A Force Five Financial Storm -June 9, 2008

[Guest guest]

A Force Five Financial StormInternational Medical Veritas Association To my readers who follow my financial commentaries warning beacons are being lit from one side of the world to the other. Dmitri A. Medvedev, the new president of Russia, for example, recently said that the world might be in the throes of the worst economic crisis since the Great Depression. While the media is preoccupied with propaganda and getting the right calming slant on each and every bit of bad news, forces are building along tragic fault lines leading to a quick return to financial crisis. My favorite writer on these subjects, Mike Whitney, wrote on June 4 the following closing paragraphs: Thanks to the Fed's ham-fisted monetary policies, a Force-5 economic hurricane is presently looming right offshore and there's nothing Bernanke or Paulson can do to stop it from touching down. If Bernanke cuts rates; commodities (and oil) will skyrocket and foreign investors will ditch the dollar. If he raises rates, banks will fail and the housing crash will accelerate. There are no good options. Economist Nouriel Roubini summed it up like this: "A contracting economy, falling employment, the worst US housing recession since the Great Depression, collapsing home values, millions of households underwater with an incentive to walk away, a shopped out and saving-less and debt-burdened US consumer buffeted by falling home prices, falling HEW, falling stock prices, rising debt servicing ratios, oil at $130 a barrel and gasoline at $4 a gallon, collapsing consumer confidence and falling employment are taking the toll on the economy, on financial markets, on banks, on the shadow financial system and on money markets and credit markets. We were in the eye of the storm rather than past the storm; and the recent events and developments suggest that the worst is ahead of us, for the economy, for equity markets, for credit markets and for money markets." That's right; doomsday, dead ahead. You're doin' a "heck'uva job, Benny!" If you are interested in longer term crisis look at what Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas said recently in regards to Social Security, Medicaid/Medicare liabilities. “No combination of tax hikes and spending cuts, though, will change the total burden borne by current and future generations. For the existing unfunded liabilities to be covered in the end, someone must pay $99.2 trillion more or receive $99.2 trillion less than they have been currently promised. This is a cold, hard fact. The decision we must make is whether to shoulder a substantial portion of that burden today or compel future generations to bear its full weight. Now that you are all thoroughly depressed, let me come back to monetary policy and the Fed.” Fisher concludes saying, “Failing to face up to our responsibility will produce the mother of all financial storms. The warning signals have been flashing for years, but we find it easier to ignore them than to take action.” Not sure why he wastes his breath with both long term and short term trends all heading south at accelerating speeds. American citizens are waking up quickly to the new financial realities and are maxing out their credit cards in their struggle to pay for basics like food and gas knowing they will not ever be able to pay the money back. In like kind they are simply walking away from their mortgages. The United States government is in debt up to its eyeballs to both foreigners and citizens alike and do you think they stand a better chance of paying off their debts? The stress from deepening debt is becoming a major pain in the neck — and the back and the head and the stomach — for millions of Americans. When people are dealing with mountains of debt, they're much more likely to report health problems. Associated Press-AOL Health poll. Money is running out even as prices inflate. In the Great Depression prices dropped but in our current dilemma people and governments are running out of money as prices inflate more quickly. “Across the country, state and local governments are already hip-deep into budget crises in response to declining revenue from property assessments and real estate transfers, writes Steven Pearlstein, The Washington Post. He continues, “One option is to raise taxes and leave less money for private spending, which is what many state and local governments have begun to do. The other is to accept lower levels of government service and subsidies, which inevitably will lower the incomes of some households while forcing others to go without services or pay for them privately. Either way, it amounts to a lower standard of living than we thought we had achieved.” When you know the game is almost up it is intelligent to change ones financial behavior. When one knows ones debt load cannot be paid back it becomes logical in such circumstances to hit the accelerator to spend and borrow even more until one crashes into the wall of bankruptcy, which is a harder wall legally than it was only a few years ago. If ones fiscal behaviors have already created an impossible situation further irresponsible behaviors leap out as the only possibilities until doomsday strikes. Though that day has not arrived yet for the system it is coming every month to millions of more individuals around the globe who are either losing their homes or losing the financial capacity to afford the food they need. http://research.stlouisfed.org/fred2/fredgraph?chart_type=line & width=1000 & height=600 & preserve_ratio=true & s[1][id]=BORROW# Click on this link to see clearly the total recent borrowing of banks from the Federal Reserve. The line on the far right is a flight up a steep slope. Remember banks and individuals have to act out of necessity and will borrow extensively to survive if credit lines are made available. If you got credit and are already in debt you might as well use it for as long as the credit lasts. Fisher says, “if inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario. Inflation is the most insidious enemy of capitalism. No central banker can countenance it, not least the men and women of the Federal Reserve.” This is the tough talk of a central banker and European central banks are sitting more tightly with their money. But in a world where money is debt the monetary windshield wipers don’t work very well. All the money that is – is going to go into everything that matters with energy and food topping the list. Even the money charged on credit cards to buy food is going to support the continued rise in food prices. What is the Federal Reserve going to do now besides lend out hundreds of billions more, charge higher interest rates on that money? Where is the money going to come from to pay for that, from more debt and borrowing? With Fed rates already dropped to the floor to avoid a financial collapse any reversal of that would be disastrous. The financial rubber bands are pulled as tight as they will go. Whether you let go or pull on the bands even harder you end up with the same result – a rapidly changing event not quite under anyone’s control. No matter which way the winds blow force five hurricanes make a mess out of things. A cataclysmic financial storm will do no less. What is threatening is a massive loss of wealth at a rate that will eventually create a panic no matter how well the media manages the herd consciousness. We are living through an era when people in general desperately need more money and are receiving less and this is a precarious situation. The more home prices fall, the further underwater borrowers become, and the more incentive borrowers have to just give up and walk away from their loans. The numbers are only getting worse in 2008 with trillions in value being lost. Jayne O'Donnell, of USA Today writes, “To understand the human consequences of the economic slowdown, you have to look beyond the widespread layoffs. Consider the millions of people who have managed to keep their jobs yet have seen their pay slashed, often drastically. From home-improvement contractors to waiters to salespeople, those who are paid at least in part with commissions, bonuses or tips have been battered by the slowdown.” “Without money to make up for rising costs, credit cards will be increasingly used as the finger in the bursting financial damn that will eventually drown debt burdened Americans who won't be able to meet their monthly card payments, writes Gerald Celente director of The Trends Research Institute. Credit cards will not be enough to protect us from a force five financial storm. Billions of people who have no money at all and live on less than five dollars a day have just been made instantly poorer through rapid food price increases. Governments like China though can afford to buy up huge quantities of grains at any price and will continue to do so for the last thing in the world they want to see is their 1.3 billion going hungry. Chain stores are closing, credit keeps tightening and economic conditions are worsening. The government is going broke, the people are broke, the nation's fighting two costly wars and losing both and the President warns there may be more. Gerald Celente The news is bad and going to get worse and we will shortly see what happens when control is lost. When we start to see day after day 400 point drops in the market we will know the storm is coming ashore with fury. Then the loss of wealth will get truly massive and civilization itself will be challenged. The people who control the media and shape events have done an amazing job of lulling the public and things looked calm for a while, like the storm was heading elsewhere. Alas, this storm is a bit different from any that has gone before it. This one is going to hit square on everywhere in the world simultaneously. It is already a world event about to go critical. Even the majority who are in denial are going to feel this one for it will be a life changing event for most all of us. The strangest thing about this storm though is that as it sits off shore it is ripped into millions of people’s lives and is mowing down more every day. Celente has the right words to cap this tragedy in progress. “Unless oil prices swiftly and dramatically decline, the American people will suffer the worst socioeconomic conditions in living history. Utility bills won't be paid, foreclosures will escalate, crime will dramatically increase, tax revolts, gas riots, strikes and protests will ensue. Millions of elderly, those on fixed incomes and paycheck-to-paycheck people won't be able to heat their homes, fuel their autos or cover their expenses. It's pure and simple. For the working majority, wages are falling, home equity is evaporating, investments are failing, pensions are lost, benefits are scarce and each day it costs more to live.” Mark Sircus Ac., OMDDirector International Medical Veritas Association http://www.winningcancer.com/ International Medical Veritas Association Copyright 2008 All rights reserved. Legal Notice: The Author specifically invokes the First Amendment rights of freedom of speech and of the press without prejudice. The information written is published for informational purposes only under the rights guaranteed by the First Amendment of the Constitution for the United States of America, and should not in any way be used as a substitute for the advice of a physician or other licensed health care practitioner. The statements contained herein have not been evaluated by the FDA. The products discussed herein are not intended to diagnose, cure, prevent or treat any disease. Images, text and logic are copyright protected. ALL rights are explicitly reserved without prejudice, and no part of this essay may be reproduced except by written consent. ©2008 by Mark Sircus