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The Fed’s role in the Bear Stearns Meltdown
Mike Whitney, Information Clearinghouse
The Bank for International Settlements issued a warning this week that the Federal Reserve’s monetary policies have created an enormous equity bubble which could lead to another “Great Depression”.
The UK Telegraph says that, “The BIS–the ultimate bank of central bankers–pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.
The IMF and the UN have issued similar warnings, but they’ve all been shrugged off by the Bush administration. Neither Bush nor the Federal Reserve is interested in “course correction”. They plan to stick with the same harebrained policies until the end.
The “easy credit” which created the subprime crisis in mortgage lending has now spread to the hedge fund industry. The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is “contained” is pure baloney. The contagion is swiftly moving through the entire system taking down home owners, mortgage lenders, banks, rating agencies, and hedge funds. We are just at the beginning of a system-wide breakdown.
The problem originated at the Federal Reserve when Fed-chief Alan Greenspan lowered the Feds Fund Rate to 1% in June 2003 and kept rates perilously low for more than 2 years. Trillions of dollars flowed into the economy through low interest loans creating a massive equity bubble in real estate which drove up housing prices and triggered a speculative frenzy. ..
(30 Jun 2007)
got money?
George Raine, SF Chronicle
A gallon of low-fat milk will cost $3.10, up $1 from the price in January — and expect the spike to make other products more expensive, too
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California has set a record price for the magic white serum that enhances bone strength, promotes muscle recovery, prevents cavities and takes the edge off insomnia and premenstrual syndrome — and all the other virtues claimed in those clever “Got Milk?” ads.
Effective Sunday, the California Department of Food and Agriculture has set the price California dairy operators will be paid at a record $1.98 per gallon of milk, up from $1.06 a year ago. The minimum retail price for a gallon of low-fat milk, said the department, will be $3.10, compared to $2.10 in January.
The state posts the “lowest reported lawful retail price” for milk due to a law that says milk cannot be sold below cost.
The price spike — the result of a drought in Australia, tightening supplies from Europe, higher demand in Asia and the diversion of feed corn to ethanol plants — also threatens to jack up the cost of cheese, lattes, chocolate bars and pizzas.
A constellation of economic forces have pushed the price of milk up for seven consecutive months and is expected to set the all-time record in July.
(30 June 2007)
Brakes fail on housing stress
Michael McNamara, Sydney Morning Herald
..Australia is on a borrowing binge of mammoth proportions that seems to have no end in sight. At face value, it seems mad that we take on increasing debt just to compete against one another for more expensive houses. Over the past 20 years this has fuelled an average 9 per cent year-on-year rise in house prices. Incomes have hardly kept up the pace.
The reason is bigger mortgages and more of them. Fresh census data paints a gloomy picture. These figures show that the life-work balance mantra of this decade is nothing but empty rhetoric. We’ve extended our mortgages, over the past five years, at double the rate of individual incomes. While incomes have increased by 24 per cent, monthly loan repayments increased by a staggering 49 per cent to $1300 last year.
As a whole we are far more exposed to the risks of life, causing profound housing stress. A greater number of households are relying on two or more income earners to pay the mortgage. In short, we are sending mums back to work to pay for higher mortgage repayments and not, it seems, of our choice.
Many Australian families are living on a knife’s edge. Justifiably, we are far more fearful of our acute exposure to rising interest rates than ever. We will see more distressed sales. After all, if either partner loses their job or can’t work for whatever reason, it will be game over. In mortgage belts, distressed sales are what sustain local real estate agents these days, and with more rises in interest rates predicted, this trend is expected to continue. ..
Michael McNamara is the general manager of Australian Property Monitors.
(3 Jul 2007)
Namibia: Consumers to Stoop Under Fuel Prices
Catherine Sasman, New Era
The new petrol and diesel price increases effected last night will negatively affect consumers as well as government revenue, said economist Martin Mwinga. “These increases have come at the wrong time since we have seen rising inflation rates, which will depress real disposable income, and the government is likely to lose revenue because personal consumption amounts to more than 60% of Namibia’s GDP [Gross Domestic Product].”
The petrol price has increased by 25 cents a litre, while the diesel price has gone up by 6 cents a litre. The fuel price increases are the third this year, due to the upward fluctuations in international crude oil prices, said Deputy Director for Petroleum and Gas with the Ministry of Mines and Energy, Immanuel Nghishoongele. ..
“Consumers will either get into debt or borrow from cash loan facilities,” said Mwinga. “Cash loan institutions are likely to do well because banks will be more hesitant to lend money.”
(29 Jun 2007)
World’s rich keep getting richer
Jackie Farwell, Associated Press
Suppose all of the world’s wealthiest people got together and pooled their assets into one lump sum. How much money would that be?
According to a report released Wednesday, the combined wealth of the globe’s richest individuals rose more than 11 percent to a grand total of $37.2 trillion last year.
The rise marks the first double-digit increase in seven years.
Thanks to a strong global economy, 9.5 million people held at least $1 million in financial assets – excluding the value of their primary homes – in 2006, up from 8.7 million in 2005, according to the 11th annual World Wealth Report compiled by Merrill Lynch & Co. and the consulting firm Capgemini Group.
Those accumulated trillions give these individuals control of about a quarter of the world’s total wealth, or nearly three times the United States’ gross domestic product.
(28 June 2007)
‘The rich are getting richer’ may be a cliche, but its not insignificant that the trend is accelerating.-LJ
