Category: Economy

While the Bear Stearns story is still unfolding it is obvious that the Federal Reserve Bank and Chairman Ben Bernanke have thrown caution to the wind and are now dancing with the Bear.

They are also dancing with a hot, really enraged, A group of shareholders who are claiming rape and who are wondering, with good reason, how they could have been practically wiped out in record time. From a high of over $170 a share only last year the generous price set by the Fed and JP Morgan for Bear Stearns was all of $2.00 a share.

Last week’s “buy out” of Bear Stearns really highlights the severity of the the possibility of a complete monetary system collapse. And not just by the investments banks, brokerage firms, and commercial banks but by the US Federal Reserve.

In order to induce JP Morgan to “buy” the Bear the Federal Reserve offered $30 billion dollars of taxpayer money to protect Morgan from nasty Bear portfolio surprises. No doubt here will be some in there as at $2.00 a share the Bear subprime “assets” must be toxic waste of the worse sort.

The Federal Reserve then did something totally unprecedented. The Fed, under Ben Bernanke’s throw the money from helicopters direction, made the same overnight lending facilities available to the brokerage firms as are available to the banks.

And the collateral for these loans? Why of course it is the impossible to evaluate toxic waste subprime paper that can’t be sold or even evaluated anyplace else. In effect the Fed has become the dumping ground for all of the contaminated near worthless paper that no one else will touch.

====== As Stated by the Taipan Publishing Group ====

Dollar Fall Places US Economy as Number Two Behind Eurozone

Under President George W. Bush the fall in the Dollar places the US economy behind the Eurozone. This means that the United States has lost it’s long held position as the world’s largest economy.

Is it fair to blame Bush for, from the American point of view, this sad fact? I sincerely think so.

Without his misguided and mismanaged war in Iraq and overall reckless spending it is unlikely that the economy or dollar would be in the crisis situation that it is today. Goldman Sacs has released an article that offers a lot more information about the US second place position.

=========== From Google News =========

Dollar’s plunge pushes Eurozone past US, Goldman Sachs says:

FRANKFURT (AFP) ”The dollar’s plunge has made the Eurozone the world’s biggest economy by one measure and has underscored shifts that are reorienting the 15-nation bloc towards Asia, Russia and oil-rich Gulf states, analysts say.

“With the Euro now trading around 1.56 against the dollar, the size of its annual output (at market value) has exceeded that of the United States,” US investment bank Goldman Sachs estimated last week.

Go to Google News for the rest of the story.

I am amazed at all of the talking heads, financial analysts, government officials, investment newsletter gurus and all of the rest of the so called experts who are still asking if the US economy is in a recession.

Of course we are in a recession. One that has stagflation elements to it as well. Just ask an average American who shops for groceries, pays up for gasoline, is fearful of losing his job, is underwater with his house mortgage, and is using his credit cards to pay for household expenses, what he thinks.

His answer may not fit the official definition of a recession, which is two back to back quarters of negative economic growth, but it will likely be very accurate. Yes, indeed , we have moved into a recession that may turn out to be something even worst. Much worst. Stagflation is the worse of all worlds where economic activity plummets while prices continue to increase. The poor consumer has less money yet has to pay higher prices for everything from gasoline to milk and meat.

As the recession gets worse those experts and political spin artists who still deny it will fall in line. If you are smart you will avoid the rush that will surely come later this year. It is wise to act now to protect yourself.

The recession will get much, much worse than the forecasters are currently saying. The “experts” were wrong last year. They were very wrong last month. They are wrong now as they talk of avoiding a recession that we are already in.

And those who think that we are in a recession, but not to worry, as it will be short and not very deep, will be proved wrong as well. Those who believe that the government can easily solve the problems by cutting interest rates to one or two percent will be very wrong.

Barbara Ehrenreich writes in the Washington Post that “The Boom Was a Bust For Ordinary People”. This is an interesting article that points out that for the most part lower and middle income families did not participate over the past few years in the widely touted, by the Bush administration, economic gains for the economy as a whole.

Unfortunately in the US we have reached a stage of late decedent capitalism where massive financial benefits are creamed off by those elites at or near the top of the power and economic heap and there is precious little left to trickle down to the working middle class and the poor.

The financial rewards reaped by failed chief executives in the financial sector are good examples of this. Even though the top executives at leading financial companies like Citigroup and Merrill Lynch made decisions that cost their companies billions of dollars in losses and ultimately their jobs they walked away with multi million dollar severance packages.

Even at lower levels employees of these leading firms who were responsible for selling billions of dollars of toxic subprime mortgage collateralized securities collected huge year end bonuses into the seven figures while the investors lost billions on the deals.

We live in a country where it is expected that top business executives will be paid well. However, compensation for the few at the top has gotten completely out of hand. It is not unusual for top executives to receive as annual salary hundreds of times the annual salary of the typical employee, way into seven figures, then to receive a multi million dollar year end bonus on top of that. Huge sums of money are flowing to the few and are in effect being legally stolen from the company’s shareholders.

The CIA fact book gives a most interesting overview of the USA as well as for just about every nation on earth.

In identifying current US challenges the CIA fact book states that “Soaring oil prices in 2005-2007 threatened inflation and unemployment, yet the economy continued to grow through year-end 2007. Imported oil accounts for about two-thirds of US consumption. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. The merchandise trade deficit reached a record $847 billion in 2007. Together, these problems caused a marked reduction in the value and status of the dollar worldwide in 2007.”

The USA fact book summery pages still lists America as the world’s richest country. This is still true for individual countries although the European Union community is now larger than the US in total GDP, the output of goods and services, which would place the EU in the top spot. China is number three and closing the gap fast.

Else where the CIA fact book it notes that the “US has the largest and most technologically powerful economy in the world, with a per capita GDP of $45,700. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace.

US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals’ home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II.