US Faces The Mother of All Financial Meltdowns

Will the G-7 Nations Impose Capital Controls?
By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch

www.GoldForecaster.com 22nd February 2008

Finance leaders from the Group of Seven, industrialized nations discussed collective action “to calm markets, if price moves become irrational.” Finance ministers and central bankers from the G7 –the United States, Canada, Japan, Britain, France, Germany, and Italy—said that financial market turmoil was serious and persisting. They also said more work was needed to restore markets to good working order and safeguard global growth. The European Central Bank believes that turbulence on financial markets could continue for months.

Consequently the €-group have agreed that if there are “irrational” price movements in the markets, “we will collectively take suitable measures to calm the financial markets”. The markets will not be forewarned of such action, “otherwise it will lose its effect if it is explained."

No action has been seen yet so no-one is too perturbed it seems. But we are, very perturbed! Could there be a more dramatic warning from the richest nations of the world for us? It may seem easy to assume that all they are going to do is to manipulate the froth out of the market. But they did not say that. How can one “calm” markets? And why will such action “lose its effect if it is explained?” Such statements are so strong they need to weighed carefully.

The succinct admission that turbulent markets will continue being turbulent for some time to come, while stating the obvious, is a warning from the entire body of major financial nations Finance Ministers [not warning from mere newsletter writers]. They are clearly concerned about the veritable Tsunami of Capital that is ready to rush from weak markets to strong, or the disappearence of such that is happening in the credit markets [like the pullback of the sea before the wave hits] and is being replaced by freshly issued money from the Central Banks. They are fully aware that volatility is here, as a market feature, to stay. They realize that such swings destroy the stability of world markets and make the markets malfunction, badly. The situation certainly has to be dire for them to issue such a warning?

What tools are in their hands to “collectively take suitable measures to calm the financial markets”? They are several and of different dimensions. We look at those that would be the first assumed points of action:

Exchange Rate or Interest Rate Management: It is unlikely they are referring to exchange rate or interest rate management as these tools are already in use by separate national Central Banks; however, if these nations want to manage exchange rates ‘in concert’ the game changes somewhat. We presently believe that the G-7 have agreed trading bands within which currencies will move. Outside those bands we expect the G-7 to act to ‘smooth’ them out. They would only contemplate such action if they exepected the volumes of capital are so large that they will make currencies move “irrationally”. History has shown that Central Banks –no matter how important in the global money system—can be defeated by speculators. The potential flows of capital that could flow at the moment are far larger than any speculator has imagined before.

If they succeed in holding exchange rates within specified trading bands, then it will be like making a four-laned highway for the capital to travel down. The markets from which they come from and those they go to will bear the full brunt of the tsunami and will show “irrational moves”. Bear in mind it will be the movement of capital that will show any irrationality, not normal international trade. Consequnetly such moves must be prevented from destabilizing international trade and the exchange rates that affect them. The separation of capital flows from trade flows has usually been the first point of action by Central Banks often making a separate currency for capital movements. This can be through Capital Controls or Exchange Controls, subject to the severity of the “irrationality” of the markets affected.

Credit Markets: We have seen action from several Central Banks now—in particular, the Federal Reserve and the European Central Bank—to the tune of hundreds of billions of $ and €s (a figure expected to rise to over $450 billion). By the end of March we should know what this figure is headed towards in the next year as well as the last one. We have no doubt they will continue to act to save the banking systems of the G-7 group of nations through the replacement of lost values [capital] by the issue of much more as we have seen to date. We are led to believe that the subsidence of confidence in the banking system and amongst bankers themselves is spreading up from the poor end of the housing market to the more expensive end of the market. Thereafter, it is hitting the bond insurance market, likely to hit the credit card market and could push over into the car finance market. Thereafter, who knows where? There is no reason why this disease should stop at one point and not the next. The entire system is like an inverted pyramid with the world banks being the tiny point at the bottom. They will have to focus their attention the most on the capital side of the global banking system! The role of the Central Bankers as lenders of last resort has been amply demonstrated over the last few months and will continue to be so. Unfortunately, the money issued has not been taken by those who really need it, but has often been taken by banks funding other aspects of their operations leaving the crisis relatively intact. The sheer volume of newly issued capital adds to the mighty volumes of capital that can move and cause “irrational movements” in markets.

The G-7 nations are giving us warnings of their coordinated action. Therefore, it has to be action to ‘calm’ international movements of capital. As has been the case in the past and will be in the future, such action will attempt to leave international trade untouched and unhindered to go its merry way of keeping the system going amongst a regime of stable [relatively] exchange rates. Hence, the chief tool has to be Capital Controls or exchange Controls. These measures will be far more than punitive simple “Witholding Taxes” that penalized the export of capital seen in the States in the past. They will have to be immediate and effectively halt “irrational movements”. Only Capital and Exchange Controls fit the bill.

In the Gold Forecaster we have highlighted the probabilty of Capital Controls and Exchange Controls for some time now, but this warning tells us that they are imminent and will arrive without warning as the G-7 have said themselves.

What does this mean for you and for me and for all those financial institutions out there across the globe? It means if we want to protect ourselves from the pernicious effects of these we must act NOW! The time for adjusting one’s affairs, not only to protect one’s wealth, but to re-structure it beyond the reach of these authorities is running out. It would be extremely unwise to wait until the authorities have acted because you might find yourself listening to the sound of the trap of Controls snapping shut over you?

I believe that banking institutions are more dangerous to our liberties than standing armies.The issuing power should be taken from the banks and restored to the people to whom it properly belongs.
Thomas Jefferson

'I always think of all you canvassors and precinct leaders at the front line.
Good luck out there &Thank you. It's appreciated'.-fip -U.K

The link is broken. Anyone have a cache?

My Shelfari page

It is now being openly discussed throughout the mainstream media that were are heading into a deep recession, very bumpy ride ahead for all of us!

Fortune Favors the Bold

I feel i am going to get seriously screwed.
I actually wanted to become a nurse for awhile, but the pay is ridiculous. I guess you're going to start seeing alot of Mexican nurses.

Of course, this is just my opinon. But, I'm very confident that I'm right. Of course, that's just my opinon, too.

Anyway, economy is like your life. What I mean is this. Your own economic life is rather predictable relative to your age. And a country's macro economy is just a sum of all individual economic lives. So, it's also quite predictable. It's not that difficult to figure out the big trend. It's rather extremely simple.

All I need is a population pyramid of a country to tell if the country is having inflation or deflation, if the economy would boom or bust.

Right. Harry Dent stuff. He's basically right. But, keep in mind that you can only tell the general big trend with this measure.

There are other issues that affect short term fluctuations like monetary system, interest rates, etc. But, the main thing is the population. You can tinker around the economy a little bit in the short run with these things, but you can't change the big trend. The population decides the big trend.

That's the real reason why they want NAU. They want the young population of Mexico to mitigate the down turn due to the aging population of U.S.A. They want Canadian population to compete against China and India. Actually, they are rather desperate. I think that China, India and Asia in general laugh at NWO. So, there are talks about genocides.

But, look at Japan. It's a tiny country, but it did pretty good economically speaking. Sure, the population of Japan was an important factor. But, Japan did far better than other countries with similar populations.

Now look at the U.S. It's a tiny country compared to China and India.
But, the U.S. was. Yes, the U.S. was a tiny country before compare to the giants in Europe. So, why the U.S. became so successful? Did you watch Overview of America? You know what? They are right. Americanism. That's the key. That's the only thing that can alter the fate of this economy, not the manipulation of the population.

So, do you understand what I'm talking about? I'm saying that Ron Paul is RIGHT. Listen to him. He's trying to remind you about the Americanism. If you are a neocon of CFR, I know you are scared, but NAU won't help you. Your plan won't work. Go back to the Americanism. That's your solution! Americanism is our solution. It is the future. You better switch sides, soon because you will be defeated BADLY. Learn from the history. Don't make the same mistakes.

Well, good luck to you.

I agree with those of you stating that recessions are a natural part of the cycle and it is possible that the next one will not be anything to worry about. However, I think it is also important to note that we are in a much more financial trouble than we have ever been in as a country. For example, in the past, we were able to work out of recessions by creating products from natural capital for people within and outside of the United States to purchase. However, many predictions state that the US will be importing 100% of it's crude oil by 2020 (vs. 60% in 2006), our manufacturing sector has shrunk massively since WW2, and our supply of many other natural resources has been squandered as well. So considering that the US will soon have to import almost all of our oil for transportation, how will our nation possibly be able to recover and once again make products from natural resources for profit?

In addition, in the past, the United States did not have 9 trillion dollars of debt and 53 trillion dollars in total future obligations to pay. Why would the rest of the world even think about lending the US more money to actually stimulate our economy when we likely won't be able to pay back our existing debts?

Of course, there's also the matter of actual consumer ability to continue spending. Our country has for the first time in history a negative savings rate, record consumer debt, and there are signs that loan defaults will be increasing for at least the next few years. Since the stagflation of the 1970's, things have not been improving for the average American. 80% of the increased value of the stock market has gone to people with incomes in the top 20%. So essentially, the middle class doesn't have anything more to spend. If 70% of our GDP is based on consumer spending, how will be possibly be able to quickly get out of a recession.

I'm no economist, just a believer in common sense. I would say within the next ten years we are looking at a return to 70's stagflation (except longer) in a best case scenario, and a repeat of the great depression at the worst. (Except much more severe, as how due to our greatly increased urban population, America is less self-sufficient than ever.)

Two days ago I read an article (yes, I should have kept it) that said if you used the same benchmarks that were used pre-WWII, America would be classified as being in a depression. Nobody wants to say the "R" word, yet from the 5 weeks I just spent in the US, I have never seen it so bad -- closed businesses, foreclosure signs, trash in the parks, beggars, unkempt people. It really did remind me of something out of the 30's.

Back in Australia, the credit affair continues. It won't last much longer. We are getting a half point interest rate increase next month to 8%.

For those of you with primaries yet to come -- keep up the fight!

For those of you yet to "max out" -- keep it coming.

________________

Good luck to us all,

Lisa C.

www.women4ronpaul.com

havent a bunch of people said that the meltdown will start tomorrow or next week? and each time been wrong?

stopped clock...

from Mike Whitney called "Bernanke's State of the Economy Speach "You Are All Dead Ducks", this found on GlobalResearch.Ca. part of the article after the reading of the Bernanke speach of 2-18 before the Senate Banking Committee----Whitney says "So, lets summarize, the banks are battered by there massive subprime liabilities. Housing is in the tank. Manufacturing is down. Food and energy are up. Unemployment is rising. And consumer spending has shriveled to the size of an acorn. All that is missing is a trumpet blast and arrival of the Four Horseman. How is it Bernanke's economic post mortem never made its way into the major media? Is there some reason the real state of the economy is being concealed from "we the people."

This final meltdown of the US and world economy has been coming for a very long time. Anyone, except perhaps those who swallowed the "new economy" rhetoric, could have predicted this years and years ago. Banksters and Wall Street understand the gameplan (heck, they were the main players) ... which was ALWAYS to bring the United States of America down to third world status. So I'm never impressed with economists who have only recently arrived on the scene, with their dire warnings.

The organizers of this disaster have succeeded beyond their wildest dreams by using the smoke and mirrors technique ... fooling people into believing that "paper" wealth was the same as owning real wealth. Well, it's not! Paper wealth becomes paper garbage when the smoke clears away, as we are now witnessing.

Just 50 years ago, the US was an almost completely self-sufficient economy. It blows my mind that they could turn us around it so short a time. Of course, it took "public" (government brainwashing) schooling, and much TV viewing to dumb people down to accepting the new financial senario and get rich quick schemes..

I have a few suggestions: STOP buying crap from China, even if it costs less. (If I can't find a necessary item not made in China, I buy it second-hand). STOP supporting our Chinese outlets: Walmart, Target, etc. Shop at local stores whenever possible. (Yes, it will cost more but buy only what you need and not what you want). Read up/study barter systems. We will need to resort to such systems just to survive. SAVE YOUR CHINDREN FROM GOVERNMENT "EDUCATION." and GET THEM OUT OF DAYCARE. Raise your own kids. Teach them yourselves, at home. Impart wholesome values to them. Help your neighbors. THROW OUT THE BOOB TUBE! Finally, and most importantly, get on your knees and PRAY! ONLY GOD CAN TURN THIS AROUND ... but He won't do it without our help!

..... Ron Paul and Peter Schiff will be on the television and their counterparts will no longer be able to denigrate and marginalize them.

http://ussatoday.blogspot...

Thank you for the link. The site is quite interesting to look around and it has videos' and everything. It would seem the heat will come on in Aug/Sept from what I can deduce by reading loads of economic website material just about the right time for Ron Paul.

'I always think of all you canvassors and precinct leaders at the front line.
Good luck out there &Thank you. It's appreciated'.-fip -U.K

Here is a paper titled converting paper to gold.

http://www.christianliber...

This is a compelling article.

I disagree with the order stated here. We will see bond insurer downgrades in the majors including Ambac and MBIA before we see broad defaults on credit cards.
http://www.cnbc.com/id/22...
These downgrades are getting ready to happen now: many feel it could come in days or weeks. There is talk of splitting some of these insurers into the good (municipal bond insurance) side, and remainder (bad) side. This is all fine in theory, except that some municipalities, like Vallejo CA, may wind up defaulting on their debts as well. Vallejo may be insolvent by March.
http://www.nbc11.com/news...

Will we wind up with a deflationary (less total cash + credit), or inflationary (more total cash + credit) outcome from this crisis? The former would mean that some prices would fall in nominal terms (although wages might fall faster). The latter might lead to hyperinflation. This is a raging debate on the econ blogs.

Here's an article arguing against the ability of government to inflate debt away our debt:
http://globaleconomicanal...

And an inflationary view (Peter Schiff is an economics advisor to the Ron Paul campaign)
http://www.marketoracle.c...

As I read through these, I keep in mind that the rules as we now know them for the financial system may be changed by our government. There will be a lot of pressure to duck payment on our trillions in obligations. I see strong inflation or hyperinflation as the likely outcome, as otherwise foreigners may be able to come in and "foreclose" on our assets, particularly on corporate debt.

I like the guys steps, but the bankers stand to make more money if they print and inflate their way out of it. It would go more like this. You get paid 50k a year and you only get a 1 or 2k a year raise. Gas and utility prices go up around 20% or more. Food prices go up 20% or more. The housing market goes down only 5% on average. Taxes go up. Crime goes up. Real unemployment goes up. This happens year after year for the next X years and there is scarcely a middle class left. This is my perspective. It will be worse if we are in more wars!

Bill Gates asks Senate for infinite number of H-1B visas
http://video.google.com/v...

Lou Dobbs - Bill Gates Testifies to Senate: Part 1
http://video.google.com/v...

Lou Dobbs - Bill Gates Testifies to Senate: Part 2
http://video.google.com/v...

Sometime last summer, the law firm of Cohen & Grigsby had a stupid or vindictive insider who uploaded 20 videos of their seminar to YouTube.

The problem? The purpose of the seminar was to teach US corporations how to *NOT* find qualified Americans.

I suspect those videos "went viral" and they were pulled down. But *not* before copies had been made. They can now be seen via http://lyrelyrepantzandfi... .

I believe the US Justice Foundation has subsequently filed a lawsuit against the law firm.

This is just like a consumer getting another credit card with a $10K limit.

http://www.ft.com/cms/s/0...
Global credit squeeze: US banks borrow $50bn via new Fed facility

Published: February 18 2008 20:34 | Last updated: February 18 2008 20:34

The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.

think this through very carefully;
I can then use my shares to hope for a dividend on the shares I've bought or I can sell them at a loss or a profit on Company'A'. Correct?
Or I can use my profit assuming I have some on investing more on Company A or Company 'B' who may be foreign, better and using those licenced patents to make better electronic products which undermine Company 'A' s products and I may do both and also buy a Company 'B' product. I have invested some of my profit in a bank who hass lent money to company 'A' who is losing business to Company 'B'..............That's what is happening now. See Motorola.

'I always think of all you canvassors and precinct leaders at the front line.
Good luck out there &Thank you. It's appreciated'.-fip -U.K

Employment is the key to how bad a time we're in for, and right now employment is not in bad shape