Triggering A Financial Armageddon.
Isaac Hayes - 26-Dec-2009
Much has happened in the past 18 months and many changes have happened and are continuing to happen and will do so most likely for years to come. But one thing remains the same and that is that there still is no “Mark to Market”.
Markets continue to be distorted by Government money printing and a range of policy changes within their own countries designed for the upcoming agendas of Western Governments.
What are those agendas really, Climate Change?........or just supporting the USA Dollar?
Australia’s own Senator Barnaby Joyce, Tony Abbott's new Finance spokesman has warned us that the USA could default on its debt, triggering a financial Armageddon.
A default by the USA means complete economic collapse around the world and the question we have to ask ourselves is where we are in that?
Printing money (quantitative easing ) may be completely unethical and is essentially theft from everyone that is currently holding that currency, but what other way out is there?
New USA dollars get created out of nothing. The Fed has then kept interest rates historically low for a historically long period. This encourages or even forces USA traders to play the global markets. Which is kind of absurd because some counties see it as pure theft.
In the December 2009 edition of Time Magazine, it was written that in February 2009 Luo Ping, a director general at China’s Banking Regulatory Commission stated that Beijing will continue to buy USA Treasury bonds despite concerns about the dollar.
The heading of the article was: “We hate you guys, but there is nothing much we can do.”
However new comments have emerged from the Chinese central banker Zhu Min last week about how the current situation isn't stable. Zhu was at it again this week. "The United States cannot force foreign governments to increase their holdings of Treasuries" Zhu went on to say that. "The USA is hoping to keep piling up the bills and selling debt to foreign governments and bond buyers".
Brazil, Russia, India and China economies are growing much faster than the developed mature economies of the west. They grew by selling products, often in USA dollars. This left them with the dollar as the main component in their financial reserves. They have little gold and now find themselves hostage to America's paper money.
Question is who in the world has got enough money to buy more USA Treasuries, and why would they?
Meanwhile President Obama has warned that without restraining health care costs, the USA will go Bankrupt.
Absurdly enough at the same time Obama is presenting the health care plan as a way to reduce the country's long term deficits. 60 USA Senators have now lined up behind a health care bill. How you reduce deficits by adding more coverage which will push up costs is beyond us, unless just more money gets printed.
Now let’s talk about Sovereign debt Risk.
It was reported that one of the Australian banks has $12.78 billion in exposure to Italian government debt, but we wonder how many more world banks are in a similar position.
The bank in question came by the bonds because it accepted them as collateral for what it described as an "interbank reverse repurchase agreement".
The bank may be obligated to take on certain loan obligations of its bank partner "under certain circumstances". The Italian sovereign debt is collateral against those potential obligations.
It does not mean that the bank is in imminent danger of losing $12.78 billion. Italy would have to default on its debt first.
But should a default occur the market would have to begin re-pricing the sovereign debt of countries like Italy, Greece, Ireland, and Portugal to reflect the unsustainable nature of fiscal and monetary policy in those places and what does that mean for those countries internally?
One would think that sovereign debt is generally pretty safe since the FSA and APRA have concluded that only sovereign debt meets the liquidity requirements under consideration for bank assets. But sovereign debt isn't safe if the financial crisis turns into a sovereign debt crisis.
The international monetary system, an experimental system built on paper dollars, may be falling apart or being pushed to fall apart. Governments, State and National are going broke. In Europe, the Middle East and in America, governments are tweaking policies on an unprecedented scale to keep the system alive.
Something is going on that we don't understand, but is the trigger to the next financial Armageddon near?
