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US losing influence, housing starts, and the next Iceland

Friday, October 17, 2008, 4:00 PM

Here are some interesting stories I collected this week.

US surrenders power to appoint World Bank president
The US is to lose its power to appoint the president of the World Bank after the UK's development secretary, Douglas Alexander, brokered a deal to throw open the post to candidates from any country.

Backed by European governments and developing countries, Alexander overcame resistance from the US and Japan to secure a reform he described last night as "a significant step forward".

My Comment:  This may not seem like much, but symbolically it is huge.  The World Bank wields enormous influence, and for Europe, et al., to demand, and receive, the right to fill the post speaks volumes about US prestige and power at this time.  


Banks borrow record $437.5 billion per day from Fed
NEW YORK (Reuters) - Financial institutions ran to their lender of last resort for record amounts of cash in the latest week, under extreme pressure from the worst global financial crisis in a generation, Federal Reserve data showed on Thursday.

Banks and dealers' overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week's $420.16 billion per day.

My Comment:   This requires a small bit of explanation.  This does not mean that banks took out another $400+ billion each day.  It means that the total amount they had outstanding from the Fed averaged  $437.53 billion.  This is like your average credit card bill for the month.  Still, it speaks volumes about where we are in this crisis.  Also, banks can quickly become addicted to new forms of credit, so watching how the Fed tries to undo this growing dependence on official money will be something to keep a very close eye on.


Housing starts fall 6% to 17-year low in September
WASHINGTON (MarketWatch) - Construction of new homes dwindled to a 17-year low in September as home builders sought to reduce the number of unsold homes in an elusive quest to find the bottom of the historic housing collapse.

Housing starts were off 31% in the past year and were down more than 60% from the peak in early 2006. In the past year, permits for single-family homes have dropped 39%, single-family starts have fallen 42%, and single-family completions have sunk 27%.

My Comment:   This is where the real economy lives - over in the housing markets.  There, the data is not only consistently bad, but it is still accelerating to the downside.  Even as far as the housing starts have dropped, builders are still building at a rate to complete more than 800,000 new units over the next year.

Yet vacant houses and now even vacant apartments are starting to accumulate as people move into dwellings with each other in a bid to save money.  Builders are still building at a rate that is far too fast for the current economic reality.  Look for more banks to get saddled with more defaulting construction loans as builders fail to sell these new units.


Ukraine - the Next Iceland
Ukraine emerged yesterday as the winner of the title "the next Iceland", with the International Monetary Fund offering the former Soviet republic up to $14bn (£8bn) to shore up its financial system. An IMF delegation landed in the country on Wednesday to try to stabilise the country's battered banking sector and ailing currency, hit hard by the global financial crisis. The central bank was forced to impose restrictions on deposit withdrawals and lending after panicked savers rushed to empty their accounts, draining the banking system of more than $1.3bn. The authorities also had to rescue two key banks and battle a sharp fall in the currency as the stock market plunged.

Ukraine emerged as the biggest crisis after Hungary agreed to borrow up to €5bn from the European Central Bank. Capital Economics warned that there were risks for a swathe of emerging European economies in the Baltics and the Balkans, including Lithuania and Latvia.

Their problem is that they have been living beyond their means by borrowing to finance increases in their standard of living.

My Comment:   Trouble starts at the periphery and works its way in.  This is how I see the financial world. First there was the sovereign default of Iceland, a tiny country with an outsized banking system.  Now we find the Ukraine in the same difficulty, with the Baltics apparently not far behind.  

Still, I marveled at that quaint last sentence.  How could such a thing be a problem?  The more the US borrows beyond its means, the stronger its currency seems to grow.   At least lately.

In all seriousness now, I will note that what is true for the Ukraine will prove, someday, to be equally true for the US and for Europe.  Eventually, living beyond your means catches up with you.  Always; no exceptions.

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11 Comments

rlee's picture
rlee
Status: Silver Member (Offline)
Joined: Sep 18 2008
Posts: 148
Re: US losing influence, housing starts and the next Iceland

I'd like to chime in with my comments on the comments: 

[quote=cmartenson]

US surrenders power to appoint World Bank president
The US is to lose its power to appoint the president of the World Bank after the UK's development secretary, Douglas Alexander, brokered a deal to throw open the post to candidates from any country.

Backed by European governments and developing countries, Alexander overcame resistance from the US and Japan to secure a reform he described last night as "a significant step forward".

WOW!  In the world of big business and government, this is as big as it gets.  The US has always been the big cheese here, and the world has had enough.  Another extension of this move?  How about world support of Iran in its quest to sell oil to both eastern and western europe in Euros.  Changing the trade currency for oil (or trying to) was the reason we went to Iraq in the first place, and we were backed FIRST by the UK.  Now look!


Housing starts fall 6% to 17-year low in September
WASHINGTON (MarketWatch) - Construction of new homes dwindled to a 17-year low in September as home builders sought to reduce the number of unsold homes in an elusive quest to find the bottom of the historic housing collapse.

Housing starts were off 31% in the past year and were down more than 60% from the peak in early 2006. In the past year, permits for single-family homes have dropped 39%, single-family starts have fallen 42%, and single-family completions have sunk 27%.

Houses are still being built.  Why?  Because that's what builders do!  There's not enough jobs at Home Depot for all of them.  What's happening though is this:  The new homes are small, simple, plain, and CHEAP!  The American dream of owning your own home is still out there, so to keep the dream alive they're simply marketing better so they can stay alive.  Think about it, if you were new to the housing market, what would look better to you:  An old used up expensive house, or a brand spanky new cheap one with all YOUR color choices in it?

Important thing to note here - these guys (the industry and it's subsidiaries) are where the stable incline of that unemployment figure is coming from.

 


Ukraine - the Next Iceland
Ukraine emerged yesterday as the winner of the title "the next Iceland", with the International Monetary Fund offering the former Soviet republic up to $14bn (£8bn) to shore up its financial system. An IMF delegation landed in the country on Wednesday to try to stabilise the country's battered banking sector and ailing currency, hit hard by the global financial crisis. The central bank was forced to impose restrictions on deposit withdrawals and lending after panicked savers rushed to empty their accounts, draining the banking system of more than $1.3bn. The authorities also had to rescue two key banks and battle a sharp fall in the currency as the stock market plunged.

Ukraine emerged as the biggest crisis after Hungary agreed to borrow up to €5bn from the European Central Bank. Capital Economics warned that there were risks for a swathe of emerging European economies in the Baltics and the Balkans, including Lithuania and Latvia.

Their problem is that they have been living beyond their means by borrowing to finance increases in their standard of living.

Nothing more to say here.  Chris nailed it. Unfortunately, we've become a nation of entitled brats.  While I'm a believer in 'Buyer Beware', it's hard to justify the fact that we as a nation have been all-but bullied into the borrow-all-that-you-can lifestyle.  After all, it's the American Way!!! 

[/quote]

In closing, the situation is pretty bad, it will get worse before it gets better, and the sheeple will bear the brunt of the disaster, while the same four families and their friends laugh all the way to whatever bank they run that week.

 Best of luck to you all.

Bob 

bsm20's picture
bsm20
Status: Member (Offline)
Joined: Oct 8 2008
Posts: 22
Re: US losing influence, housing starts and the next Iceland

A few thoughts of my own...

[quote=cmartenson]

Here are some interesting stories I collected this week.

US surrenders power to appoint World Bank president

[snip]

My Comment:  This may not seem like much but symbolically it is huge.  The World Bank wields enormous influence and for Europe, et al., to demand, and receive, the right to fill the post speaks volumes about US prestige and power at this time.  

[Brian] Americans should get used to this, it will not be the last.   Humble pie will be on the menu for a long time to come.


Banks borrow record $437.5 billion per day from Fed

[snip]

My Comment:   This requires a small bit of explanation.  This does not mean that each day banks took out another $400+ billion.  It means that the total amount they had outstanding from the Fed averaged  $437.53 billion.  This is like your average credit card bill for the month.  Still, it speaks volumes about where we are in this crisis.  Also, banks can quickly become addicted to new forms of credit so watching how the Fed tries to undo this growing dependence on official money will be something to keep a very close eye on.

[Brian] What is interesting is that I believe that this was a record (breaking last week's record?).  The banks are quickly coming to rely on the Fed as the lender of first resort, when it's supposedly defined role is the lender of last resort for these situations.  If this carries on very long, it will become increasingly problematic and painful to wean the banks off of this particular teet.

[snip]

[/quote]

 

I'm not sure that living beyond our means will be that big an issue going forward.  More like a warm fuzzy memory of the "good ol' days" when we "didn't know any better".  The problem going forward is the world having sufficient means simply to live at all.

Good luck to us all.

Brian

 

nodebthere's picture
nodebthere
Status: Member (Offline)
Joined: Aug 17 2008
Posts: 22
Re: US losing influence, housing starts and the next Iceland

 Well written folks, couldn't have said it better.

To repeat a  quote I used earlier, maturity is defined as moving from enviromental support to self support.

We have enjoyed an economy that didn't exist for years . A house of cards waiting for that light breeze of reality to blow it down. I am shocked that nobody saw it coming. Credit cards are the crack cocaine of the financial world and now it is time for re-hab. Let's hope you don't fall of the wagon! ...................again.

Good evening , I'm going out to seed some crops and garden for a while, Bob on Vancouver Island

 

Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Re: US losing influence, housing starts and the next Iceland

This snippet supports Chris's contention:

Expect foreigners soon to pull the rug from under the American syndicates in control. Several key meetings have already concluded, totally unreported in the US press, which occurred in Berlin Germany. Consider it the Anti-G7 Meeting. Implications are profound, and involved the Shanghai Coop Org tangentially, since its member nations possess so much new commodity supply. Consider it the Anti-NATO group. An important and powerful alternative financial system is soon to spring into action, including high-level bilateral barter. Those who expect the current US Regime to continue their financial terror are in for a big surprise.

http://www.321gold.com/editorials/willie/willie101708.html

ninakat's picture
ninakat
Status: Member (Offline)
Joined: Sep 27 2008
Posts: 9
Re: US losing influence, housing starts and the next Iceland

Readers might want to listen to an interview with Michael Hudson on Guns & Butter (KPFA) last week. He talks about the same loss of US influence, and the coming problem in the Baltics too.

http://www.kpfa.org/archives/index.php?arch=28790

Also, Jim Willie has said similar things about foreign countries working toward finding a new reserve currency and getting away from the dollar. Once that happens, hyperinflation is likely.

HUGE RISK OF LOSING WORLD RESERVE CURRENCY: As preface, the world banking structure rests atop a world currency foundation denominated in USDollars, with USTreasury Bonds and USAgency Mortgage Bonds serving the primary role as financial instruments. These toxic building blocks are all really bad lego blocks. Foreigners must respond very soon, to replace the US$ as global reserve currency, or else risk a similar implosion to their banking systems. Many USAgency Bonds have been replaced by USTBonds, not much of an upgrade. If the USTreasurys soon suffer in the heart attack seizures underway, foreign economies will be at risk of serious deterioration. So foreigners are working toward a solution. One might be announced soon, with a new world reserve basket announced, based upon the Euro, Russian ruble, Japanese yen, and newly crowned Gulf dinar. The common theme is these are all currencies from nations boasting export surplus. They are taking action, but behind the scenes, like in Berlin. The consequence to the USEconomy is dire. The beleaguered nation would be forced to attract foreign capital, and bid up foreign currencies in order to purchase crude oil. The word inflation would soon be replaced in the press networks with the word “hyper-inflation” as the Untied States enters the Third World overnight.

http://news.goldseek.com/GoldenJackass/1223569353.php

EclecticDilettante's picture
EclecticDilettante
Status: Member (Offline)
Joined: Sep 24 2008
Posts: 4
Re: US losing influence, housing starts and the next Iceland

Losing control over the World Bank seems like a big step toward the US losing control of the world economy and reserve currency status. The ramifications of this seem huge to me. I know the IMF has been planning to audit the US books after GW leaves office. Will this have an impact on that outcome? Could this eventually put the US on the receiving end of their "control and plunder" program used in other faltering countries around the globe? Furthermore, I thought the UK was our best ally, yet this move seems to indicate something quite different. 

Or is my tin hat on too tight again?

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
A Farewell to Bretton Woods

" This may not seem like much, but symbolically it is huge. The World Bank wields enormous influence."

Both the World Bank and the IMF are Bretton Woods-era institutions. The IMF's original purpose was to make balance-of-payments loans to help maintain fixed exchange rates. Fixed exchange rates disappeared in 1973 ... but the IMF didn't. Being a supra-governmental bureaucracy, it just reinvented itself. The World Bank was intended to make loans to promote economic development.

The unwritten political deal has been that the World Bank president would be an American, while the head of the IMF would be a European (after all, the US dollar as central reserve currency was thought to be immune to a devaluation under the original Bretton Woods setup).

One reason the US lost its leadership of the World Bank was its abuse of the privilege. Bush's naming of incompetent neocon Paul Wolfowitz to the position plumbed unheard-of levels of degradation. The witless oaf promptly disgraced himself by starting an affair with a subordinate, and giving her a big raise.

Wolfowitz's malfeasance may be a convenient pretext to obscure the deeper issue that a recklessly-managed debtor nation can't expect to rule the global financial system. Like someone who's using his 10th credit card to make the interest payments on the maxed-out other nine, the US is a childishly spendthrift and irresponsible country, badly in need of adult supervision. As it sinks into Third World status, the US may require World Bank loans to reindustrialize. Instead of dreaming of ruling the world, the US should dream of institutionalization, as Californication proceeds apace.

Cry FAREWELL, BRETTON WOODS! Cry

Money mouth DEATH TO THE DOLLAR! Money mouth

joemanc's picture
joemanc
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Posts: 834
Re: US losing influence, housing starts, and the next Iceland
fwiw...I was just in the Baltic States a few weeks ago and I couldn't get over how many expensive cars, bmw's, mercedes, lexus, even suv's that I saw. When I asked a local how people could afford these cars with their somewhat meager salaries, he told me that the banks were giving out 10-15 year loans on the cars. Ah yes, the American way! Sadly, the banks have already started re-posessing the cars. So yes, the Baltic States are next.
radiance's picture
radiance
Status: Silver Member (Offline)
Joined: Oct 11 2008
Posts: 112
Global Governance

Nation States, as screwed up they can be, pale in comparison to the potential failure of global governance. Imagine a top down hierarchy, a ruling class elite managing the planet. Although the dominance of America for the last many years has arguably allowed exploitation of other nation's people and resources the rest of the world has served to check unbridled self interest.  But what collective human entity could balance a single global governing unit that has run amuck? Without nation states a global state could become an unbalance able beast ruled by a few elitist despots hell bent and drunk with power.

Events of the last weeks “global collaboration to stem the loss of the engine of the modern world” portends an ominous signal that the forces vying for consolidation of power on a global level are at work.  America must recede for a super elite ruling cabal to exercise global governance over the planet.  Should extreme global suffering through the modern world’s real economy freeze up, not just the modern world’s economic engine freeze up, then a cry for rescue will sound around the world therein setting up the cabal’s strategic moment to institute global governance.

Who are these men without renowned, drunk with power thirsting and never filled? They are stealthy lurkers shunning exposure preferring by generational wealth and prowess to control through those who names we hear day in and day out the bought off ones from across the planet.  A global state is the agenda and humanity should not presume benevolent global rule.

The end of an age is upon us. Yes prepare: buy food, top off the fuel tank, liquidate to gold, homeschool, grow a garden but our best efforts are pale and dank before the beast that is rising from abyss it will come as a lamb spouting peace and prosperity but the fangs of destruction lurk behind its tongue of pleasantry.

True preparation is to not love your life even unto death by having had your sole identity as one who is founded upon the true Lamb that came but is returning as the Lion of Judah the one whom the undiscerning will proclaim with gnashing teeth is a devouring  evil beast.

 

 

srbarbour's picture
srbarbour
Status: Silver Member (Offline)
Joined: Aug 23 2008
Posts: 148
Re: Reserve Currency

[quote]Also, Jim Willie has said similar things about foreign countries working toward finding a new reserve currency and getting away from the dollar. Once that happens, hyperinflation is likely.[/quote]

While the US dollar losing its position as a reserve currency is inevitable, it is incorrect to think this will having any immediate effect on the world as it exist now.   The impact will be of greater importance 10, and especially 20 years from now.

The reality is, because the US dollar is/was the reserve currency a great deal of debts must be paid in US dollars.   The direct result of this is that in a deleveraging world, demand for US dollars must rise (so as to pay off existing debts).  This is a situation that will continue to be true for some time.  And is a major reason why the dollar has strengthened so.

Changing the reserve currency will, again, do little to change this.  Debts that are in dollars will remain in dollars.  The dynamic will remain.

--

Steve 

ds's picture
ds
Status: Bronze Member (Offline)
Joined: Oct 13 2008
Posts: 43
Re: Reserve Currency
[quote=srbarbour]

[quote]Also, Jim Willie has said similar things about foreign countries working toward finding a new reserve currency and getting away from the dollar. Once that happens, hyperinflation is likely.[/quote]

While the US dollar losing its position as a reserve currency is inevitable, it is incorrect to think this will having any immediate effect on the world as it exist now.   The impact will be of greater importance 10, and especially 20 years from now.

[/quote]

srbarbour - nice perspective. thanx

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