The following article is brought to you by CIGA Greg Hunter.
The Madoff Sideshow
By Greg Hunter 1/7/09
A friend of mine, who is a crack investigative producer, just got a gig with a major network. His new job will be to cover the Madoff story. There is no doubt this is a big story and in the press been called the “crime of the century.” Madoff is a self proclaimed fraudster who puts a face on the Wall Street “banksters” as in gangsters with brief cases instead of Tommy Guns. But for most Americans this story will be nothing more than tragic theatre. This story’s outcome will not matter to those in or headed for financial ruin.
The real story is what’s going on over at the Treasury, Federal Reserve and Congress. This trio has already spent, “loaned” or committed 8.5 trillion dollars to the economic problems plaguing our country. It appears the carnival of money printing is nowhere near ending. Now, there is even talk of another government bailout for the people who were ripped off by Madoff. This plan proposes to recapitalize SIPC, the Securities Investor Protection Corporation, with 15 billion dollars to augment its paltry 1.5 billion dollar insurance pool to protect investors. I guess 1.5 billion does not go very far when the pool of cheated customers is 50 billion dollars deep. Where do all these bailouts stop? America, in my view, has gone from a capitalistic society to bailout nation in little more than a year.
The Federal Reserve is in the process of bailing out the nation through a series of “lending facilities.” The TAF, TSLF, MMIFF, TALF and PDCF are the acronyms that are funnelling money to everything from banks to brokers to money market funds and even select hedge funds. None of these “lending facilities” were around little more than a year ago. All of this bailout activity adds up to more than 2 trillion dollars and is being done in secret without the public knowing who gets money for what! The latest facility to be added to the bailout bucket is provided by the Treasury and is called the TIP or Targeted Investment Program. This one is for “Citi-style” rescue programs. The government is clearly ready to bail out just about any business that issues a W-2.
Add all these “programs and lending facilities” together with the bailout of GM, Chrysler, AIG, the monetization of billions of mortgage debt from bankrupt Fannie Mae and Freddie Mac, along with the upcoming Obama stimulus package, and some people are getting worried about a little prosperity killer called inflation. In a few years, most people will not remember the Madoff story but will be living or surviving some pretty big price increases in just about everything they consume. In the end, it will all come down to a crisis in the dollar because just like Madoff it will no longer be trusted.
There is only one alternative to the dollar
By David Hale
Published: January 5 2009 19:01 | Last updated: January 5 2009 19:01
The great challenge confronting the foreign exchange market at the start of 2009 is finding a good alternative to the US dollar. One of the ironies of market events during 2008 was that the US financial crisis produced a flight to safety in the dollar. The dollar erged triumphant from a financial debacle that centred on $1,300bn (â‚¬960bn, Â£890bn) of subprime US mortgage loans. The fallout has triggered a $32,000bn decline in global stock market capitalisation and driven all the Group of Seven leading industrialised countries into recession.
The dollar slumped against the euro during the final weeks of 2008 but fears about the financial system still drove US Treasury yields down to zero on three-month paper and less than 2.1 per cent on 10-year notes. This fear factor is likely to sustain demand for the dollar during the early months of 2009.
There is not now a clear alternative to the dollar because all big economies have slid into recession. Real gross domestic product could contract by 1.5 per cent in both the US and Europe during 2009 and by as much as 2.5 per cent in Japan. The decline in world trade and commodity prices will also reduce significantly the growth rates of the emerging market economies. South Korea and Taiwan are already in severe slumps. The growth rate of China could halve.
The US economy could be the first to emerge from recession this year because it appears to be headed for a far more aggressive macroeconomic stimulus programme than any other country. Barack Obama’s administration will announce a $700bn-$800bn multi-year fiscal package focusing on cuts in payroll taxes, aid to state and local governments and infrastructure investment. The Federal Reserve is also engaging in a programme of unprecedented monetary stimulus. It has slashed its core lending rate to zero and tripled the size of its balance sheet since August. Ben Bernanke, the Fed chairman, has also stated his willingness to engage in further large liquidity injections to buy mortgages, consumer loans and government securities. Mortgage rates have recently eased to 5.1 per cent after remaining above 6 per cent during the past year.
The European response to the recession has been far less aggressive. The European Central Bank is still under the influence of the Bundesbank and will ease monetary policy far more gradually than the Fed. Some Bundesbankers are opposed to cutting interest rates at this month’s meeting. The ECB policy could produce political tensions because interest rate spreads on Greek and Spanish bonds have risen sharply compared with German bonds. Japan’s government has been announcing modest fiscal policy changes but it cannot act decisively since it no longer controls the upper house of the Diet. And an election, before September, could produce a change of government.