To begin with, just over a week ago, the Swiss unpegged their Franc from Euro. Long the most stable currency in Europe, they finally dropped their peg (a fixed exchange rate) and the move immediately shook the financial world. It triggered a rush to Swiss assets for safety. EU and German banks got hammered. The Euro's exchange rate immediately dropped 30% . Gold went back up to $1300 and silver jumped to $18. (BTW, both metals are off to pretty big starts this year.)
In light of this (IMO) the European Central Bank announced a new round of bond buying - quantitative easing or monetary creation. The ECB said it would combine purchases of government bonds with an existing smaller program of private bond purchases, to create 60 billion euros a month through September 2016. All told, the program will amount to 1.1 trillion euros ($1.16 trillion). The aim, of course, is to revive the EU economy. As many have pointed out, they're going to fix the problem of over extended credit by extending more credit - exactly the same as fixing a hole by digging it deeper.
The Euro is down against the dollar, it's almost 1:1 and I don't recall it ever being there, there's virtually a full tilt currency war going on, and the dollar is the 800 pound gorilla in the room. Strange that it seems to have started with Obama essentially declaring he was going to crash the dollar. Weaken it to the point where our exports increased greatly. The problem with currency wars is that no one wins and everyone loses. Currency wars don’t create growth; they just steal it. Growth is stolen from trading partners until those trading partners steal it back with their own devaluations.
Yemen has collapsed as a nation - to the extent that it really was one to begin with. Worse yet, it appears that Iran is involved.
Saudi Arabia has lost one King and gotten another. The combination of Yemen and Saudi Arabia pushes the region further into some deeply disturbing directions. Last week, John Robb posted a plausible scenario of how ISIS leverages a successful assassination of Saudi general into collapse of the Kingdom and how that could prompt global economic collapse - today's sub-$50 oil bounds up to $150 within a few months. The death of King Abdullah probably makes that even more likely, as Robb reports today. Even worse, he sees the possibility that ISIS captures and flips the Kingdom of Saudi Arabia!
PS: If this doesn't occur, ISIS missed the opportunity, and we're all better off for their mistake.One of the more plausible explanations for the Saudis driving oil prices down is that it pressures their old enemies: Iran and Syria (Sunni vs. Shia, round 9 million). It punishes Russia for helping Iran, both of whom are economically hurting from it, and it also hurts ISIS who gets funding from selling their stolen oil. If the Saudi hand is ripped off that figurative valve by the ISIS jihad, do you think $50 oil stays?
PPS: ISIS is a theocratic network of networks that is both entrepreneurial and dynamic. The KSA is a theocratic hierarchy that's risk averse and inflexible. Which one wins?
Iran! Like many others have said, Iran and other countries see us as a weak country now and are likely to be thinking they need to take their action against Israel or us soon, before a stronger leader takes the reigns again. I think the Iranian general that the Israelis took out this week could have been in the vanguard of putting plans into action.
Iran’s brazenness, or audacity, goes further. While a desperate-looking US administration tries to advance talks over the Iranian nuclear program, the regime in Tehran continues to run a wild foreign policy throughout the Middle East. Though the regime’s income has fallen dramatically in the wake of the drop in oil prices, Tehran is still investing huge sums of money taking control of new assets in the region, from Afghanistan to Libya — almost the territory of the ancient Persian empire of Ahaseurus.Hezbollah, for its part responded to the Israeli strike by saying they're preparing for war in the Galilee region of Israel. Galilee is in the northern part of Israel, near the Golan Heights and Syria. I spent a few days there last August.
“If the highest level of Hezbollah commanders were in the Golan Heights and the high level of Iranians, it means that their idea, [what] they’re planning could be a kind of operation, an act against Israel on a high level,” Reuven said during a conference call Monday organized by the Israel Project (TIP). “It’s significant, the high level of this meeting, of this reconnaissance of the Iranians and Hezbollah.”In the meantime, Obama has transferred almost $12 billion of your tax money to Iran; no doubt helping fund their development of atomic weapons. This past Wednesday they paid $490 million in cash assets to Iran and will have released a total of $11.9 billion to the Islamic Republic by the time nuclear talks are scheduled to end in June. Good thing we keep paying them even when oil is down, or they might not be able to arm Hezbollah to keep killing Israelis and whatever US troops they can get to.
Hot enough for ya?
Hot enough?
ReplyDeleteHotter than the Hubs of Hell!
The worlds economy is in a depression. Worse in some countries then others. More hidden in some countries then others. We have been hiding it and bailing it out since 2008. It is incredible to watch the news or a business program and watch them hide the truth. Never in our history has the interest on savings been this low. Never in our history have we borrowed and printed so much money to prop up the federal government. Rarely if ever has the stock market been so inflated so far past what earnings and company valuations would justify. We are in the great depression again. The difference is that our poor and unemployed don't have to stand in line for a bag of cabbages but get hundred$ in food stamps and eat steak. Our failing companies and institutions are propped up instead of being allowed to fail and be purchased for pennies by someone who could make them work. We are looking at the biggest house of cards in world history. Everyone knows this but none dare speak out and say the emperor has no clothes. Either they are afriad to be called names by everyone else or they are afraid to cause the house of cards to collapse. Do you really believe our stock market is correctly priced/valued? It is a combination of massive influx of federal monies and foreign assets seeking safe and productive investment. In the irony of all ironies our stock market and parts of our economy may actually survive simply because it is the best place in the world to invest!! After all would you invest in Russia, or Greece or the Eurpean Union or even China? The slow moting collapse of the rest of the world may end up propping up our own failing economy and government simply because as bad is it is it is stil better then the alternatives.
ReplyDeleteHaving said that I still expect an economic event that will collapse or partially collapse our own economy. When? Unknowable, but indications are it could be 2 days to 2 years. My money is on months and not years. How bad? Unknowable, mostly because of the aforementioned dire plight of the rest of the world but it could be slightly worse the a bad recession (again) or far worse then the great depression.
The best thing that could happen and should have happened in 2008 is a complete collapse unfettered by the government. Failing companies would have restructured and/or sold off to entrapreneurs at pennies on the dollar and under the best scenario given us a bull economy in under 18 months. The worst scenario is what we have with trillions borrowed and printed and a still under performing economy that depends on the feds breathing life into it. When someone tells you don't panic or now is not the time to panic usually they are right. Today I'm telling you they are wrong. It's time to panic. The good news is anyone paying attention knows somethng terrible is coming and you can prepare for it. The stores are full of "mostly" cheap food and goods and we have money. Soon all that will change...
Anon 1239 - First off, you're absolutely right. Second off, I'm glad you said it because I've said it so many times that I think I'm sounding like an echo machine.
ReplyDeleteBack in '09 or '10, I recall telling a liberal leaning guy that we were in as bad a depression as the '30s. He laughed at me and pointed out there are no soup lines and no lines of people waiting for work. I said, "what makes you think a depression today will look like it did 80 years ago, with our current social structures? What about the food stamps and extended unemployment?" He just looked at me like a deer in the headlights.
The stock market is actually still below it's peak from 2000 when adjusted for the inflation they've created. It's where it is solely because of a few factors, like (1) what you said about being thought to be better/safer than most of the rest, (2) all that money they create goes somewhere, (3) with bond yields as low as they are, people need to go somewhere to get more.