JP Morgan Chase & Co just bought out busted Bear Stearns, the fifth biggest bank in the U.S., for $240 billion, which was less than 1/10 of its value just last week. News leaked out about the crisis last week, and investors freaked, pulling out $17 billion in two days. The value of the stock immediately plummetted from $30 a share on Friday to $2 a share on Monday (a little over twelve hours ago).
What's all this got to do with you and me, if you're also in Canada? The world is a small place, and we're undergoing a brash new experiment called "globalization". Economies are tied together in complex and inextricable ways. Most countries are monetarily pegged to the U.S. dollar, and the U.S. leads every nation in trade deficits, debt, consumption, energy importation, and energy use. (And entitlement expectation.)
More explicitly, banks, with the Federal Reserve's blessing and urging, have created many convoluted financial scams in order to keep the "growth" model afloat, akin to skating ever faster to avoid falling through thin ice. Credit Derivatives Swaps, aka CDs (not the music disc), arestillgrowing exponentially, and have now ballooned to $516 trillion in paper/computer "money". That's right, that's a "t" in front of illion, not a "b". What are CDs? A collusion and smokescreen whereby one financial institution sells insurance to another firm in return for another loan in order to collect a razor thin profit margin which accrues from (among other avenues) the yuan/yen carry trade (buying Japanese and Chinese money, and immediately selling onto U.S. relative deflated markets, and so securing a "paper" profit).
Sorry if this all sounds dry. It is. But, to me, who has a good fundamental mathematical mind, but who has had to stretch my knowledge to assimilate this arcane contemporary accounting, it's imperative in being able to understand the financial tsunami in play by the Fed/U.S. and foreign banks/U.S. gov't intervention.
And getting back to the tie-in with Canada (and with the world): the CDs are frightening not only because it's all phony "money", all promises to pay and/or speculative notes or pixels, (and so the asset boasting is fundamentally untrue), but because the CDs are, like secret spirochetes, helically affixed to virtually every financial transaction in every country. And no one knows how much, to what extent, any single transaction is infected by these inflated scams. (CIBC in Canada had to be bailed out several months ago by the Bank Of Canada; banks in Norway almost went under last month; one in England would have failed if the gov't there hadn't rushed in to save it). Speaking of "saving" banks, that's just what the Fed in the U.S. are doing, and will do: they provided billions to JP Morgan to help them in their JP Morgan buy-out of Bear Stearns, but they had to print money out of thin air, and swap toxic mortgage payments to do it (those mortgage promises are, themselves, "ticking time bombs", in Peter Schiff's words).
U.S. banks are virtually insolvent right now. Federal law stipulates that at least 85% (or it could be 90%, I forget) of their liquid monetary holdings have to be there. The reverse is actually true: ther numbers are staggering, and I won't hunt up the exact figures and institutions, but of the five or six biggest banks, about the same amount -- 85% to 90% -- is speculative, is derivatives or other loan-based investment paper "assets", and only 1/10 of it is liquidity, actual money.
Gold just hit 1,000 an ounce. It'll continue to climb. The problem is that if worldwide inflation continues to climb exponentially -- and the U.S. Fed/U.S. gov't has stated that that's their course -- then the rest of the world has no choice but to follow suit in order to avoid their own currencies from being worthless from skewed isolationist contrasts: Canada has cut their own bank rates in conjunction with the U.S. Fed in every instance in the past six months. And this means that even were you to realize dramatic increases in gold/silver returns, it'll be more than negatively offset by nominal horrors, that is, by the exploding inflationary realities which are a mathematical fact of having more money printed and in circulation.
But at least it's easier to carry around gold and silver in one's pocket than it is to tote ahead a wheelbarrow of worthless Lauriers and Lincolns.
Monday, March 17, 2008
St Pat Day Over, But Spring Is Springing, So Let's Continue With The Good News
Posted by Brian Palmu at 11:42 PM
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