When oil is traded in Euros --not dollars --there will be fire sales on nostalgia for the housing boom and those days, now only dimly remembered, when the dollar was "good as gold".
I'm Forever Blowing (housing) Bubbles
Amid all this frivolity, a gentle reminder from Alan Greenspan. Ah ...by the way...the war crime still going on in Iraq was all about oil.Britons Withdraw Billions in Bank Run
Monday, September 17, 2007 9:08:30 AM
Shares in one of Britain's largest lenders tumbled another 30 percent Monday as customers, driven by fears of insolvency, made run on the bank and withdrew billions.
Treasury Secretary Alistair Darling sought to assure depositors that their money was safe, even as former U.S. Federal Reserve Board chairman Alan Greenspan warned of difficulties ahead in Britain's booming housing market.
Trading in the bank's shares was briefly suspended Monday morning, but not before they tumbled 140 pence to 298 pence ($2.81 to $5.98), on top of a 31 percent fall Friday. By late morning, shares hovered around 300 pence. ...
What took ya' so long, Alan! The Cowboy's been saying this for years. Uh...Alan ... can ya' spare a bro a dime?Greenspan admits Iraq was about oil, as deaths put at 1.2m
Peter Beaumont and Joanna Walters in New York
Sunday September 16, 2007
The ObserverThe man once regarded as the world's most powerful banker has bluntly declared that the Iraq war was 'largely' about oil.
Appointed by Ronald Reagan in 1987 and retired last year after serving four presidents, Alan Greenspan has been the leading Republican economist for a generation and his utterings instantly moved world markets.
In his long-awaited memoir - out tomorrow in the US - Greenspan, 81, who served as chairman of the US Federal Reserve for almost two decades, writes: 'I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.'
Connie Frances: Brother Can You Spare a Dime?
What's weighing on the markets?
Traders are worried by the market direction
Stock markets and bond markets around the world are wobbling over the impact of higher interest rates. But why are financial markets so rattled?
What is happening to interest rates?
The last few years have seen very low interest rates around the world.
Central banks have kept short-term interest rates low as inflation seemed contained and growth was modest, especially in Europe and Japan.
And the bond markets, which set long-term interest rates, have also kept long-term rates - which normally are higher because of worries about future inflation - near the same low levels....
Ginger Rogers: We're in the Money!
- We never see a headline about breadlines today.
- And when we see the landlord we can look that guy right in the eye
- We never see a headline about breadlines today.
- And when we see the landlord we can look that guy right in the eye
Where ARE those Marching Saints?
I find it hard to look at the Houston skyline without thinking about how it got there and what it portends for the rest of the world.
A Crude Awakening
- A Crude Awakening: The Movie
- Bush War Crimes Trial
- Bush Should Stand Trial For Capital Crimes
- The Cost of the War
The Existentialist Cowboy
Oil Imperialism
Conservative Lies
War Crimes
Indict Bush
Why Conservatives Hate America
GOP Crime Syndicate
Iraq
Spread the word:
12 comments:
It seems to me that we've been "on the verge" of an economic disaster for some time now. But there are a few people smart enough to realize that another depression isn't good for the upper 1%...because they sort of depend on our nickles and dimes to keep enriching themselves...face it... if we can't afford to buy their $3.50 per gallon gasoline, then they're stock dividends go down and pretty soon they won't be able to buy champaign for their business jets.
Soooo.....
The "movers and shakers" have figured out a way to kick the can down the road so we'll always be on the edge but never quite fall off....unless they miscalculate or unless they entrust our collective fate to a complete dunderhead...
whooops....
You're right hizzoner. The bottom 99 have been propping up the upper 1 percent. And, now it would appear, the upper 1 are going to have to tighten their belts to avoid killing off the goose that laid the golden eggs they continue to steal. They will paper over this crisis and we will dodge a bullet ---but for how long? Six months? A year? Maybe two?
At some point, the fundamentals will have to be addressed and it will hurt.
Regarding the estimated 1.2 million Iraqi deaths as a consequence of the US invasion – mentioned in your piece - this is only since 2002. We shouldn’t forget the estimated 1.4 million Iraqi deaths between 1991 and 2002 as a consequence of the economic sanctions which affected only the ordinary Iraqis, not their rulers. This was like punishing the inmates of a concentration camp, but not the guards.
As for the declining US dollar, a recent article in the Economist opines that the worst may be over, by saying:
“……….the dollar is already quite cheap. In real effective terms, it has slowly fallen by some 20% since its recent peak in 2002. That decline is already helping to shrink America's external deficit. Monthly trade figures for July showed exports growing at a 14% annual rate, whereas imports grew by 5%. This differential, notes Jim O'Neill of Goldman Sachs, is the biggest in years. Add in the probability of sharply slower domestic demand in America, and the current-account deficit could shrink a fair bit over the coming months. A smaller need for foreign funds would itself put a floor under the dollar………….”.
This isn’t the first time the US dollar has declined significantly in value. For instance the Canadian dollar was at par with the US dollar in the early 1970’s, and is again that way today, after falling to .60 cents (US) just a handful of years ago.
What goes around, it is said, comes around!!!
Christopher, I should have been more precise. Indeed, overall dollar trends have been downward over my lifetime. However, as the US continues to depend upon foreign energy sources, middle east suppliers may decide to cut out the middle man and sell oil in Euros. If that should happen, the US will have to exchange dollars for Euros in order to import oil.
A 20 percent drop since 2002 is certainly not the kind of trend that I would want to sustain. That's precipitous! Even a very savvy investor is lucky to get a sure 20 percent on his retirement dollars. Anything less than 20 percent means such an investor is considerably poorer now.
I have an "interest" in the dollar right now. But, how long will I be willing to watch my "estate" literally evaporate?
More ominous --at what point will the oil producing states decide that they, too, are losing money by taking the dollar instead of the Euro.
Is that the real reason Bush is bullying Iran who has threatened to set up an oil bourse?
20%!?! Whatchoo talkin' 'bout Willis? The Canadian dollar WAS around 60¢ US as recently as 2002, and is now above 97¢. By my calculations, the greenback has therefore lost 38% of its value. This is WRT your highest volume trading partner, and more significantly your #1 supplier of OIL. And in spite of recent moves by US trading partners to artificially prop up the $US (primarily by purchases of US treasury bonds.) I believe Len blogged about that a few weeks ago.
Just this last week the US dollar lost another 2½¢ to the loonie due to the price of oil passing $80/bbl. Since early March it has gone from around $1.18 to just under $1.03!! While it had already been declining like a slow leak from a punctured tire, this is something more like a blowout.
Graph from UBC School of Business.
I recommend another look at Robert Newman - History of Oil, giving particular attention to chapter 5, "The Euro Dollar Invasion of Iraq." The magic checkbook has lost its magic.
Len,
Would you please explain what an oil bourse is?
I personally have mixed feelings about not selling my home recently. I would have been left with cash, which we already seeing major losses.
Thank you for a great post. I only hope were all wrong.
Diane, a "bourse" is, literally a "European stock exchnage" but lately it seems that definition is a bit strict. The word is most certainly used broadly as "market" --commodities as well as stocks.
Sadbuttrue, thanks for the graph and links.
I've been following this discussion in a few places, so I hope you don't mind me throwing some links in here, Len.
This problem cannot be contained because (a) there's simply not enough Fed money they can throw at it to make it go away; and (b) the credit issues extend into other parts of the market other than mortgages. Here's what's happening in the US housing market right now. Here's the ARMS charts. All these worthless mortgage funds have to get their loans renewed late this year onwards but no-one is going to lend them the money. They're going to the wall and their big bank affiliates will face multi billion dollar liabilities.
The serious commentators are talking about a "global credit crunch". As Henry Liu says:
On the pages of Asia Times Online over the past two years, I have tried to put forth the rationale for the inevitability of a US housing bubble burst, pointing out reasons that the resultant financial meltdown will be much more widespread and severe than has been generally acknowledged.
Through mortgage-backed securitization, banks now are mere loan intermediaries that assume no long-term risk on the risky loans they make, which are sold as securitized debt of unbundled levels of risk to institutional investors with varying risk appetite commensurate with their varying need for higher returns. But who are institutional investors? They are mostly pension funds that manage the money the US working public depends on for retirement. In other words, the aggregate retirement assets of the working public are exposed to the risk of the same working public defaulting on their house mortgages.
When a homeowner loses his or her home through default of its mortgage, the homeowner will also lose his or her retirement nest egg invested in the securitized mortgage pool, while the banks stay technically solvent. That is the hidden network of linked financial landmines in a housing bubble financed by mortgage-backed securitization to which no one until recently has been paying attention. The bursting of the housing bubble will act as a detonator for a massive pension crisis.
Henry Liu also describes this as the greatest financial crisis in 80 years.
Stephen Roach, Morgan Stanley's chief economist, on April 24 of this year wrote that a major financial crisis was in the offing and that the ability of global institutions to forestall it -- ranging from the IMF and World Bank to other mechanisms of the international financial architecture are "utterly inadequate". (See also here and here.)
There's a useful comparison in the comments section here to the Japanese property collapse in the early 90s here and an interesting discussion of financing details here.
George Soros is talking about a very hard landing in 2008 (think "D' word). But for now, think 30% off the stock market and house prices, rampant inflation and unemployment and a devalued US$. Then go from there. It would appear that the Fed and the US government are going to allow a combination of inflation and dollar devaluation to steal the last of the assets of the middle class.
Len and Damien,
Thank you both for explaining and making it clearer.
What do you think of the fed's reducing the interest rate, today?
Diane B, imagine the sump plug has dropped out of your car while driving. Obviously, that car will be grinding to a halt pretty soon. In this case the oil is liquidity and finance for various ARMs loans that are all going to come due over the next two years -- and for which there are no lenders because, while many of them are creditworthy many are not, and the big banks can't tell the good ones from the bad because the dodgy loans have been repackaged in various forms so that the liability and risk is not clear (normally these mortgage loans would be regarded as very secure). The big banks and finance companies are also facing losses from their own mortgage fund holdings which have suffered from property devaluations. So the general effect is that none or few of these ARMs are going to be refinanced at all. They will go bankrupt, their assets will be sold in fire sales further depressing housing prices. It's not just a liquidity crisis, it's a credit crisis as well.
Now, all of that is my personal (and maybe incomplete or wrong) understanding of the problem.
To return to the car analogy. The sump plug has dropped out, the car is doing 100 mph, the overheating engine is about to seize and Ben Bernanke has crawled onto the bonnet to pour an extra liter of oil in the top. Whaddya think?
Great links, damien.
There is much to digest there. I lived through much of that story in Houston, where, I am sure, the ratio of "liar loans" must be very high. Evidence of an impending bubble burst could be seen all over Houston --people desperately trying to sell their homes to get from under crushing mortgage payments. The variable rate scam does not help. Houston had gone through a similar situation in the early 80's, coupled as it was then with higher unemployment. It was the Reagan Recession, a depression in fact, the longest and deepest since the crash of '29.
The signs now, I believe, to be even more ominous. Sadly, the "boom" was all on "paper". As Liu, pointed out from your link:
Thus the Fed is forced to fight a raging forest fire with a garden hose. One of the reasons the Fed shows reluctance in cutting the Fed Funds rate target may be the fear of exposing its incapacity in dealing with the credit crisis in the non-bank financial system at hand. What if the Fed fires its heavy artillery but the credit crisis persists, or even gets worse?
Another analogy is trying to cover a barracks with a bed sheet.
And, as Liu points out, millions of retirement nest eggs are in danger of being wiped out.
I am interested in how all this relates to the Iraq war, a war Bush had hoped NOT to have to pay for during his term. He would leave its horrible legacy to future administrations, perhaps, in the ultimate political revenge, a Democratic regime.
In other words, Bush has simply run up the deficit with no intention of paying. His administration is financed with "liar loans". He might have gotten away with it, were the nation's economy sound in every other respect. But, in fact, it is not. As the "housing bubble" proves, the great American lifestyle is bought on credit with plastic. What happens when the deficit won't roll over. What happens when the Iraq war bill comes due? Who will pay?
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