banks can start lending again to individuals and corporations, but the fast falling demands and rising unemployment will be followed by tidal waves of bankruptcies of individuals and corporate loans, which mean more and more money will be needed. Now, Europe governments talk about EUR2tn while US, USD2tn. Money do not falls from the sky.
Europe do not believe in printing money (1930s of European's hyperinflation experience taught them of the dangers). The Europeans will bite the bullets of reducing consumption (to increase savings) and at the later stage, increase taxes. Fortunately, Europeans has savings to tide them over this rough period (though southern Europeans are poor savers, and will be more painful). There is a risk that the Southern Europeans may resolve to money printing as they have the history of doing so. Should they print money in large quantities, the EUR may be threaten.
US never has the need to print money as they were the world economic master for the 20th century and at the start of 2000, they have the benefit of borrowing from the world to finance their spending spree. US now uses its financial wizardry (or in fact, trickery) of promising to inject funds into AIG, Detroits-3, the banks...etc but in stages. At the same time, they just simply exchange USD for those worthless housing assets, giving the impression that no money is printed.
Don't be fooled. When the US FED finally needs money out there, US will have to borrow from the wary world. The interest rate (yield) they have to pay will start to rise, causing all other loans rates (and mortgage rate) to rise. US can choose to print money, and the effect on the yield is the same, up. The rising rate will strangle US economy and push it deeper into its recession of bankruptcies, unemployment and even social upheavals for many years.
I feel sad for US. If US has lost the 2nd World War, I may be kaysoon San and probably writing on behalf of some Ikuyo San. As I am still alive today, I sincerely wish US a miracle, avoiding the painful scenario that I believe is going to happen.
Tuesday, October 14, 2008
Wednesday, October 8, 2008
Rescue plan for the US economy? You must be kidding!
'Less than one week after the taxpayers rescued AIG (with USD85bn), company executives could be found wining and dining (costing USD0.4mn) at one of the most exclusive resorts in the nation,' US Congressman Henry Waxman told the House Committee on Oversight and Government Reform.
Beside the USD85bn, USD0.7trn has been designated to buy up houses from the banks at above market prices so as to stabilise the property market. Soros wisely pointed out that the banks will be glad to load off all the worst of the worst housing loans to the FED and keeping the good quality housing loans in their own books. These worst of worst housing loans will not see the light of the day. It is as good as accepting full losses on the FED's books.
Before FED is able to get on with their housing 'rescue' plan, large US companies are in such desperate conditions, that AAA company, GE has to resort to borrow at 10% from Buffet (and additional sweeties thrown in) when normally GE would pay 5% for their working capital from any banks that would usually queuing to lend GE. GM just shut down their whole Europe production because they have run out of cash. FED has to quickly fight the engulfing fire of corporate credit seizure by doing what the banks suppose to do (never before, done by the central bank, FED), provide working capital to normal companies. In short, FED is now behaving like the only bank in USA, as all the US commercial banks try to horde their cash for rainy days (bank run). It is beyond FED to know the quality from the dubious companies in lending money to them, yet FED is now the only standing hero.
As they used to say 'hero dies young' but in the case of FED, he may die cock standing. That is to say, even FED is dead, she still need to give the impression that she is still alive and full of vigor. To do that, she probably already order lots of printing machines for the humongous tasks ahead. Of course, this is a modern world, FED just has to key in additional zeros to the banks' asset values, which is being done now and more zeros as the days go by.
Beside the USD85bn, USD0.7trn has been designated to buy up houses from the banks at above market prices so as to stabilise the property market. Soros wisely pointed out that the banks will be glad to load off all the worst of the worst housing loans to the FED and keeping the good quality housing loans in their own books. These worst of worst housing loans will not see the light of the day. It is as good as accepting full losses on the FED's books.
Before FED is able to get on with their housing 'rescue' plan, large US companies are in such desperate conditions, that AAA company, GE has to resort to borrow at 10% from Buffet (and additional sweeties thrown in) when normally GE would pay 5% for their working capital from any banks that would usually queuing to lend GE. GM just shut down their whole Europe production because they have run out of cash. FED has to quickly fight the engulfing fire of corporate credit seizure by doing what the banks suppose to do (never before, done by the central bank, FED), provide working capital to normal companies. In short, FED is now behaving like the only bank in USA, as all the US commercial banks try to horde their cash for rainy days (bank run). It is beyond FED to know the quality from the dubious companies in lending money to them, yet FED is now the only standing hero.
As they used to say 'hero dies young' but in the case of FED, he may die cock standing. That is to say, even FED is dead, she still need to give the impression that she is still alive and full of vigor. To do that, she probably already order lots of printing machines for the humongous tasks ahead. Of course, this is a modern world, FED just has to key in additional zeros to the banks' asset values, which is being done now and more zeros as the days go by.
Thursday, October 2, 2008
US only real option, and with it, its implications
As CERN has come to a halt, global central bankers have been injecting tons of cash into the seized up credit market, where cash are no longer easily available to the banks and banks, in turn, are tightening loan approvals (or loaning their cash) to businesses. As the global banks' deleverage, more companies will fail. Even AIG, largest US insurance company failed, there is no such thing as large company are safe, GM has just stretched out their hands for billions of 'dole' money from the US government recently.
USD0.7 trillion rescue package is likely to be passed by US Congress this Thursday (or Friday morning Sgp time). As mentioned in my earlier blog, the US government already has USD11 trillions debt and it cannot continue to dole out cash forever. In fact, the Medicare and Social Security alone costs an average of USD4 trillions per year. With the economic downturn, tax revenues will be greatly reduced, causing even higher US government deficit.
US government has 3 options; borrow from the world, raise tax or print money. Recent data has indicated a slowdown of foreigners' willingness to lend to US, which will cause the rise of long term interest rate. Raising tax during recession is politically not possible and in fact, US Senate wants to reduce taxes, which will further widen the deficit.
The rescue package can only spread out the pain of the deep recession. US jobless rate will be climbing rapidly just as retail sales plunges. US houses prices will fall further (despite a 20% drop, it is currently still 70% above its Y2000 house prices). There will be rising mortgage defaults and wide spread bankruptcies.
US government is no different from all other governments that faces economic crisis, they tend to choose money printing. It is politically most expedient in solving economic crisis. It will indirectly reduces their debt, pump more 'steroids' into the economy and create jobs. The price; inflation. The faster the printing machine, the higher the inflation. Foreigners will be reluctant to hold USD, causing the USD to fall, real interest rates to raise. As a result, the import prices will raise, (one good example is the recent oil price hike whenever USD weakens). Long term interest rates will also raises as lenders will expect to be paid above inflation rate.
The US economic fallout will impact on other countries depending on their respective nations' economic structure; domestic vs export oriented growth, domestic demand potential, national savings, resources availability, government economic management skill, t....etc. In short, the higher the exposure to US (direct and indirect export to US, to US' financial instruments, ...etc), the greater the economic weakness going forward.
Similarly, it is also applicable to the companies, keeping in mind that the general respective market demand will weaken considerably and be watchful of the indirect and secondary demand effects. For example, a company may only have 5% direct export to US, but indirectly sold 70% of its products to a third country which ultimately are re-sold to US and, the weakening US economy will weaken Europe economy, causing Europe (secondary) demand to weaken too.
Tuesday, September 30, 2008
Global Economic Perspective of a US spiral
World's GDP (or total global economic activities) per year is about USD60 trillions in Y2008. US GDP accounts for USD13 trillions (about 22%). Due to the US multiplier effect of about 4, a growth rate of 1% by US will increase US by 4% or world's GDP by at about 1% but vice-versa, a US drop of 1% will decrease global GDP by 1%.
US total debt to-date is about USD45 trillions; Corporate debt is USD18 trillions, Govt (or national) debt is USD11 trillions, and Personal debt is USD16 trillions.(11 trillion of mortgages, 4 trillion of credit card, 1 trillions of others). Of the three, the personal debt is of most concern.
Corporate debt is considered a form of capital investment and working capital. Given the USD18 trillions corporate borrowings to the annual activities of USD13 trillions, most analysts would consider the ratio of 1.38 times as very effective capital usage where the payback shouldn't be of any concern. The Corporate USA should be self financing as its projected future earnings is expected to pay for itself. The low capital utilization is due to US high service sector component of the economy.
As for national debt, it is assumed that most of the borrowings were used for infrastructure development which is also considered a capital investment too. US govt expenditure is an exception as a sizable portion of the infrastructure development is not paid by the US government. US govt spent most of its money on wars and its war machinery, health care and some basic education expenses and as such, a sizeable national debt are for consumption and not capital investment. The US baby boomers' generation is going into retirement and with the increasing demand on health care, which in turns will put further pressure on US national debt.
The total US personal debt of USD16 trillions without any savings poses the biggest hurdle to the return of normal economic cycle as US' individuals would not be able to sustain itself and repay its debt. Though USD600 billions have been written off, it is still far from over. The recent financial seizure is just the beginning of the spiraling downward of credit crunch. Now, there is hardly any interbank loaning activities. The US banks are cutting back of normal business loans to businesses (or companies) and also to individuals. This will leads to companies cutting back on employment which will result in sizable unemployment. Unemployment and lower personal loans availability will feed into fall of consumption which will further cause the drop of businesses and further cut back of employment. As such, companies' profits will be badly hit which causes the big drop of US share prices. This vicious cycle will not only affects US economy, but the world's economy as US is the largest consumers' nation.
In 1931 where US has 300% debt against its GDP, the economy simply collapse, resulting in the 1st Great Depression. At that time, there was global contagion, resulting in the collapse of the global economies, one after another which resulted in the 2nd World War.
Today, US has 350% debt, though with the benefit of advance economic and management theories, US will enter into a severe recession, but the bigger concern is will US drag the world's economy into the 2nd Great Depression?
Thursday, September 18, 2008
Paper cannot wrap in the fire...an old Chinese saying
While the scientists are busying ramping up the CERN system, seeking to unravel the secrets to the universe's beginning, mankind on the other hand, through their greed, is also unraveling the economy (please note that it is not just the financial sector), unseen by any man that is still alive (unless he is still alive during the Great Depression era...according to Greenspan's assessment).
My Mar08 blog highlighted the key economic events which more less has come to pass. Since we are entering into the final phase of the global economic disruption, I hope to provide a roadmap of the likely outcome of the economic (including financial) meltdown as
1. Some large US financial institutions are falling apart
2. The big corporates are failing (corporate borrowings are now very constricted which will lead to corporate failures)
3. US jobs are disappearing
4. US consumers (which accounts for 70% of US economy) has decapitalated, as they have run out of assets to mortgage away while piling up credit card debt of USD4 trillions and USD12 trillions of mortgage debt with ZERO net savings and other debts of probably another USD 4 trillions.
5. US national debt stands at USD10.6 trillions or 11.3 trillions with the mortgage rescue package(US annual GDP is USD13 trillion) and still piling up USD50 billions deficit on a monthly basis.
6. Boeing machinists went on strike from recently, stopping the Boeing production over demand for higher salary and outsourcing practice.
6. Foreign investors are now having cold feet when it comes to anything American debt, as US are fire selling (or shutting down) some of the biggest companies; Lehman operations, AIG, ...etc
Many US companies and citizens are now banging on FED's door for 'rescue' money.
1. After receiving USD120 billions in May08, US citizens is asking for another USD120 billions or more (as tabled by the Democrats to the US Congress)
2. After 'footing' the bill (in the form of guarantee of bad debt) of USD30 billions for Bear Sterns debt, market is banging the door for USD85 billions in AIG bail-out and many more to come.
3. General Motors, Ford and Chyraliser are also asking for USD30 billions from FED
4. To-date, FED has dish out USD900 billions. The list will get longer as the weeks passes, as more and more companies tumble
Beside USA, Britain will be the next country that will undergo severe economic downturn. Europe will slowdown and Asia economic growth will also eases.
It is now a foregone conclusion that the developed economies are experiencing recession, but the big question is WHEN will the global economy recover from this downturn. Some are still holding to their dreams that it will be similar to recent previous recessions of 6 months, while others are looking at a 1990s Japanese recession that lasted for about 15 years. Recently, Greenspan (ex-chairman of FED) thinks that it is close to the 1930s Depression or may even surpass it (as he calls it once in a century event). Our deputy PM, Tony Tan highlighted the danger of economic meltdown effects on the global social and political stability.
I will try to offer my views on the likely outcome of this economic unraveling in my next blog.
My Mar08 blog highlighted the key economic events which more less has come to pass. Since we are entering into the final phase of the global economic disruption, I hope to provide a roadmap of the likely outcome of the economic (including financial) meltdown as
1. Some large US financial institutions are falling apart
2. The big corporates are failing (corporate borrowings are now very constricted which will lead to corporate failures)
3. US jobs are disappearing
4. US consumers (which accounts for 70% of US economy) has decapitalated, as they have run out of assets to mortgage away while piling up credit card debt of USD4 trillions and USD12 trillions of mortgage debt with ZERO net savings and other debts of probably another USD 4 trillions.
5. US national debt stands at USD10.6 trillions or 11.3 trillions with the mortgage rescue package(US annual GDP is USD13 trillion) and still piling up USD50 billions deficit on a monthly basis.
6. Boeing machinists went on strike from recently, stopping the Boeing production over demand for higher salary and outsourcing practice.
6. Foreign investors are now having cold feet when it comes to anything American debt, as US are fire selling (or shutting down) some of the biggest companies; Lehman operations, AIG, ...etc
Many US companies and citizens are now banging on FED's door for 'rescue' money.
1. After receiving USD120 billions in May08, US citizens is asking for another USD120 billions or more (as tabled by the Democrats to the US Congress)
2. After 'footing' the bill (in the form of guarantee of bad debt) of USD30 billions for Bear Sterns debt, market is banging the door for USD85 billions in AIG bail-out and many more to come.
3. General Motors, Ford and Chyraliser are also asking for USD30 billions from FED
4. To-date, FED has dish out USD900 billions. The list will get longer as the weeks passes, as more and more companies tumble
Beside USA, Britain will be the next country that will undergo severe economic downturn. Europe will slowdown and Asia economic growth will also eases.
It is now a foregone conclusion that the developed economies are experiencing recession, but the big question is WHEN will the global economy recover from this downturn. Some are still holding to their dreams that it will be similar to recent previous recessions of 6 months, while others are looking at a 1990s Japanese recession that lasted for about 15 years. Recently, Greenspan (ex-chairman of FED) thinks that it is close to the 1930s Depression or may even surpass it (as he calls it once in a century event). Our deputy PM, Tony Tan highlighted the danger of economic meltdown effects on the global social and political stability.
I will try to offer my views on the likely outcome of this economic unraveling in my next blog.
Sunday, May 4, 2008
Why 2008 US housing bust is different from the 1990-1
Art, 4 May 2008
The US unemployment or job loss in April'08 was milder, -20K than projected by the analysts, -70K. It gave hope to those who wanted to believe that the US economy is stronger than expected.
It shouldn’t surprise anyone as the USD 120 billion is about to be pushed into the pockets of consumers in May and June ‘08 and firms are gearing up to grab the that ‘free’ cheques with the buildup of their inventories. So, the 1st Qtr 08, US showed 0.6% growth instead of an expected contraction.
Similarly, the upcoming month’s economic figures on production should become more positive than initially thought, though April 08 sales will still be weak (but not bleak) as some consumers may even spend ahead of their cheques’ receipt. We should also be expecting another ‘healthy’ looking US economic data in the month of Jun 08 and Jul 08 (though slightly weaker due to its secondary effect). Aug 08 economic data will be dim, causing most investors to turn cautious. Sep 08 is where the further weak economic data starts to shaken investors’ confidence. Oct 08 is when the doubts turn into fear followed by panic, which will result in the rout of the US financial markets.
Many want to believe it is a passing storm, just like the 1990-1 housing bust.
In 1990-1, similar housing loans collapsed led to a 3 quarters’ US recession, which did not led to a global recession. Many believed it is the same this time round, but it is NOT going to be the same as the major negative factors are much amplified.
The main difference between the current 2007-8 and 1990-1 US housing loans collapsed are:
1. Income grew only 0.25% leading up to Jan 2008 vs. 1.3% before the 1990 recession
2. Savings rate is 0.3% in past six months end Jan 2008 vs. 7.1% during 1990 (In 2008, 80% of US population earns only 10% of GDP)
3. Consumer spending is already down by 0.2% at this early phase of 2008 downturn vs. down 0.1% in 1990 at its weakest moment (consumer spending account for 70% of GDP)
4. Consumer inflation, CPI is 0.3% in Mar 08 and is expected to deteriorate further with heighten food and energy prices, sucking in large portions of the expendable income, thus reducing consumption for all other items.
5. Shiller US house prices Index declined 21% from the high in 2008 vs. 4% in 1990
6. Corporate profits dropped by 17.6% in 2007 vs 15.7% in 1991. (2008 is expected to be even worse off)
7. Domestic investment is projected by some analysts to drop only by 8.9% in 2008 vs. 12.7% in 1990 but if businesses expect a weak consumption after the hand-out, and profits is falling with PPI growing at 13% annualized, then the projected 8.9% drops in 2008 is not realistic. It will be worse off.
Fed is left with only 2% and due to inflationary pressure, it has entered into a lose-lose situation where any further cuts will trigger heighten inflationary expectation, and on the other hand, tightening will weaken consumers and investment demand.
The weights of the negative factors in US will be too strong, it will go on to destroy many economic activities in its path before US economy can stabilize, possibly 3 years from now.
So, before the expansion can take can place from the USD1 trillion to USD10 trillions, the global economy will have to go through a traumatic phase of stagflation. Though Asia has reduced its exports to G3 (US, Europe and Japan) over the years, it is still at 61.3% and US accounts for about 1/5 of the Asian exports. US slowdown will also drag Europe and Japan down, though at a lesser degree. Asia will slowdown by at least 1/4 effect of US slowdown from its export pace. Singapore having high export exposure (about 70% export and re-export) to US market will suffer more.
The US unemployment or job loss in April'08 was milder, -20K than projected by the analysts, -70K. It gave hope to those who wanted to believe that the US economy is stronger than expected.
It shouldn’t surprise anyone as the USD 120 billion is about to be pushed into the pockets of consumers in May and June ‘08 and firms are gearing up to grab the that ‘free’ cheques with the buildup of their inventories. So, the 1st Qtr 08, US showed 0.6% growth instead of an expected contraction.
Similarly, the upcoming month’s economic figures on production should become more positive than initially thought, though April 08 sales will still be weak (but not bleak) as some consumers may even spend ahead of their cheques’ receipt. We should also be expecting another ‘healthy’ looking US economic data in the month of Jun 08 and Jul 08 (though slightly weaker due to its secondary effect). Aug 08 economic data will be dim, causing most investors to turn cautious. Sep 08 is where the further weak economic data starts to shaken investors’ confidence. Oct 08 is when the doubts turn into fear followed by panic, which will result in the rout of the US financial markets.
Many want to believe it is a passing storm, just like the 1990-1 housing bust.
In 1990-1, similar housing loans collapsed led to a 3 quarters’ US recession, which did not led to a global recession. Many believed it is the same this time round, but it is NOT going to be the same as the major negative factors are much amplified.
The main difference between the current 2007-8 and 1990-1 US housing loans collapsed are:
1. Income grew only 0.25% leading up to Jan 2008 vs. 1.3% before the 1990 recession
2. Savings rate is 0.3% in past six months end Jan 2008 vs. 7.1% during 1990 (In 2008, 80% of US population earns only 10% of GDP)
3. Consumer spending is already down by 0.2% at this early phase of 2008 downturn vs. down 0.1% in 1990 at its weakest moment (consumer spending account for 70% of GDP)
4. Consumer inflation, CPI is 0.3% in Mar 08 and is expected to deteriorate further with heighten food and energy prices, sucking in large portions of the expendable income, thus reducing consumption for all other items.
5. Shiller US house prices Index declined 21% from the high in 2008 vs. 4% in 1990
6. Corporate profits dropped by 17.6% in 2007 vs 15.7% in 1991. (2008 is expected to be even worse off)
7. Domestic investment is projected by some analysts to drop only by 8.9% in 2008 vs. 12.7% in 1990 but if businesses expect a weak consumption after the hand-out, and profits is falling with PPI growing at 13% annualized, then the projected 8.9% drops in 2008 is not realistic. It will be worse off.
Fed is left with only 2% and due to inflationary pressure, it has entered into a lose-lose situation where any further cuts will trigger heighten inflationary expectation, and on the other hand, tightening will weaken consumers and investment demand.
The weights of the negative factors in US will be too strong, it will go on to destroy many economic activities in its path before US economy can stabilize, possibly 3 years from now.
So, before the expansion can take can place from the USD1 trillion to USD10 trillions, the global economy will have to go through a traumatic phase of stagflation. Though Asia has reduced its exports to G3 (US, Europe and Japan) over the years, it is still at 61.3% and US accounts for about 1/5 of the Asian exports. US slowdown will also drag Europe and Japan down, though at a lesser degree. Asia will slowdown by at least 1/4 effect of US slowdown from its export pace. Singapore having high export exposure (about 70% export and re-export) to US market will suffer more.
Wednesday, April 23, 2008
The missing USD 1trillion—IMF thinks it's gone..... Really?
As mentioned before, with $100 billion in depos, these days, banks create money to the size of $10 trillions (100 times; 10 times from money creation and a multiplier of another 10 times through loans' securitization).
Now, $1 trillion turns bad/rotten. $1 trillion will be needed to be put back into the banks. Though the house buyers had signed the papers, they hardly had paid for it and they merely declared themselves bankrupt. In US, houses have gone 'bad' or unlivable anymore as they were damaged so badly that it is better off to build from scratch. BBC reported that copper pipings and any items in these houses that are worth some money have been ripped off to be sold as scraps. In short, the supposedly created asset (or house) has been wiped out, becomes non-existent and now run down like ghost houses.
But don't forget, the $1 trillion loans that turned bad had already gone to somebody else's pockets, as the banks had already paid out that money.
20% to the contractors
20% to material suppliers
10% to lawyers
10% to salesmen
10% to land owners (who sold the land)
10% gone to the government in taxes
20% to the bankers and the CEOs' bonuses
(The percentages may differ among the parties but this does not matter. What matters is that the money has gone to somebodies' pockets)
Banks need to top up that $1 trillion by asking from investors. Who are they? Most of the above listed has spent the money to pay for workers' salaries, others are spent on oil, goods and services. At the end, who is holding the money? Middle East oil men has lots of it, China, India, Singapore and Japan have some of it, but not forgetting the US bankers, hedge fund managers (Soros earns 2.9 billions last year), lawyers, and salesmen have a hand in it too. They will put in some money, for example, GIC & Temasek put in about $30 billions or so. Others like Buffet, bankers, and Middle East Prince Alayweed …etc are supposedly buying in cheap now. But it won’t be enough. The god-fathers will have to print money at the later stage to top up, they are, the central banks and a rough guess, it will be about $300 billions. The $1 trillion top-up will be re-cycled to create more loans, which probably will be 20 times this time from its original value or $20 trillions to start with.
In short, with the $1 trillion "write-offs" which will be topped-up or recapitalised (banking term), the global economy will be flooded with $20 trillions (from the same process of money creation & securitization) in probably 3 years. There will be some assets creation, but others are in a form of more paper money (like the "banana" money kind with G. Washington face on it). The world is now growing doubtful of these green papers, so, the smarter ones have already parked their money in REAL assets, cold hard gold (not cash, unless you are holding the correct currency), copper,...but you can't really eat them when you need it. So, others would prefer soft commodities, soybean, pork, wheat...etc, since the middle class of Indians and Chinese, BRIC and other oil-based nations are demanding it. Of course, black oil is still one of the favourite until the nuclear power stations litter all over the world in 5 years' time. By then, probably starting 5 years from now, oil will start its decline.
So, in view of the extra $20 trillions flooding the market, “where to make the money” you may ask. ….to be cont.
Now, $1 trillion turns bad/rotten. $1 trillion will be needed to be put back into the banks. Though the house buyers had signed the papers, they hardly had paid for it and they merely declared themselves bankrupt. In US, houses have gone 'bad' or unlivable anymore as they were damaged so badly that it is better off to build from scratch. BBC reported that copper pipings and any items in these houses that are worth some money have been ripped off to be sold as scraps. In short, the supposedly created asset (or house) has been wiped out, becomes non-existent and now run down like ghost houses.
But don't forget, the $1 trillion loans that turned bad had already gone to somebody else's pockets, as the banks had already paid out that money.
20% to the contractors
20% to material suppliers
10% to lawyers
10% to salesmen
10% to land owners (who sold the land)
10% gone to the government in taxes
20% to the bankers and the CEOs' bonuses
(The percentages may differ among the parties but this does not matter. What matters is that the money has gone to somebodies' pockets)
Banks need to top up that $1 trillion by asking from investors. Who are they? Most of the above listed has spent the money to pay for workers' salaries, others are spent on oil, goods and services. At the end, who is holding the money? Middle East oil men has lots of it, China, India, Singapore and Japan have some of it, but not forgetting the US bankers, hedge fund managers (Soros earns 2.9 billions last year), lawyers, and salesmen have a hand in it too. They will put in some money, for example, GIC & Temasek put in about $30 billions or so. Others like Buffet, bankers, and Middle East Prince Alayweed …etc are supposedly buying in cheap now. But it won’t be enough. The god-fathers will have to print money at the later stage to top up, they are, the central banks and a rough guess, it will be about $300 billions. The $1 trillion top-up will be re-cycled to create more loans, which probably will be 20 times this time from its original value or $20 trillions to start with.
In short, with the $1 trillion "write-offs" which will be topped-up or recapitalised (banking term), the global economy will be flooded with $20 trillions (from the same process of money creation & securitization) in probably 3 years. There will be some assets creation, but others are in a form of more paper money (like the "banana" money kind with G. Washington face on it). The world is now growing doubtful of these green papers, so, the smarter ones have already parked their money in REAL assets, cold hard gold (not cash, unless you are holding the correct currency), copper,...but you can't really eat them when you need it. So, others would prefer soft commodities, soybean, pork, wheat...etc, since the middle class of Indians and Chinese, BRIC and other oil-based nations are demanding it. Of course, black oil is still one of the favourite until the nuclear power stations litter all over the world in 5 years' time. By then, probably starting 5 years from now, oil will start its decline.
So, in view of the extra $20 trillions flooding the market, “where to make the money” you may ask. ….to be cont.
Subscribe to:
Posts (Atom)
