Saturday, September 20, 2008

Dollar crash/Crisis legislation

Good Afternoon!

I hope everyone is having a great weekend. I want to share a couple things with you today.

The first thing I wanted to share with you was another report from the well respected GEAB. Take a look at the stunning amount of debt that we have taken on from a historical perspective since WWII. Note: this does not include the additional debt that we will be taking on if the bailout passes this weekend.


The GEAB expects a dollar crash with a 1.75 Euro/Dollar exchange rate by the end of 2008. Here are the two explanations for their thesis as to why this will happen:

#1:

"1st explanation: « The whole world economy is now being hit by the crisis, provoking a rush towards quality » It is certain that the majority of the world's financial operators and investors only realised this summer that Europe, Asia and the emerging markets were also about to be hit by the crisis (« The world plunges into the heart of the global systemic crisis » was the main title of the GEAB's June edition). They had made the mistake to believe in the announcements released by those countries claiming, as always, that all was for the best... until they noticed it was the contrary. Of course the crisis has impacted most currencies, but they are not reacting simultaneously given the very different conditions between for instance the United Kingdom, the Eurozone, Japan and Australia. But, above all, in consideration of the obvious series of bad news coming from the United States (the nationalisation of Fanny Mae and Freddy Mac for instance will increase significantly the country's already abysmal public debt), the US economy can really not be described as a “quality” safe haven, as Lehman Brothers bankruptcy has just illustrated again. As a matter of fact, as we will see in the rest of the explanation on the dollar manipulation, it is precisely for opposite reasons to « quality » that this operation was set up. In any event, the markets' taking into account a new factor would not normally generate such linear, general, lengthy and uninterrupted process. The famous “invisible hand of the market” is less heavy and determining than that. This first argument has therefore been considered very insufficient to explain the scope of the movements taking place since the end of July, and totally irrelevant to justify the duration and linearity of the process."

#2:

"2nd explanation: « The US went into recession before the rest of world therefore they will come out of it sooner » Out of politeness, we prefer not to name the reputable media which, all over the world, repeated this « argument »: so much absurdity is either deliberate lying or plain stupidity. What is certain for the vast majority of financial and economic players is that the US are obviously hit by a severe recession, with their financial system imploding because of the subprime crisis and consequences (2). What is probable for most of them now, is that Europe, Asia and the rest of the world will be affected at various levels and will experience some economic slowdown (LEAP/E2020 already wrote in detail the ongoing and upcoming evolution of this process and it is not the time now to come back on that). What is certain also for the majority of investors, is that besides the UK - and Spain to a lesser extent, no major country is affected by such manyfold crisis (real estate, finance, banking, economy, currency, military…) as the US, no one having the faintest idea of how and when it will end. In fact, this “argument” is based on the idea that the crisis currently affecting the US would be less bad – or not worse, to the maximum – than the crises affecting the rest of the world, and that it would not affect the country any more and any longer than it would affect the rest of the world. Those who claim this argument would also like us to believe that all economic and financial investors massively rushed to buy US dollars and to sell their other currencies, even on those days when the Dow Jones was losing 300 points because of very bad economic news! Apparently these global investors display a rather hectic behaviour: they believe in the US dollar but they are selling all their assets tied to the US economy! They are convinced that the US economy will improve sooner that the rest but they are getting rid of their shares of this economy in order to buy US dollars! This kind of behavioural derangement has no more to do with stupidity, it is madness... unless it is a desperate « retreat forward », and in this case the upward trend is ephemeral and some very serious problems are ahead for the US dollar and US dollar-denominated assets. As we will see later on, it is precisely on this phenomenon that the manipulation played. In any event, the “argument” according to which “the US would get out of the crisis sooner than the others because they got into it before” failed to convince our team."

Quick Take:

I have thought since day 1 that this "first out of recession" thesis was a complete joke. IMO, Our dollar will used as be toilet paper within the next year. Bubblevision can tout this all they want. I believe its a complete joke.

Text of the Financial Crisis Legislation

Here it is folks! The legislation that will solve all of our problems!(NOT) Of course, this is subject to change, but I thought you guys would like to see the rough copy of the legislation.

Here are some blurbsfrom the text that are flat out frightening:

"Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"

Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.—The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.—The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties"

Final Take

I guess Paulson now has the right to be the equivalent of a financial dictator with powers similar to Hitler.

The first paragraph that I highlighted is flat out frightening. This guy basically can do anything he wants without any consequences from any court of law. This is insane! This is the epitome of financial socialism.

What has happened to our country! If I was a financial company, the new powers that Paulson is about to receive would have me quaking in my boots. What if he decides to force these companies to sell their assets at 20 on the dollar?

There are no legal grounds for a bank to stop him if he has Immunity from the legal system.

I assume this will pass right through Congress tomorrow. I don't think the markets are going to like this one bit.

After the beatdown he gave AIG, Morgan Stanley and others better watch their backs.

6 comments:

opportunistic said...

I hope he does buy them for 20 cents on the dollar. At least then I (we) can get out of this w/o losing our shirts. My fear is that this institution will buy these assets at or near par\appraised value.

Too bad we don't bailout healthcare and\or education. That might actually do some good.

Any thoughts on the top currency safe havens and the best way to purchase? Swiss franc?

Jeff said...

oppor

Good question on the currencies. I think you may see a flight of safety to gold if most currencies don't appear safe.

The Swiss franc always seems to do well though.

Its going to be intersting to see how this all plays out.

Anonymous said...

So what happens if Congress does not approve this bailout? What effects will it have on the majority of Americans who would be footing the bill if it does pass? Will this have any bearing on anyone who has less than $100,000 and have it in an FDIC insured bank? The banks will still make loans and mortgages. The banks will just have to service these loans themselves - just like in the good old days. The amount of fear-mongering is what is concerning to me. If Paulson did not scare Congress out of their minds would they even consider this legislation? Should anyone even believe Paulson? It seems to me that he has been saying that things aren't so bad quite a few different times this year - now he is saying the world is going to end if they don't get this bailout passed? It can't be a complete surprise to him that all of this is happening. If it is, maybe we need someone else doing his job.

Jeff said...

anon

Funny you say this. I just put up a new post that says the same thing. I totally agree.

johndaniels said...

thanks jeff; keep it up

we are in fact the "exponential function generation" via chris martenson. everything seems just fine until one day, the system collapses out of nowhere. our hockey stick graph is going to really get ugly, and very soon. it won't be gradual..it will be sudden and ugly. just like your most recent article about going to 8300 in one day. I dont doubt it.

From ured.com: "The "free electoral system" has been rendered obsolete. Our choices for representatives have been 'bought and paid for' by these financial elites. The people are given a choice of either pre-paid candidate. The two party system is in servitude to an overall sphere of influence, ruling over both parties. Revolt by the people has been prevented because of the illusion of opposition between the two parties. When have you ever had a viable option for representative besides Democrat and Republican?

It has already been dictated to the American people that we are to bailout Insurance companies, failing banks, and investment houses. Insurance companies: the same ones that take your money in good times, then avoid and delay paying it out as previously agreed when times turn bad. Failing Banks: the same ones that approved $400,000 mortgages with unverified incomes. The same ones that have collected millions of dollars worth of interest and down payments on defaulted loans that they never had to put up any real money for in the first place. Investment Bankers: the same ones that have fleeced gullible investors for years, manipulated the financial markets, incurring massive losses for the common "outsider", created bubbles that the sheep get lulled into, and cheated working class Americans of their life savings...

They all now stand before our heavily leveraged, Fed Bank indebted government, with their well manicured hands out. Now the enslaved tax payers are forced under threat of imprisonment to pay for the failed greed of the banks"

Jeff said...

John

That day may be tomorrow. The futures are tanking tonight.

Hide under a chair tomorrow. Things could unravel