Tuesday, October 6, 2009

The IMF to Play Role of Global Central Bank?

The Dollar Needs to be Devalued by Half?

“A year ago,” said law professor Ross Buckley on Australia’s ABC News on September 22, “nobody wanted to know the International Monetary Fund. Now it’s the organiser for the international stimulus package which has been sold as a stimulus package for poor countries.”

The IMF may have catapulted to a more exalted status than that. According to Jim Rickards, director of market intelligence for scientific consulting firm Omnis, the unannounced purpose of the G20 Summit in Pittsburgh on September 24 was that “the IMF is being anointed as the global central bank.” Rickards said in a CNBC interview on September 25 that the plan is for the IMF to issue a global reserve currency that can replace the dollar.

“They’ve issued debt for the first time in history,” said Rickards. “They’re issuing SDRs. The last SDRs came out around 1980 or ’81, $30 billion. Now they’re issuing $300 billion. When I say issuing, it’s printing money; there’s nothing behind these SDRs.”

SDRs, or Special Drawing Rights, are a synthetic currency originally created by the IMF to replace gold and silver in large international transactions. But they have been little used until now. Why does the world suddenly need a new global fiat currency and global central bank? Rickards says it because of “Triffin’s Dilemma,” a problem first noted by economist Robert Triffin in the 1960s. When the world went off the gold standard, a reserve currency had to be provided by some large-currency country to service global trade. But leaving its currency out there for international purposes meant that the country would have to continually buy more than it sold, running large deficits until it eventually went broke. The U.S. has fueled the world economy for the last 50 years, but now it is going broke. The U.S. can settle its debts and get its own house in order, but that would cause world trade to contract. A substitute global reserve currency is needed to fuel the global economy while the U.S. solves its debt problems, and that new currency is to be the IMF’s SDRs.

That’s the solution to Triffin’s dilemma, says Rickards, but it leaves the U.S. in a vulnerable position. If we face a war or other global catastrophe, we no longer have the privilege of printing money. We will have to borrow the global reserve currency like everyone else, putting us at the mercy of global lenders.

To avoid that, the Federal Reserve has hinted that it is prepared to raise interest rates, even though that would further squeeze the real economy. Rickards pointed to an oped piece by Fed governor Kevin Warsh, published in The Wall Street Journal on the same day the G20 met. Warsh said the Fed would need to raise interest rates if asset prices rose – which Rickards interpreted to mean gold, the traditional go-to investment of investors fleeing the dollar. “Central banks hate gold because it limits their ability to print money,” said Rickards. If gold were to suddenly go to $1,500 an ounce, it would mean the dollar was collapsing. Warsh was giving the market a heads up that the Fed wasn’t going to let that happen. The Fed would raise interest rates to attract dollars back into the country. As Rickards put it, “Warsh is saying, ‘We sort of have to trash the dollar, but we’re going to do it gradually.’ . . . Warsh is trying to preempt an unstable decline in the dollar. What they want, of course, is a stable, steady decline.”

What about the Fed’s traditional role of maintaining price stability? It’s nonsense, said Rickards. “What they do is inflate the dollar to prop up the banks.” The dollar has to be inflated because there is more debt outstanding than money to pay it with. The government currently has contingent liabilities of $60 trillion. “There’s no feasible combination of growth and taxes that can fund that liability,” Rickards said. The government could fund about half that in the next 14 years, which means the dollar needs to be devalued by half.

The Dollar Needs to be Devalued by Half?

Reducing the value of the dollar means that our hard-earned dollars are going to go only half as far, which is not a good thing for Main Street. In fact, the move is designed not to serve us but the banks. The dollar needs to be devalued to compensate for a dilemma in the current monetary scheme that is even more intractable than Triffin’s, one that might be called a fraud. There is never enough money to cover the outstanding debt, because all money today except coins is created by banks in the form of loans, and more money is always owed back to the banks than they advance when they create their loans. Banks create the principal but not the interest necessary to pay their loans back.

The Fed, which is owned by a consortium of banks and was set up to serve their interests, is tasked with seeing that the banks are paid back; and the only way to do that is to inflate the money supply, in order to create the dollars to cover the missing interest. But that means diluting the value of the dollar, which imposes a stealth tax on the citizenry; and the money supply is inflated by making more loans, which adds to the debt and interest burden the inflated money supply was supposed to relieve. The banking system is basically a pyramid scheme, which can be kept going only by continually creating more debt.

The IMF’s $500 Billion Stimulus Package: Designed to Help Developing Countries or the Banks?

And that brings us back to the IMF’s stimulus package discussed by Professor Buckley. It was billed as helping emerging nations hard hit by the global credit crisis, but Buckley doubts that is what is really going on. Rather, he says, the $500 billion pledged by the G20 nations is “a stimulus package for the rich countries’ banks.” He notes that stimulus packages are usually grants. The money coming from the IMF will be extended in the form of loans.

“These are loans that are made by the G20 countries through the IMF to poor countries. They have to be repaid and what they’re going to be used for is to repay the international banks now. . . . [T]he money won’t really touch down in the poor countries. It will go straight through them to repay their creditors. . . . But the poor countries will spend the next 30 years repaying the IMF.”

Basically, said Professor Buckley, the loans extended by the IMF represent an increase in seniority of the debt. That means developing nations will be even more firmly locked in debt than they are now.

“At the moment the debt is owed by poor countries to banks, and if the poor countries had to, they could default on that. The bank debt is going to be replaced by debt that’s owed to the IMF, which for very good strategic reasons the poor countries will always service. . . . The rich countries have made this $500 billion available to stimulate their own banks, and the IMF is a wonderful party to put in between the countries and the debtors and the banks.”

Not long ago, the IMF was being called obsolete. Now it is back in business with a vengeance; but it’s the old unseemly business of serving as the collection agency for the international banking industry. As long as third world debtors can service their loans by paying the interest on them, the banks can count the loans as “assets” on their books, allowing them to keep their pyramid scheme going by inflating the global money supply with yet more loans. It is all for the greater good of the banks and their affiliated multinational corporations; but the $500 billion in funding is coming from the taxpayers of the G20 nations, and the foreseeable outcome will be that the United States will join the ranks of debtor nations subservient to a global empire of central bankers.

by Ellen Brown

Carl Cameron Supports Questioning 9/11

Check this link ....... http://bit.ly/f6I1q

Alan Greenspan: Economy Doesn't Need a Second Stimulus

Check this link ....... http://bit.ly/Oy8ie

Three Government Reports Point to Fiscal Doomsday

When our leaders have no awareness of the disastrous consequences of their actions, they can claim ignorance and take no action.

Or when our leaders have no hard evidence as to what might happen in the future, they can at least claim uncertainty.

But when they have full knowledge of an impending disaster … they have proof of its inevitability in ANY scenario … and they so declare in their official reports … but STILL don’t lift a finger to change course … then they have only one remaining claim:


And, unfortunately, that’s precisely the situation we’re in today: Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly:

  • The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …

  • The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.

  • The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.

  • Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.

  • Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!

  • And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.

That is the epitome of insanity.

Yes, the great government bailouts of 2008 and 2009 have bought us some time … but they have promptly proceeded to sell us into bondage.

Yes, they have given us safe passage over tough seas … but only to throw our assets onto the global auction block for the highest bidders.

The one bright spot: Unlike some governments, ours does not conceal the evidence of its folly. Quite the contrary, the proof pours forth from these three government reports in relatively blunt language and unmistakably blatant numbers …

Report #1
Congressional Budget Office (CBO):
The Long-Term Budget Outlook

CBO Reort

The CBO opens with a chart predicting the most dramatic surge in government debt of all time.

It shows that even in proportion to the larger size of the U.S. economy today, the government debt has ALREADY surpassed the massive debt loads accumulated during World War I and the Great Depression … and will soon surpass even the massive debt load of World War II.

“Large budget deficits,” write the authors of the CBO report, would …

  • Reduce national saving,” leading to …

  • More borrowing from abroad” and …

  • Less domestic investment,” which in turn would …

  • Depress income growth in the United States,” and …

  • Seriously harm the economy.”

Worse, on page 14, the CBO warns that:

  • “Lenders may become concerned about the financial solvency of the government and …

  • Demand higher interest rates to compensate for the increasing riskiness of holding government debt.” Plus …

  • “Both foreign and domestic lenders may not provide enough funds for the government to meet its obligations.”

The magnitude of the problem cannot be underestimated. The CBO declares on page 15 that:

  • “The systematic widening of budget shortfalls projected under CBO’s long-term scenarios has never been observed in U.S. history” and …

  • It will also be larger than the debt accumulations of any other industrialized nation in the post-World War II period, including Belgium and Italy, the two worst cases of all.

But the CBO admits that even these frightening projections may be grossly understated because:

  • “The analysis omitted the pressures that a rising ratio of debt to GDP would have on real interest rates and economic growth.”

  • “The growth of debt would lead to a vicious cycle in which the government had to issue ever-larger amounts of debt in order to pay ever-higher interest charges.”

  • “More government borrowing would drain the nation’s pool of savings, reducing investment” and …

  • “Capital would probably flee the United States, further reducing investment.”

But none of these are factored into the analysis. On page 17 of its report, the CBO writes …

“The analysis … does not incorporate the financial markets’ reactions to a fiscal crisis and the actions that the government would adopt to resolve such a crisis. Because [our] textbook growth model is not forward-looking, the analysis assumes that people will not anticipate the sustainability issues facing the federal budget; as a result, the model predicts only a gradual change in the economy as federal debt rises.

“In actuality, the economic effects of rapidly growing debt would probably be much more disorderly as investors’ confidence in the nation’s fiscal solvency began to erode. If foreign investors anticipated an economic crisis, they might significantly reduce their purchases of U.S. securities, causing the exchange value of the dollar to plunge, interest rates to climb, and consumer prices to shoot up.(Bolding is mine.)

Report #2
U.S. Federal Reserve:
Flow of Funds Accounts
of the United States

Flow of Funds

The Fed’s data on page 12 tells it all: The impact on the U.S. credit markets is not just a future scenario. It’s happening right now.

Yes, the government is getting its money to finance its exploding deficits (for now). But it’s hogging all the available supplies, while American businesses and average consumers are getting shut out or even shoved out.

Specifically …

  • In the first half of last year, the U.S. Treasury raised funds at the annual pace of $411 billion in the first quarter and $310 billion in the second quarter.

  • But if you think that was a lot, consider this: THIS year, the Treasury has stepped up its pace of borrowing to annual rates of $1.443 TRILLION in the first quarter and $1.896 TRILLION in the second quarter. That’s 3.5 times and over SIX TIMES MORE than last year’s, respectively.

Meanwhile, the private sector is getting killed …

  • Last year, banks provided new credit at the annual pace of $472.4 billion in the first quarter and $86.7 billion in the second. This year, they’re not providing ANY new credit — they’re actually LIQUIDATING loans at the rate of $857.2 billion in the first quarter and $931.3 billion in the second. So if you’re running a business, you may want to think twice before asking your bank for more money. Instead, they may decide to TAKE BACK the money they’ve already loaned you!

  • Ditto for mortgages. Last year, mortgages were being created at the annual clip of $522.5 billion and $124 billion in the first and second quarters, respectively. This year, on a net basis, mortgages haven’t been created at all. Quite the contrary, the Fed reports that, on a net basis, they’ve been liquidated at an annual pace of $39.3 billion in the first quarter and $239.5 billion in the second.

  • Getting cash out of credit cards and other consumer credit is even tougher. Last year, folks were able to add to their consumer credit at annual rates of $115 billion and $105 billion in the first two quarters. This year, in contrast, they’ve been forced to CUT back on their credit at annual rates of $95.3 billion in the first quarter … and at an even faster pace in the second quarter — $166.8 billion.

Never before in my lifetime have I witnessed a more severe case of crowding out in the credit markets!

And never before has the CBO been so right in its forecasts of fiscal doomsday: One of its dire forecasts was already coming true even before it issued its report.

Report #3
U.S. Treasury Department:
Treasury Bulletin

Treasury Bulletin

Each and every month, the Treasury reminds us of the single fact that no one in the Treasury wants to face:

The U.S. is deep in debt to the rest of the world, and on page 48, it provides the evidence: total liabilities to foreigners of $7,898,435 million (nearly $7.9 trillion)!

This isn’t a new record. It was actually slightly more last year. But the fact is NOTHING has been done to reduce our debt to foreigners. Quite the contrary, it is the deliberate policy of our government to pile up more — to sell foreign investors and central banks on the idea that they must continue to lend us money.

The fact that this could potentially put our nation into deeper jeopardy is overlooked. And the dire forecast by the CBO that foreign investors might pull the plug is pooh-poohed.

Tomorrow at 2 PM, in our online seminar, we’ll tell you why that could be a serious mistake. More importantly, we’ll show you precisely how you can harness these potentially overwhelming forces and even harvest them for profits.

If you’re already signed up, great! You should have your login instructions.

If not, TODAY is your last day. If you don’t register by midnight tonight, you’ll miss it.

Click here. It’s free. And it takes only a few seconds.

Good luck and God bless!


P.S. If you want to see exactly where I get my quotes and data, just click on the page numbers cited above, and you’ll see the relevant pages I’ve extracted from the government reports with the critical information highlighted in yellow.

by Martin D. Weiss, Ph.D.

CBI report warns of 60,000 financial job losses

• Sector job losses could almost double from last year
• Building industry also faces lengthy, jobless recovery

City workers at Bank Tube station.
Tougher times ahead may lie in wait for City workers, seen here on their way home at Bank Tube station in London. Photograph: Rex Features

Up to 60,000 jobs could be lost in the financial services sector this year, according to the CBI and PricewaterhouseCoopers, adding to fears expressed by the International Monetary Fund (IMF) that Britain faces a jobless recovery.

In their quarterly industry health check, published today, the CBI and PwC said the volume of job losses amounts to almost double the number cut in the sector last year. The survey said most staff will be shed in securities trading, closely followed by building societies and life insurers.

There was also a further grim forecast for the building industry. According to a report published by the Construction Products Association today, it will take until 2021 for construction output to reach the levels last enjoyed in 2007. The CPA warns that the flagging construction sector will suffer a drop in output of 15% this year and 2% in 2010 before beginning a slow recovery in 2011.

The poor outlook for the financial services and construction industries, the two engines that drove Britain's economic boom, give ballast to the IMF warnings that Britain's over-dependence on the sectors meant the UK's recovery prospects were worse than those in the euro zone.

In a separate report published today, accountants BDO said also that the UK economy has stalled on the road to recovery as seven consecutive months of climbing output expectations have reversed.

The CBI survey found more firms plan to invest in IT, but continue to cut spending on land, buildings, vehicles and machinery. Andrew Gray, UK banking advisory leader at PwC, said: "They can invest in technology as a way of reducing headcount."

Despite the gloomy jobs figures, the CBI and PwC said that business volumes across the financial services sector grew for the first time in two years in the third quarter of the year, though levels of business were still considered to be well 'below normal'.

Gold to track oil, hit $1,500/oz in 2011 -BoA

LONDON, Oct 5 (Reuters) - Gold prices will hit $1,500 an ounce in 2011 when oil prices move back above $100 a barrel as emerging market growth creates shortages, Bank of America Merrill Lynch said on Monday.

"For the world economy to resume growth of 5 percent, commodity supplies must expand by a similar rate, " said Francisco Blanch, head of global commodity research at the U.S. bank.

"With emerging markets likely to lead the global recovery, too much money chasing too few barrels could bring another spike in oil prices."

Investors use gold as a hedge against inflation, which erodes wealth and is often triggered by rising oil prices.

Spot gold XAU= hit an 18-month high of $1,023.85 a troy ounce last month. It touched a record high of $1,030.80 an ounce in March 2008, while oil saw an all-time high above $147 a barrel in July 2008.

Crude is now around $70 a barrel and gold at around $1,003 an ounce.

If government stimulus measures to kick-start the economy are successful, commodity markets will revisit the record high oil price, Blanch said at the Commodities Week conference organised by Terrapinn.

"Supply will not be there, capital expenditure by oil majors and miners has fallen dramatically. This will come back to haunt us."

Structural supply and demand imbalances and a misallocation of capital on a global scale mean high volatility in commodity markets, he said.

"The financial sector pushed too much of the world's capital into real estate rather than energy in recent years due to political constraints and loose regulatory structures."

Blanch said there were not enough speculators. "If there were, there would have been more projects up and running by now." (Reporting by Pratima Desai; editing by Anthony Barker)

500 To 600 More Bank Failures Coming In Next 12 Months

67 WALL STREET, New York - October 5, 2009 - The Wall Street Transcript has just published its Northeast and Mid-Atlantic Regional Banks Report offering a timely review of the sector to serious investors and industry executives. This 130 page feature contains expert industry commentary through 21 in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Residential Mortgage Situation -- Regional Banks Mergers and Acquisitions Timing Strategy -- Commercial Mortgage Portfolio Decay -- Timing Of Commercial Mortgage Portfolio Bad Debt Write Offs-- FDIC Hit List For Bank Closings -- Mutual Holding Company Structure -- Interest Rate Scenarios -- Banking Pricing Power -- Expensive Bank Valuations -- Tangible Book As Guide For Bank Stock Pricing -- Distressed Sales Of Community and Regional Banks -- TARP Program -- Attitude Of Institutional Investors Towards Resurgence in Community Banking -- Unique Business Models -- Regional Bank Boards Looking For Exit

Companies include: BB and T (BBT); Colonial (CNB); First Niagara (FNFG); PNC (PNC); National City (NCC-PA); Harleysville National (HNBC); Citizens First Bancorp (CTZN); Regions Financial (RF); Bank of America (BAC); SunTrust Banks (STI); Pinnacle Financial (PNFP); Northwest Bancorp Inc. (NWSB); Beneficial (BNCL); Investor Savings Bancorp (ISBC); Territorial Bancorp (TBNK); FNB Bancorp (FNBG.OB); National Penn (NPBC); Trustco Bank (TRST); KeyBank (KEY); MandT Bank (MTB); New York Community Bancorp (NYB); Bank of New York Mellon (BK); Wells Fargo and Company (WFC); JPMorgan Chase and Co. (JPM); Wachovia (WB); Harleysville Savings Bank (HARL); SVB Financial (SIVB); Signature Bank (SBNY); Provident Bank (PBKS); Valley National Bank (VLY); Community Bank System (CBU); NBT Bankcorp (NBTB); Fulton (FULT); Citibank ©; Allied Irish (AIB); Bank of Hawaii (BOH); First Horizon Bank (FHN); Comerica (CMA); Synovus (SNV); Zions (ZION); South Financial Group (TSFG); Bancorp (TBBK); Legg Mason (LM); IBERIABANK Corp. (IBKC); Wilmington Trust (WL); SandT Bancorp (STBA); PHH (PHH); Goldman Sachs (GS); Citigroup ©; U.S. Bancorp (USB); Fifth Third Bancorp (FITB); KeyCorp (KEY); Lehman Brothers; Colonial; Washington Mutual; TD Banknorth (TD), Lakeland (LBAI), Westfield Financial, Inc. (WFD), United Financial Bancorp, Inc. (UBNK), Chicopee Bancorp, Inc. (CBNK)

In the following brief excerpt from just one of the 21 interviews in the 130 page report, industry experts discuss the outlook for the sector and for investors.

Anthony Polini, Senior Vice President, Financial Services, joined Raymond James & Associates Equity Research in 2007, and primarily follows banks and thrifts located in the Northeast and Mid-Atlantic states, as well as Puerto Rico. Mr. Polini began following the banking industry in 1985, when he joined Pru-Bache Securities. He has worked at several firms since then, including A.G. Edwards & Sons, Mabon Securities, Midwest Research and Advest, Inc. Throughout the years, he has received numerous professional accolades and has been frequently quoted by the press. He has appeared on CNBC, The Nightly Business Report, Bloomberg, and various TV news and business programs. He earned his B.A. in psychology and philosophy from the University of Pennsylvania and has an MBA in finance from St. John's University.

Christopher Nolan covers mid-cap banks and special-situation companies in the financial services sector as a Vice President of Equity Research at Maxim Group. Previously, Mr. Nolan worked as a Senior Analyst at Oppenheimer & Company, covering community banks. Prior to joining Oppenheimer, he worked as an Associate at UBS, covering P&C insurance underwriters, reinsurers and insurance brokers. He is a member of the top-ranked team by Institutional Investor magazine, covering regional banks and specialty finance companies. He holds the designation of Chartered Financial Analyst (CFA) and an MBA in finance from Columbia University in New York.

TWST: Let's shift our attention from the mechanics to the environment for acquisitions. Tony, are they all going to be FDIC-originated?

Mr. Polini: Yes, I think Chris made a really good point about the bank failures. I think there are 500 or 600 more to come. I don't necessarily think it derails the relative price performance for the bank stocks, but we certainly have just started with the FDIC "hit list" so to speak. The next 12 months are pretty much limited to FDIC deals. However, by the fall of 2010, perhaps seasonally that's a good time to see a pickup in M&A activity. I actually think 2011 could be a very good year. A lot of these banks are just beat-up. Even in the Northeast, banks had a really rough time with the economic and regulatory environment. Their boards are getting elderly. These are boards of directors that have been to the dance before, so to speak, and may have decided not to hook up in the past at much higher price levels. But I do think these stocks will need to lift up to a higher valuation level where we can get some deals done. But over the near term, we're limited to FDIC deals. Over the longer term, I actually think we could see a substantial pickup in true M&A activity.

Mr. Nolan: I agree and I would add to that I think what you could see is possibly a return to things such as regulatory goodwill, which basically enables regulators to give incentives to banks to actually acquire a weaker peer. I think right now as things stand, the regulatory assisted deals are the only game in town simply because many banks are not willing to part with their capital for a deal unless basically they're given a franchise with a very limited downside or just the deposits. But I think going forward, there is going to have to be some give in terms of the regulators, in terms of increasing the incentives for banks, which could take many forms. But for now, I agree with Tony, it's really regulatory-assisted or nothing.

TWST: I think you both mentioned that you cover some big banks along with the small banks. Do the small banks have an advantage going forward?

Mr. Nolan: Yes and no. I think a lot of it right now depends on the baked-in credit quality to the loans that are already on the books and to which the bank is exposed to. It's going to really drive terms of the credit costs going forward. You've got certain franchises out there which just demonstrate a superior credit quality going forward thus far, like People's United Financial (PBCT). We have a "hold" rating on it. But at the same time, I think a lot of it - at least with the smaller banks - really comes down to the perceived stability of the bank from the customer service and then also some sort of competitive service offering. I think right now the competition for depositors is really centered for the most part on safety and service. I think the competition for loans is, as it always has been, on price. I've noticed banks have also been ratcheting back the terms. They've been making much more stringent terms, particularly for commercial real estate lending. So I tend to think that smaller banks, where smaller companies can have a better relationship than they would have with a large bank, might be better positioned.

Mr. Polini: Chris made some very good points. I think the three largest banks right now, Wells Fargo & Company (WFC), BofA and JPMorgan Chase & Co. (JPM) control about a third of the nation's deposits and have kind of an oligopoly with that deposit base, as well as in the residential mortgage arena. That bodes well for pricing power and all three of those companies actually have some good underlying core revenue growth. For the smaller guys, it really depends on who has the better offensive game right now. If you have a strong offensive game, you're probably taking market share away. But if you're bogged down - and I know some companies that are just bogged down within one portfolio they have in Maryland, and it's negatively impacted their core business in Pennsylvania so to speak. So it all depends on what position you're in right now. If you're in a position of relative strength, and you've been employing an offensive game that's worked throughout the recession from a competitive standpoint, you probably have an edge, and you're probably in a good position to take market share away from some of the bigger guys. There's certainly disruption in the Northeast and Mid-Atlantic just still with Wachovia (WB) and obviously we have some other deals happening as well, like Harleysville Savings Bank (HARL) in Pennsylvania. There are winners and losers on both the large-cap and small-cap side.

Regulatory Disclosures for Anthony Polini

For disclosure at The Wall Street Transcript on 9/30/2009.BAC Bank of America Corporation: Raymond James & Associates received non-investment bankingsecurities-related compensation from Bank of America Corporationwithin the past 12 months.NPBC National Penn Bancshares:Raymond James & Associates makes a NASDAQ market in shares of National Penn Bancshares. NYB New York Community Bancorp: Raymond James & Associates acted as a co-manager in the issuance of New York Community Bancorp, Inc. (NYB) fixed rate senior notes due June 22, 2010 on December 17, 2008. Raymond James & Associates received non-investment banking securities-related compensation from New York Community Bancorp within the past 12 months. Raymond James & Associates sole-managed a follow-on offering of New York Community Bancorp shares in May 2008. WFC Wells Fargo & Co.Raymond James & Associates co-managed a follow-on offering of 468.5 million Wells Fargo & Co. shares at $27.00 per share in November 2008 and a follow-on offering of 392.2 million WellsFargo & Co. shares at $22.00 per share in May 2009. Raymond James & Associates received non-securities-related compensation from Wells Fargo & Co. within the past 12 months.

Please see www.twst.com for disclosures for Christopher Nolan

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 130 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.





















一名來自比利時南部阿登高原的奶農對記者說:“現在牛奶的價格還不如礦泉水,這種現象正常嗎? 我們所要求的不僅是(歐盟)對價格的干預,而且是產量的干預。”今年以來,歐盟鮮奶價格持續下跌,奶農損失慘重。奶農們認為,正是提高牛奶生產配額造成歐 盟市場上奶製品供大於求,進而引發價格暴跌。




巴韋賈今年從劍橋大學畢業後,往泰國旅行慶祝,但7月30日在普吉的一場笨豬跳,卻教他畢生難 忘。英國《每日郵報》報導,巴韋賈當時站在165呎高台上,滿懷興奮地衝前往下跳,但綁在雙足上的強力橡筋鬆脫,結果他以時速130公里向下急墜,身子還 不由自主地打了個空翻,然後飛插入水。猶幸巴韋賈是胸口而非頭顱先落水,才撿回一命。


當地傳媒訪問出事的叢林笨豬跳中心(Jungle Bungy Centre),總經理皮爾斯形容是次意外極不尋常,並指巴韋賈沒有遵守指引,以雙足向下先跳的姿勢玩,才會發生意外。




























據英國報章《每日郵報》報導,全日本航空(All Nippon Airways)發言人表示,若乘客的膀胱是“空”的,就會減輕飛機在飛行時的重量,從而減少燃油的使用量。















































U.S. Financial System Systemic Failure Approaches

Debate stirs on whether the financial structure of the USEconomy is broken irreparably. Debate stirs on whether actions taken in the last year or two have put the nation on a path that can even achieve stability, let alone recovery. Debate stirs on whether a pernicious and not so secret syndicate has taken control of the USGovt financial ministries, let alone be removed. Debate stirs on whether lack of US Federal Reserve audits and disclosure of their accounting is integral to sustaining the syndicate control as well as its probable egregious fraud. Debate stirs whether the nationalizations have actually enabled adoption of wrecked assets, have concealed executive ransacking, and have buried massive counterfeit of bonds.

Debate stirs whether the mountainous federal deficits, the nationalizations of essentially Black Holes, and the endless war spending make deficit reduction a distant dream. Debate stirs on whether the gargantuan accumulation of USFed reserves will spill over to produce widespread price inflation. Debate stirs on why after causing the foundation failure of the US financial structure from Wall Street and the USFed offices, these institutions not only remain in power but demand greater power.

It is my contention that the US financial structures broke without any remote potential for repair and revival in the summer of 2007. The symptoms became obvious in the summer of 2008 to the slower observers with visible shock waves bathed in crisis. The reactions from shock waves have come since the autumn months of 2008. The system has broken, but the syndicate in control wishes to keep the music going, keep the machinery turning, keep the money flowing, so that they can continue the massive rackets, bury the frauds & counterfeit, cover their tracks, process the bad paper into USGovt coffers, continue to corner the printing press operations, continue to con the USCongress into granting more funds for Goldman Sachs to dictate dispensation secretly, and to continue the endless war whose rivers of blood are matched only by rivers of redirected private contractor fraudulent payments.

Nobody seeks justice and prosecution for over $1 trillion in mortgage bond fraud. Nobody seeks to remove Goldman Sachs and JPMorgan from control posts at the USDept Treasury and USFed respectively. Nobody seeks even to locate the missing $50 billion from the Iraq Reconstruction Fund, or to announce the known location of the stolen $100 billion from the Madoff Ponzi Scheme (it aint $50B and they know its exact hiding place). Foreigners have been very busy since the autumn 2008, as they dismantle the levers, knock down the pillars, block the escape routes, yank the collateral from the paper marketplaces, and otherwise thwart the US-UK schemes.

To claim that the system can be put on proper stable footing is lunatic. To expect that the nation can be recalibrated so as to return to the Good Ole Days of US global dominance and leadership is lunatic. To urge that the economic signposts, megaphones, and billboards be once again guided by policies best described as Bubbly Economic Mythology is lunatic. Yet delusional Americans actually believe the dominant ship at sea can lead as flagship, when it has taken on more water than the Titanic. Since the autumn months of 2008, marred by the Lehman Brothers failure, marred by the Fannie Mae adoption, marred by the AIG adoption, punctuated by a shameful 0% interest rate policy (ZIRP) and a green light for limitless money creation (QE), the United States has lost any semblance of leadership. Instead, its leadership has earned scorn, criticism, and disrespect. The last people on the globe to comprehend the American condition of failure, corruption, and military aggression seem to be the Americans themselves, who live within the USDome of Perception. They suffer from perhaps the worst education levels in the industrialized world, coupled with a co-opted national news media network, clouded by the grandest drugstore medication in history. Debate stirs on whether the US actually controls its own news media. The US does not cover the global Paradigm Shift underway that will change its landscape radically.

The clearest conclusions center on almost nothing put on a sustainable viable course for the nation. Amplification and widened breadth of all that failed cannot serve as the core for revival or recovery, let alone stability. Yet such policies seem the only ones our hapless bank leaders are able to execute. It is a dog returning to gobble his vomit. It is akin to managers urging their worst workers to intensify their efforts, and to join the ranks of management. These Keynesians cannot admit that the central bank franchise model has failed, not to be resurrected. In my view, the debates, the foundations, and the reactions scream two major messages. 1) The system is out of control, with the drivers ramming down the accelerator for even more of everything that failed, for a locomotive within a monetary system based upon illegitimate money. 2) The USGovt finances are heading toward a recognized failure, identified by both a banking system bankrupt seizure and a USTreasury default.

The nation cannot come to grips with the bold stark notion that foreigners control our fate, from their revolt against the USDollar as a global reserve currency, from their revolt in supplying additional credit to the USGovt and USEconomy. The reaction so far to crisis has been to rely more heavily upon the Printing Pre$$, to monetize the debts, and to conceal such operations, all while permitting syndicates to operate with impunity. The revolving doors spin freely that fill job posts at the USDept Treasury, Wall Street firms, USGovt regulatory bodies, and key foundations, warranting charges of incest at best and corruption at worst. Things are out of control!

In fact, my forecast is for systemic failure. Its primary elements will be a failed US banking system (as in seizure) and a USTreasury Bond default (as in coerced restructure). Again, martial law and declaration of economic emergency will be the final solution. The prison camps will become debtor prisons and warehouses for illegals, maybe a processing plant for those who refuse virus vaccination. They are already constructed with over 200 ready for occupancy. Those in denial might become residents. They could also feature some dissidents, along with some writer analysts. Two years ago, my analysis regularly mentioned martial law and imposed order to handle the chaos from a disintegrated economy and insolvent dysfunctional banking system.

Here we are in the present, when such forecasts do not sound so outrageous anymore. The Jackass has featured a string of seemingly outrageous forecasts that have come true. The US system is credit dependent, and credit will soon be cut off, in the next chapter of isolation. The Printing Pre$$ is a temporary solution, en route to a failed state. The US leaders and citizens do not learn from history. They defy history amidst delusions of omnipotent power. See the Weimar Republic, which has gone global! Even Gore Vidal expects recognition of the Untied States having adopted communism. Even the World Bank led by yet another Goldman Sachs pupil warns the Untied States not to assume the USDollar will remain the unchallenged global reserve currency.


The true sanctuary is gold, in the face of debauchery of paper money. We see some clear first hand evidence of the ‘Beijing Put’ at work. It could provide a banking system foundation, except that the Gold Cartel and Banker Elite would have to forfeit power, maybe face poverty. Notice the quick recovery. With a slightly lower gold price, the off-take delivery of physical gold has been magnificent, much greater than a week or two ago.

The Wall Street banksters are shocked to learn that demand is not isolated, but rather comes from diverse global sources. The Powerz threw all they could at gold, mentioned some half-baked story about I.M.F. gold sales (more like closure to decade old short sales), and upped the ante of illicit gold futures contract sales (without benefit of COMEX collateral). Notice the moving averages all aligned and rising. Notice the stochastix cyclical index that come down quickly to the 20 low trigger, ready to rise on a quick reload. The response breakout was very typical, seen a million times before. The breakout loses the amateurs and fast traders who miss the big picture. Like a diver off a springboard, the dive commences for a lift upward. The pullback was really miniscule. The recovery was rapid and impressive, in symmetry with the suddenness of the controlled correction. The Chinese are obviously thanking the corrupted Powerz for their paper games, loading on more acidic paper, offering the Middle Kingdom yet more gold bullion at reasonable prices. The Chinese want to maximize their accumulation of gold from the PaperBoyz, at the best price. They do not want a catapult upward in the gold price. They want a gradual controlled price. The Gold Cartel seems extremely willing to accommodate.


Widespread Insolvency is a major theme of the broken condition. The banks have assets and income grossly below their debts and liabilities. They must rely upon phony FASB accounting, which was the basis of the stock recovery beginning in April. They must bring fresh capital, lost as fast as it arrives. They now tell the public what their assets are worth, backwards to any market concept. The households are suffering from mortgage obligations even as housing prices continue to slide lower. With almost one third of American homeowners who hold mortgages operating with an underwater status, whereby their home loans exceed the home value, the army of consumers is more than hampered. Unlike the bankers, the households of America cannot just pound the table, engineer an absurd Stress Test, and declare they are solvent enough for equity extensions. The households line up for defaults and foreclosures instead. The smart ones demand that the bankers prove clear certified title of their property. See the Kansas MERS case that might serve as precedent to jam the gears of the bankers intending to seize homes in foreclosure. The bankers cannot prove they hold clear title. Such is the vagary of mortgage bond fraud, as it seeps to the surface.

The USGovt finances are in shambles, with $1800 billion in fiscal 2009 deficits, and easily $1300 billion to come in the next year. Take away the Printing Pre$$ from the desperate delinquent devils running the USGovt finance ministries, and national debt default would take place within 60 days. The nation does not even contemplate budget surplus, but rather justifies yawning deficits and lies using lunatic forecasts. The industrial base is also largely depleted. The Chinese Most Favored Nation granted in 1999 set the stage for shipment of much of the US factories to China. In the process, the USEconomy replaced income with debt, all in the name of ‘Low Cost Solutions’ moronically. Corporate leaders in America reacted to heavy burdens of government regulations and higher taxes, even to rugged labor unions. Maybe their relocation decisions constituted betrayal, or maybe just reaction to onerous conditions that evolved over decades.

The Albatross of falling property prices, both residential and commercial, continues to hang around the neck of the USEconomy. The full impact of the commercial property decline has yet to be felt, more in delayed reaction. A queer factor comes into play with commercial mortgages and loans. Even if the majority of payments are current, even if most tenants pay rent on time, the loans tend not to be viable for refinance and rollover. The Loan-to-Value ratios are all horrible after a broad 30% to 40% property price decline. Banks require more equity. On the residential side, the Prime Option ARMortgages are lined up for the kill. It seems that payment of less than the required interest was not a good idea after all. It seems that leaving homeowners the option to build their loan balance when property prices fell was not a good idea after all. Now they face 100% to 200% monthly loan payment increases, all in the fine print unread years back. So liquidations and foreclosures will continue to come, complete with outsized bank losses. The Perpetuation of Loss is ensured by continued property foreclosures and liquidation. Despite all talk, the process continues. Despite the pain, the statistics continue to be mangled with a purposeful motive.

The Accounting Fraud for bank balance sheets and stock valuation runs like a cancerous streak throughout the financial sector. The best way to cover up fraud is with more fraud. The best way to cover up accounting chicanery is to have the USCongress bless it as legal, vital, and essential. Once the stock market rose for consecutive months, talk of phony accounting rules is forgotten, SINCE IT SUCCEEDED, even served as proof of recovery. What nonsense! A moral depravity has permeated not just the financial sector, but the public as well. They cry out from the corners laden with pain, but without specific targets. The end of the FASB relaxed rules is scheduled for January 1st. Let’s see if a compromised USCongress and corrupt Wall Street demand its extension. They obviously will. Furthermore, both Basel 2 and Basel 3 guidelines are ignored, since from outsiders. Ignore them at one’s own peril, as they gather as Enemies at the Gate among the USGovt creditors. Theirs might turn into an angry lynch mob. Foreign creditors are the #1 adversary to all things American right here, right now.


Numerous hidden forces sustain the current breakdown and hamper anything remotely resembling a recovery. The only thing in recovery is the banter, billboards, and propaganda. In fact, most praise of success comes from people who praise their own efforts, like USFed Chairman Bernhacky. His predecessor was also very accomplished at praising his own craft and alchemy. Sir Alan Greenspasm left the national banking system hanging over the precipice, from where it fell in a short time after passage of the mantle at his retirement. He believed his housing bubble saved America from disaster. He believed that credit derivatives offloaded risk. Little did he realize that the next disaster is always much greater than the saved previous one, when amplified credit and monetary ease are the solutions relied upon, all pure heresy. He lives now in London, and spends much time in Switzerland. These nations paid his secretive other paychecks. These nations are where his loyalty and all directives came from in my opinion.

Many hidden forces will work to undermine the current efforts to instill a recovery to the USEconomy and a resuscitation of the US banking system. Bernhacky will soon realize that reliance upon the same toxin and formaldehyde to course through the increasingly cancerous bodies will produce even worse problems during the next crisis phase. It comes.

Numerous sustaining forces will contribute toward the inexorable path to systemic failure. It will begin with the relapse failure of the US banking system. Citigroup is facing real bankruptcy, whose numerous segments are underwater and growing worse. Bank of America is in a death spiral, whose CEO Ken Lewis departs amidst political and shareholder legal pressures. Wells Fargo is so dead that its true balance sheet makes a skeleton come to life, whose prime Option ARM and second mortgage exposure is monumental. Maybe Citigroup, BOA, and Wells will use USFed funds to acquire the entire US banking system and subject it to their brilliant acumen, leadership, and access to the corrupt money pits. Lock in those executive bonuses!

The hidden housing inventory will ensure that housing prices continue down for a couple more years. At best they will stabilize somewhat, but only if a monumental hidden housing inventory is permitted to accumulate. The big banks, the very same that abused mortgage bonds with leveraged instruments, own an outsized supply of foreclosed homes. What a fitting reward! They tend to release only a portion of this home supply, so as to permit some price stability as demand catches up. Lenders are reluctant to lend though, even while the foreclosure process continues. Job loss is the main driving factor, amidst household insolvency.

The Zero Interest Rate Policy is worn as a badge of shame to reflect central bank failure. It rewards savings not at all. It encourages the same speculation that produced bubbles to kill the banks and households. It encourages a Dollar Carry Trade, which ensures a pressured decline in the USDollar itself. The October Hat Trick Letter will discuss additional risks and dangerous consequences from the Dollar Carry Trade. Remember, Bernhacky assured the USCongress, the US conferences of economists, and the US people that the USFed would not resort to 0% rates. He did just that. In addition to powering with leverage the US$ exchange rate downward, this carry trade takes away a viable Exit Strategy for the USFed. Imagine Wall Street leveraged speculative machinery interrupting any potential lift in the official US interest rate! Recall that the USFed does take orders from the Wall Street syndicate. They selected him. They hired him. His job is to run the Printing Pre$$ day and night, to invent new liquidity facilities, to preach solutions to the USCongress, to shut up, and to follow orders. In the last year, the USFed has acted like it is the entire banking system. What exactly is the exit doorway to take from that strategy?

Without hesitation, one can claim that No Meaningful Reform or Restructure has occurred. The US financial and economic structures continue to suffer from precisely the same problems that resulted in systemic breakdown in the autumn months of 2008. The difference now is that the previous high volume of acidic money is exceeded with higher volumes now. USGovt debts are now much higher. Lending institutions are less prone to lend now than one or two years ago. Commercial paper used not to flow at all, and now flows but with less volume and from fewer channels and with more USFed assistance than ever before. Innovative thought is totally suppressed, if not crushed. Advocates for a reformed system without paper fiat money are dismissed. The syndicate continues to ply its trade and to control the levers. But their work is frenzied, and they are sure to lose control.

No meaningful reform comes even to the hundreds of thousands of mortgage loans that undergo Home Loan Modification. They cannot alter the loan balances, since that would require alteration of the associated mortgage loans that rely upon income stream from loan payments. This is not acceptable, since it would reveal the pervasive bond fraud, the counterfeit bonds, and the duplicate usage of home loans in multiple mortgage bonds. So solutions come to toss billion$ at the big banks, without solution, an assuredly failed Top-Down approach that appeals to Wall Street. The extort the money and hide the paths of funds. Also, on the small business front, the restructure of the Small Business lender & insurer CIT failed to produce any meaningful revitalization. Its June debt restructure agreement with bond holders failed to stick. It now seeks a $5 billion loan as debtor in possession. A million businesses would be affected if CIT folded and was liquidated. We are told of a recovery in progress. Its roots are in propaganda, crowd control, and shaping of public opinion. George Orwell would smile and smirk from his 1984 address on Cemetery Lane.

No national initiative has come to bring back US industry to the US shores. No national initiative has come to retain businesses by means of reduced taxation and reduced regulatory burdens. No national initiative has come to remove from power those responsible for Wall Street bond fraud. No national initiative has come to even force a proper accounting to Wall Street firms or Fannie Mae or AIG. No national initiative has come to conduct a true autopsy of Lehman Brothers, like to see what assets they held, what hedge funds they sponsored, what counterfeit Fannie Mae bonds they were soon to toss onto the table, and whether JPMorgan did indeed pay off private Lehman accounts with the $138 billion in slush funds. The booty was handed to them at a bankruptcy court meeting held before dawn on an September Saturday morning. No national initiative has come to force disclosure of the TARP fund distribution, or to reveal what the USFed does with its trillion$ of created money. They destroyed the USDollar, and the victims enduring the crisis from inside the USDome need to know. Without hesitation, one can claim that all attempts to shine light on the financial sector and its ivory towers have been obstructed.

Two further factors ensure the sustained crisis in the USGovt finances, with certain continued contagion to the financial sector and the tangible economy. The Endless War with its increasingly less credible banter against terrorism drains the United States of funds, saps its national spirit, cripples its soldiers, and extends risk in countless ways. The USDollar and USTreasury Bond suffer from lost foreign confidence and faith. The real threat to national security lies in the finance sector rooted in Wall Street. Almost all talk about foreign threat is a grand distraction from the internal threat, even as incredibly grand fraud is committed in the name of patriotism. The Entrenched Financial Syndicate remains in power, controls all financial policy, directs funds from the Printing Pre$$, influences the USCongress with slush contributions, controls regulatory body heads, engineers nationalizations of fraud-ridden financial firms, interferes with FBI investigations (see the GSax trading software), integrates with foreign policy, and provides segments to the US press networks. Fully 70% of US press network content comes from the USGovt and its myriad agencies with spokesmen and public relations offices.


Going hand in hand with the destructive 0% policy is the Hidden Monetization of USGovt Debt, clearly. The zero rate encourages new asset bubbles, like the historically unprecedented spectacular USTreasury bubble. USTBONDS MAKE THE FINAL BUBBLE. The zero rate enables new carry trades with no cost. The zero rate permits a private banker party to engage in their own corner carry trade, buying long-dated USTreasurys with free money while shorting the short-term USTBills. This acts like a money machine for bankers to restore their balance sheets. The only trouble is their balance sheets have a hemorrhage at work, with additional ongoing relentless credit portfolio losses. The accounting fraud can only mask the problem, which happens to grow worse with each passing month.

With lost integrity from the 0% rate comes disdain for the monetary system generally and for the USDollar specifically, along with other major currencies locked near 0% also. INVESTORS TURN TO GOLD AND SILVER, the proven sanctuary during crisis.

While the 0% official rate creates problems much like those that erupted in a crisis, the monetization of debt issuance signals to the entire world to abandon the USDollar. The monetization assures the death of the USDollar. It is Weimar revisited, but with more military might and far more arrogance. Megalomania gone awry results in catastrophe. Monetization represents back-door devious measures to stave off the disaster of bond auction failures. Monetization is a broken promise made to creditors, who must feel betrayed. Monetization is a vast undermine to the validity, value, and very authenticity of a currency.

The government debt for the custodian to the global reserve currency is being monetized, thereby creating gigantic air pockets, and funding a carry trade. The most dangerous asset bubble on the planet right now is the USTreasury. It pays 0% on short maturities. What is next? The forced USGovt worker pension contribution to USTreasurys? How about all state workers too, in their pensions? Maybe eventually all 401k and IRA and Keough pension plans as well, in their pensions? Every citizen maybe support the USTreasurys in pensions, out of patriotism, for national security? With lost integrity from the monetization patterned schemes, comes fear of a repeated Weimar hyper-inflation episode. INVESTORS TURN TO GOLD AND SILVER, the proven sanctuary during crisis.

What comes is the US bank system failure. The endless rounds of bank credit portfolio losses dictate it. The Stress Tests are soon to be discredited, less than one year after their farcical production. The leading losers will be commercial mortgages, prime Option ARMortgages, and credit card losses. Banks are not prepared, having inadequate Loan Loss Reserves, guarding their profits, denying their reserves, managing their stock prices. They deceive their share holders on continued portfolio risk. They try to shove all their garbage assets on the USFed and to Fannie Mae under the USGovt roof, amidst the shrill cries of ‘Too Big To Fail’ nonsense. A US bank system failure is coming. With lost integrity from the banking system, insolvent in its own core, supplanted in function by the USFed itself, lending so little as to force declines in the consumer credit funds, comes distrust of financial institutions generally. INVESTORS TURN TO GOLD AND SILVER, the proven sanctuary during crisis.


See the King World News series on ‘Systemic Failure’ in its four parts (CLICK HERE), where the Jackass is interviewed, complete with some anger and emotion. The first and second segments are to be posted before this weekend of October 3rd and 4th. The topic is this article itself. Two additional segments will be added on the following next two weeks. The King World News has had a stream of stellar guests from the highest tiers, that recently included Jim Sinclair, Gerald Celente, and Chris Whalen. See their front page for numerous interviews (CLICK HERE). They slipped in the Jackass to kick up some sand, and to add spice.

As always, avoid the Exchange Traded Funds of StreetTracks Gold (GLD) which is a near complete fraud with grossly inadequate physical metal. They are involved in COMEX fraud to cover paper futures gold contracts. Much the same fraud is committed by the Barclays ETFund for Silver (SLV), with wholly inadequate silver metal. Neither fund submits to independent audits. My personal preference is to invest in silver, but to use gold as the signal. The rise in silver price will be 3x to 5x that of the gold rise, which itself will be significant. Central banks sell no silver, and industry has almost no gold demand. Let gold fight the political battles, to clear the path for precious metals to rise in price to the heavens. Inquiring minds should take this cue on how to buy silver, or one should check the Run To Gold website (CLICK HERE). “The Great Credit Contraction” e-book by Trace Mayer will serve as a classic someday, where this legal scholar claims the system will not collapse, but rather will evaporate. My term is disintegrate, very similar.


From subscribers and readers:

At least 30 recently on correct forecasts such as the Lehman Brothers failure, numerous nationalization deals such as for Fannie Mae, grand Mortgage Rescue, and General Motors.

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by Jim Willie CB

US economic power 'is declining'

US economic power is declining as a result of the financial crisis, the head of the World Bank has said.

"One of the legacies of this crisis may be a recognition of changed economic power relations," said World Bank president Robert Zoellick.

The US, the world's biggest economy, has been in recession for almost two years, while emerging economies like China and Brazil have grown.

This may help bring about a long-term rebalancing of the world economy.

'Changed relations'

"A multi-polar economy less reliant on the US consumer will be a more stable world economy," Mr Zoellick said.

He was speaking in Istanbul before meetings of the the World Bank and International Monetary Fund (IMF), where there is some discussion about how to reorganise the leadership of the bodies so that they better reflect the diversified world.

For example, China recently got a permanent chair on the IMF's 24-seat policy-making committee.

G7 or G20?

Finance ministers from the Group of Seven (G7) richest nations - the US, Japan, Germany, UK, France, Canada and Italy - have also been meeting in Istanbul.

The G7 said the world economy was improving but "there is no room for complacency since the prospects for growth remain fragile and labour market conditions are not yet improving."

Unemployment in the US on Friday surged to a new 26-year high of 9.8%.

G7 finance ministers agreed to keep stimulus spending in place "until recovery is assured".

US Treasury Secretary Timothy Geithner said the US economy had "improved dramatically" but that "conditions for a sustained recovery, led by private demand, are not yet fully established".

Mr Geithner also said the world is recovering "sooner and stronger" than expected.

Questions have also been raised about the future of the G7.

The Group of 20 - consisting of the largest economies including China, India, Russia and Brazil - appears to have replaced it over the past year.

The G20 leaders said after their meeting in Pittsburgh last month that it will become the world's "premier" decision-making forum.

Dead Man Walking

Credit is everything. Without credit expansion there's no recovery because there's no pick-up in overall demand. But credit growth is going backwards. The banks have tightened lending standards and the pool of credit-worthy applicants has vanished. Bank lending is off 14 per cent since October 2008. Private credit is presently decreasing at a 10.5 per cent annual rate. The situation is getting worse, not better.

From the UK Telegraph:

"Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation...

“Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an ‘epic' 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"'For the first time in the post-Second World War era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew,'he said. (Ambrose Evans-Pritchard, "US credit shrinks at Great Depression rate prompting fears of double-dip recession", UK Telegraph)

Foreclosures, delinquencies and defaults are all up. Foreclosure activity is currently at 300,000-plus per month and rising. A huge shadow inventory is being kept off-market to maintain prices. The drip, drip, drip-effect of excess inventory dumped onto the market will keep housing in the doldrums for a decade. Homeowners are unable to borrow on underwater homes. Everything points to a long-term slump in spending.

Corporations are finding it harder to roll over their debt, bank loans are defaulting at a historic pace, and commercial real estate is imploding. Credit destruction is unprecedented, massive and ongoing. The capital hole is bigger than the Fed and bigger than the Treasury. It can't be plugged with liquidity alone.

For now, the government can fiddle GDP with $800 billion infusion of stimulus, but what happens when the political will for more deficit spending dissipates? What happens when foreign investors demand the Fed stop writing checks on an overdrawn account?

The Fed has fixed nothing. The banks are still underwater, output is at record lows, and unemployment is climbing towards 10 per cent. Fed chair Ben Bernanke's multi-trillion dollar rescue programs have kept a wobbly system upright, but nothing more. The economy's underlying problems are still the same. The Fed's quantitative easing (monetization) program has sent stocks surging, but done nothing to stimulate the economy. That's because equities bubbles have negligible impact on aggregate demand; there's no knock-on effect. The real economy is still flatlining while Wall Street parties on. Bernanke's plan has been a total wash.

The government cannot deficit spend forever. Eventually, GDP will have to depend on wage growth and credit expansion. Given the political and institutional bias against labor, (and opposition to wages that rise with productivity) the only way to fuel the economy is through credit growth. And there's the rub. Households have lost nearly $14 trillion in wealth since the crisis began and are in no position to resume borrowing at pre-crisis levels. Consumers are cutting back on spending and paying down debt. They have no other choice.

This is from Bloomberg News:

"Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months.

“Only 8 per cent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 per cent expect to ‘stay the course,' a Bloomberg News poll showed. More than 3 in 4 said they reduced spending in the past year.

“Underscoring consumers' austere attitudes, 77 per cent of respondents said they have cut back on spending during the past year, 59 percent said they have made a bigger effort to pay off debts and 48 percent have put more money aside as savings." (Bloomberg News)

Savings are up and spending is down. The economy is headed into a long-term funk; the "new normal". The Fed's sleight-of-hand programs and Obama's stimulus elixir haven't changed the prevailing downward trend. If anything, they have made matters worse. Consider this from Janet Tavakoli, author of "Dear Mr. Buffett" in an interview with Max Keiser:

"Regarding the outlook, my analysis is grim. I am not a doomsayer, I follow the cash, and so far, I've been correct, and the government has been wrong. Here's the situation. We are at greater risk of a total meltdown due to a deflationary collapse than we were in 2007. After the greatest Ponzi scheme in the history of the capital markets, we've seen history's greatest fiscal and monetary expansion, but it hasn't worked. Debt levels of consumers and business exceed the capacity to repay." (Janet Tavakoli On The Edge With Max Keiser)

The Fed has done nothing to restructure the financial system so the same problems which killed Lehman and thrust the global economy into a tailspin, persist today. When the stimulus runs out and the Fed ends its $1.25 trillion purchase of (Fannie and Freddie) mortgage-backed securities and $300 billion in US Treasuries, interest rates will rise, housing prices will tumble, and the economy will nosedive. Bernanke will be forced back to the printing presses, the only hope for reversing the deflationary spiral. This will trigger the next crisis, a run on the dollar.

This is from an article by Alice Schroeder of Bloomberg News:

"In all the talk of inflation because the Treasury is printing so much money versus deflation because it may not print enough, there is one type of inflation that is rarely discussed. This is the mega-inflation caused by a sudden currency devaluation. Currency is like any financial innovation, an obligation secured by assets. When the obligation is perceived to have increased far beyond the level justifiable by the assets, which in this case make up a country's economy, a bubble has formed......Right now, the American economy is worth less than the value implied by the market value of its obligations." (Gold Tells You U.S. Bubble Hasn't Popped Yet: Alice Schroeder, Bloomberg)

The system crashed because it was built on the false assumption that an unregulated shadow banking system could generate an infinite amount of credit without sufficient capital. This proved to be wrong. Capitalism requires capital. The trillions of dollars in loans, complex debt-instruments, off-balance sheet operations and derivatives contracts were all stacked atop a tiny scrap of capital which eventually collapsed beneath the weight of the debt. This system (securitization) which created the mess, cannot be restored. It required a strong currency, artificially low interest rates, and credulous investors who were unaware of the inherent risks of illiquid assets. Those conditions no longer exist, nor have they for more than two years. Even so, the Fed continues to pump blood into a corpse hoping for some fleeting sign of life. This is why an even bigger crisis cannot be too far off.