Financial winter

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investorzzo
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Financial winter

ES: Look, I expect a crisis. We've already had two crises. They just didn't quite manifest themselves. We've been so close to the financial system breaking down -- twice. And now we've taken it to a whole new level -- to the level of sovereign risk. My goodness. If people turn their backs on sovereign bonds, where are we going? You won't be able to fund your deficits. Rates will sky-rocket.

I find the Greek example so instructive. They have massive deficits, their rates go higher, so their deficits go even higher, and their rates must go higher still. And now you're in the vicious circle. You cannot get out, unless someone from outside comes in -- or you default.

So, yeah, do I see a day when it all grinds to a halt? That's not difficult to imagine.

EJ: A financial nuclear winter.

ES: Yeah. We're already in it.

EJ: How long will it last and what's on the other side?

ES: In my view, we're going into 20 years of hard times. It should have started in 2000 but it keeps getting pushed off. The price you pay is that the inevitable reckoning just keeps getting worse. Think of the obligations of the U.S. government in 2010 vs. 2000. It's probably gone up three or four times.

I don't think the system will totally stop but I believe the underlying value of "things" and "paper" will differentiate themselves. Things will retain their value. Paper will not.

http://www.thestreet.com/story/10775194/1/gold-running-in-short-supply.html

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Re: Financial winter

The Commerce Department Thursday will report the April deficit on international trade in goods and services and analysts expect it to increase to $41 billion from $40.4 billion in March; my forecast is $41.1 billion.

The trade deficit, along with the credit and housing bubbles, were the principal causes of the Great Recession. Now, a rising trade deficit and continued weakness among regional banks, still burdened by bad loans, threatens to stifle the emerging recovery and keep unemployment near 10% through 2011.
At 3.3% of gross domestic product, the trade deficit subtracts more from the demand for U.S.-made goods and services than President Obama's stimulus package adds to demand. Moreover, Obama's stimulus is temporary, whereas the trade deficit is permanent and growing again.

http://www.thestreet.com/story/10778614/1/trade-deficit-blocks-recovery-...

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Re: Financial winter

The Next Asia: An Interview with Stephen Roach
Posted on 09 June 2010. Tags: Stephen Roach
Stephen S. Roach is Chairman of Morgan Stanley Asia. Previously, he was Managing Director and Chief Economist of Morgan Stanley.
Before joining Morgan Stanley in 1982, Mr. Roach was Vice President for Economic Analysis for the Morgan Guaranty Trust Company in New York.
He also served on the research staff of the Federal Reserve Board in Washington, D.C. from 1972-79 — where he supervised the preparation of the official Federal Reserve projections of the U.S. economy. Prior to that, he was a research fellow at the Brookings Institution in Washington, D.C.
Mr. Roach is widely recognized as one of Wall Street’s most influential economists. His research covers a broad range of topics, with recent emphasis on globalization, the emergence of China, productivity and the macro paybacks of information technology.

http://mcalvanyweeklycommentary.com/

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investorzzo
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Re: Financial winter

Why financial reform hinges on defusing derivatives

If that sounds like an overstatement, it’s not. The derivatives market has a total notional value of $600 trillion. That’s 10 times world GDP. More to the point, misuse of these instruments is wreaking economic havoc. They were a principal cause of the financial crisis, and more recently were implicated in the sovereign debt crisis enveloping Europe and roiling markets around the world.

http://m.industry.bnet.com/financial-services/10009931/why-financial-ref...

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Re: Financial winter

TGR: Considering the U.S. role in conflicts around the world, would America face a situation like Germany did, where the conquerors come back and demand reparations?

RM: Well, if you go back to 1980, America was the world's largest creditor nation, undisputedly the most powerful, and it had a very strong industrial heartland. Today, large parts of that industrial heartland have been outsourced to the developing world, while the U.S. has become the largest debtor nation in the world, with China being its largest creditor. China's enthusiastic participation in U.S. Treasury auctions has declined measurably. Suppose they were to stop buying Treasuries altogether. Suppose suddenly the lending to America that allowed our lifestyle to be what it is stopped. Remember, the tax base has been hollowed out by outsourcing, and a lot of people are unemployed because there aren't enough jobs. Many people would have to declare bankruptcy.

TGR: And meanwhile, the printing presses run, as they did in the Weimar Republic about 90 years ago.

RM: Exactly. What governments can do is print money. The U.S. government can make sure dollars circulate, but each dollar they print buys less. The only value in any paper currency or what is called fiat currency derives from confidence in the underlying issuer. The Fed printing dollars endlessly without concern for U.S. debt—that's the darkest hour I see.

In prior periods of hyper inflation, keeping your wealth in bank accounts was probably one of the worst places to keep it. Such periods drives everybody who wants to survive to become a speculator, to take on debt, to do all the things that aren't prudent in normal times. But in these days, an era where the government is printing huge amounts of money, it is the prudent, the conservative, the majority of citizens who are the most harmed.

http://www.theaureport.com/pub/na/6490

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