Socio-Economics History Blog

Socio-Economics & History Commentary

Airlines Feeling the Pain of Collapse!

  • Worldwide, airlines are seeing dramatic decline in passenger and cargo load. Many are cutting flights as planes takeoff half empty. Pilots are told to take leave and given pay cut. Retrenchments looms large in this industry.
     
  • SIA, Singapore Airlines, is also badly affected. Not only is declining passenger and cargo volumes affecting airlines, many have hedge against rising oil prices last year. These hedges have now proven costly as oil price collapses.
     
  • How many airlines will go bust as passenger volume drops as much as 40-50% ? It remains to be seen.

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February 13, 2009 Posted by | Economics | , , , | Comments Off on Airlines Feeling the Pain of Collapse!

Gold About to SkyRocket ! China Worries about Treasuries and Diversify into Gold !

space-shuttle-gold1

  • The signs and symptoms of a gigantic meltdown in Teasury bonds and USD are there for all to see. Foreign investors are worried, very worried! The time is getting closer when they will all bailout of US bonds and USD and flee into Gold.
     
  • The Chinese are openly highlighting their concerns! Bloomberg reports in China Needs U.S. Guarantees for Treasuries, Yu Says :
      
    Feb. 11 (Bloomberg) — China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
      
    The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt. 
     
    Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President
    Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.
      
    China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State
    Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets. A People’s Bank of China official, who didn’t wish to be identified, declined to comment on the telephone.
     
    Clinton Talks
    “In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.” 
        ….
    “These comments are some sort of a threat but of course China can never get such a guarantee,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. The U.S. may assure China that it will clean up the financial system and that it “won’t push for a weaker dollar but they can’t promise not to increase the fiscal deficit,” he said. 
      ……
     (Yu YongDing said) China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign-exchange reserves is in danger of being inflated away by the U.S. government’s pump- priming,” he said. 

      
     
  • The Chinese do not want to be accused of causing the collapse of the USD or bond market. Such accusations can lead to war! So they will temper their remarks in politically correct language. But mark my words, they are not idiots. They are preparing for the eventuality of a meltdown. They will do whatever is necessary to protect their US$2 T of foreign reserves. Behind the scenes, things are moving swiftly.
     
  • The nervousness which the Chinese are expressing should be seen in a larger context. Middle East petrodollar oil powers, Japan, Russia and the rest of the world are all feeling it. What happens when their large USD and US bond holdings become toilet paper? Quite a few of these countries will collapse! So, quietly we are seeing a building stampede out of USD denominated asset. Robert Freeman writes in U.S. $2trillion Borrowing Binge May Stop Foreigners Lending :
      
    To borrow such sums, the U.S. needs to present a plausible story to its foreign creditors about how it will pay the money back. Until recently, the dollar’s status as the world’s reserve currency allowed the U.S. to simply print money for the things it wanted to buy. That is what has allowed us to run trade deficits and budget deficits in excess of a trillion a year, essentially borrowing that sum from foreigners on the promise to pay later.
     
    But that era is over. It has become clear to all the world that the U.S. has lived far beyond its means and that it does not begin to earn the funds needed to sustain its lifestyle. After the near collapse of Fannie Mae and Freddy Mac last fall, foreigners have become leery of the “trust us” line that has become Uncle Sam’s only story.
     
    If the U.S. cannot show these foreign lenders – think China, Saudi Arabia, and Japan – how it will pay the money back, they will soon stop the lending, as any sensible creditor would. Why throw good money after bad? This was the clear message of Vladimir Putin and Chinese Premier Wen Jiaboa at the recent Davos conference in Switzerland.
     
    If foreigners stop lending, the resulting collapse will make the recent crisis look like a child’s game of Monopoly gone awry. Instead of a 5% fall in GDP, it will be closer to 15%. Instead of 7.6% unemployment, think 20%. Asset values, meaning home and stock prices, will plummet even further. Consumer spending will retrench dramatically in fear of still further erosions of wealth and income.
     
    At some point, such a dynamic becomes impossible to reverse. To attract the money to run the government, the Treasury will have to raise interest rates on government bonds to stratospheric levels. This will kill off any possible recovery, consigning the U.S. economy to a self-reinforcing downward spiral of insufficient demand, inadequate investment, crumbling infrastructure, declining productivity, and competitive obsolescence.
      …..
    The decades-long sucker’s game we’ve played on other nations and ourselves is over. It’s time to grow up. 
      
  • The Chinese have highlighted that they will be increasing their gold reserves. It currently stands at 600 tons. This is paltry compared to America’s 8100 tons. They are going to buy 4000 tons of gold to boost their reserves.
     
  • Mark O’ Byrne writes in Gold Surges as Nervous Chinese Begin to Diversify Dollar Reserves into Gold :
      
    Of even more significance are the drumbeat of Chinese concerns, the U.S.’ largest creditor regarding their massive U.S. Treasury and other debt holdings. …..
     
    (Yu Yongding)  He has previously said that China should diversify into the euro, yen, oil and gold. Yongding has has warned of possible panic selling of dollar assets leading to a global financial collapse and has said that the potential increases in the value of gold meant China should be hedging its bets by diversifying into gold.
     
    Dow Jones reported in November that China’s central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country’s huge foreign exchange reserves, according to a Chinese newspaper.
     
    China has almost certainly been nibbling in the gold market as they attempt to gradually diversify out of dollars and into gold. Especially in light of the fact that they have less than 1% of their currency reserves in gold unlike most western nations whose gold reserves are very significant percentages of their overall reserves. Despite having the largest foreign currency reserves in the world, they are only 9th in terms of central bank gold reserves and this will change in the coming years as they rebalance and diversify their foreign exchange reserves

      
  • Do you see a potential explosive situation? Circumstances are building to a highly probable massive detonation in the financial market. All hell will break loose! Patrick A. Heller reports in Deluge of Financial Calamities Looming by Mid-March :
      
    As horrible as the financial news for currencies and paper assets has been since mid-2007, it looks like the worst is yet to come – perhaps as early as next month.
     
    Over the weekend the Managing Director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, told a gathering of Southeast Asian central bankers that the world’s advanced economies are already in a depression and that the financial crisis may deepen unless the banking system is fixed.
      
    On Febr. 4, Paul Wolfowitz, the former president of the World Bank, said the IMF and similar institutions are incapable of coping with the global financial crisis because they do not have enough resources.The market appears to have turned on U.S. Treasury debt. Analyst Adrian Douglas issued a report on Sunday titled “Bond Market Collapse Unfolding.” He used his proprietary Market Force Analysis on the price of the 10-year U.S. Treasury Note. Last September and October, as the value of Treasury debt was falling, it looked almost certain that the U.S. Treasury entered the market to purchase its own debt! This had the effect of boosting the price of Treasury bonds.
      
    However, the futures market for 10-year Treasury debt shows that there have been far more sellers than buyers for more than the past six months, a strong sign that bond prices are destined to decline in the near term. For the past eight weeks, Treasury bond prices have indeed been generally declining (i.e. interest rates have been rising). The U.S. government is almost certain to intervene again, as the Treasury debt is the most important in the world, and whose collapse could wreak havoc across the global financial system.
      
    The problem is that the U.S. government is going to have to float massive additional amounts of new Treasury debt in order to immediately finance the second $350 billion of the bank bailouts and the nearly trillion dollars for the new so-called “economic stimulus” program. If almost everyone else is selling and the U.S. Treasury is the primary buyer of its own outstanding bonds, who is going to buy the newly issued debt?
      …..
    In an interview on www.commodityonline.com released Monday, Marc Gugeri, the Fund Manager and Advisor to both Gold 2000 Ltd and the Julius Baer Gold Equity Fund, was asked about the price of gold. He stated, “The majority of investors purchase Paper-(Gold)-Futures at the COMEX. The sellers or counterparties of those Gold-Futures are just a few dominant players. Some of them have an in-official close link to the U.S. government. So far most of the investors didn’t exercise the gold futures and have accepted cash instead of physical settlement. This is about to change. I believe that the COMEX will default and the entire paper gold market will ‘crash’ and gold could rise very quickly to 2,000 [or] 3,000 U.S. dollars. When this happens it will be too late to exercise or to try purchasing physical gold.”
     
    It normally is rare to find such doom-and-gloom commentary appearing in general financial circles. It is even more uncommon for commentators to reveal that some of the dominant players in the gold market have a close link to the U.S. government or that the price of gold could soon double or triple. Lately, mainstream financial analysts have been much more willing to talk about gold, to recommend owning gold for having better appreciation prospects than other assets, and to specifically recommend purchasing physical gold rather than shares in gold exchange traded funds or gold “certificates.” 
       …….
    Perhaps most telling of all, the February 2009 COMEX gold contract fell into backwardation against the March 2009 contract on Feb. 6 and again on Feb. 9. Last Friday, the February contract price closed at $913.90, while the March contract ended at $913.80. On Monday, the February contract finished at $892.40, while March closed at $892.30. The last time that the COMEX gold contract went into backwardation, where the spot monthtraded at a higher price than future months, was in 1980. Being only 10 cents higher and only being higher then just the following month may not seem significant, but the fact that this has not occurred since 1980, as the price of gold exploded, could be the clearest sign that gold is due for a major rise soon. (For full disclosure, I note that the less active New York Stock Exchange LIFFE contract for 100 oz of gold closed Feb. 9 at $892.20 for the February contract and $892.30 for the March contract.)
     
    In sum, a variety of factors are coming together very soon that I think will clobber paper asset values even more than they have suffered in the past 20 months. As these troubles mount, as the Managing Director of the IMF and the former president of the World Bank forecast, the prospects for gold look ever better.
     
  • The reality is: an imminent worldwide financial, economic and monetary collapse is on its way. Can the EU spend US$23T to bailout the banks? There is not enough money in the world to do it! Can America do the same for its banks? Absolutely not. The current problems are too massive and intractable. The world is going down big time! It can be a sharp but short few years of pain. But Western governments are employing idiotic policies to help their bankster buddies. And this will lead to a prolonged 21st Century Great Depression!
     
  • If you have not already taken precautions, better do so before the stampede starts! Gold is about to skyrocket !
     
  • See also :
      
    European Banks may need US$ 23 Trillion Bailout !
    Gold Price Set to Soar !
    What’s not to Like about Gold ?
    Dollar Devaluation, Debt Default & Gold
    Massive US Dollar Devaluation Against Gold During 2009
    Gold Rush Worldwide!
    Obama, Roosevelt, Gold Confiscation and Dollar Devaluation
    Economic Depression and Gold
    Celente – Code Red ! Economy in Collapse !
    GEAB : Systemic Economic Crisis: The Sequence of Global Insolvency Begins
    Global Financial & Economic Meltdown
    GEAB forecasts Next Financial Tsunami in March 2009
    Global Monetary Meltdown in 2009 ?
    America’s Debt – Ticking Nuclear Bomb!
    American & British Banks are Bankrupt!
    Economic Collapse of 2009 – Greater than Great Depression of 1929
    America is at the Edge of Niagara Falls
    Gerald Celente – Trends 2009
    Can Countries Go Bankrupt ?

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Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals.

February 13, 2009 Posted by | Economics | , , , , , , | 10 Comments

Glenn Beck – Great Depression Comparison

  • Glenn Beck interviews Thomas Woods author of “Meltdown” on the 1929 Great Depression and the current economic collapse. Herbert Hoover employed interventionist policies that just made things worse in the Great Depression. Roosevelt did no better. The FedRes caused the Great Depression and made it worse.
     
  • Is the US government doing all the wrong things ? Are they interfering with the natural corrective process of recession? The government and FedRes caused this enormous asset bubble in history and now wants to make things worse. Obama’s stimulus plan mirrors that of Roosevelt’s New Deal in the Great Depression. Roosevelt’s New Deal policies prolonged the depression and led to WW2.

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February 13, 2009 Posted by | Economics | , , , , , | Comments Off on Glenn Beck – Great Depression Comparison