Catherine Austin Fitts, host of the Solari Report, responds to fears of economic collapse and describes some of the forces at work that continue to undermine the middle class, such as inflation, GAT, and the WTO. The Solari Report is a weekly live interactive briefing with commentary and guest experts that go behind the headlines to reveal what’s really happening in the global financial system…
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Interest-Rates / UK Interest Rates Mar 08, 2011 – 02:01 AM
By: Nadeem_Walayat
Britain’s coalition government pressed the reset button on the UK Economy during summer 2010, as it has continued to make a plethora of tax raising and spending cut economic austerity announcements over the past 9 months in an attempt to get a grip on the Labour government’s legacy of an out of control annual budget deficit of over £150 billion per year that risked bankrupting Britain.
These policies on face value imply severe economic distress for several years as they are implemented starting in 2011 and thus require the continuing lubricant of near zero interest rates backed up by quantitative easing aka money printing to inflate the economy (consumer and asset prices) in an attempt at offsetting public sector deflation so as to prevent a nominal double dip recession.
The big gamble that the coalition government is playing is that its programme for economic austerity will prevent market interest rates from rising as they have done so in the bankrupting PIIGS for the whole of 2010 and into 2011, pushing these economies into economic depression. The Coalition governments primary aim is to engineer an economic outcome that sets the scene for a spending and tax cutting induced mini boom into a May 2015 General Election that would favour at the very least a continuation of the Coalition government or more probably an outright conservative victory.
However the coalition government faces many headwinds during 2011 that could disrupt its economic plans, most notably soaring inflation that has long since left the UK official target of CPI 2% behind as well as internal political pressures as the Lib Dems buckle under austerity induced dissent , let alone external pressures form first the Euro-zone to more recently imploding Middle East states buckling under their own inflation mega-trends.
Therefore this analysis seeks to conclude in a trend forecast for UK Interest rates in determination of the degree to which the Coalition government will be able to manage to keep UK interest rates low (base and market) during 2011 to enable the target trends for the economy to be achieved.
I’ve never been much of a fan of technical analysis. It’s always struck me as something akin to reading tea leaves—and just as batty. But on the other hand, I’ve seen enough technical analysis deliver accurate predictions that I can’t really dismiss it completely.
Right now, the world is going through
a pre-crisis mode—you can practically feel it in the air. The limitless deficit spending by the U.S. Federal government, which has instituted systemic +10% of GDP deficits year after year; the insane Federal Reserve policy of Quantitative Easing 2, which is nothing more than debt monetization as I wrote here, enabling the Federal government’s addiction to deficit spending; the popular uprisings sweeping through the Middle East and North Africa, affecting—wouldn’t you just know it—oil producing countries one after the other; the steadily rising food inflation, which in fact triggered those uprisings in Tunisia, Egypt and Libya, and which are beginning to affect the entire globe; the inevitability of a collapse of the euro—the other major world currency—because of the systemic tensions affecting the European continent, between the strong economies of the north, and the weak economies of the peripheries.
All these issues are bringing renewed pressure on the dollar—though which direction the dollar will react to that pressure is the issue up for debate right now.
The next ten days will be key: Will the dollar spike up? Become the safe haven of everyone fleeing from the world’s troubles? Or will the dollar nosedive, the first big step down in its death spiral?
Luis Andres Henao, Reuters · Saturday, Jan. 8, 2011
Argentines faced long lines outside banks this week due to cash shortages at ATMs that critics say is linked to the government’s refusal to recognize burgeoning inflation by printing larger bills.
Argentina has one of the world’s highest annual inflation rates at more than 25%, according to private forecasts that more than double the rate reported by the government.
Producing bank notes in bigger denominations than 100 pesos, currently the biggest, would signal an acceptance of the soaring prices.
So while consumers are being forced to use more bills to pay for the same products, complaints of shortages have surged over the busy holiday period — when demand for cash grows, especially in densely populated Buenos Aires province.
“It’s been tough for all of us to take out money,” said Carlos Fanjul, an opposition politician from the provincial capital of La Plata.
“You have to wait three or four hours at any cash machine and sometimes you can’t even get cash.”
The lack of bank notes even forced the central bank to ask Brazil’s mint to issue more than 10-billion pesos.
A central bank spokesman said the Argentine mint has “technical limitations” to issue bills, linking the shortages to holiday demand.
Cabinet chief Anibal Fernandez said the scarcity of notes was being resolved.
“My understanding is that the issues should be resolved over the weekend,” he told local television.
But some economic analysts say the cash shortage is directly linked to the rise in consumer prices.
“This is happening because the government doesn’t want to come clean [on inflation] by printing a new bill,” said Ramiro Castineira, an economist at the Econometrica consultancy.
By Daniel R. Amerman, CFA
The credit rating agency Moody’s is repeatedly warning that the cost of the new tax cut deal between President Obama and the incoming Republican congressional leadership may be the US government losing its “Aaa” credit rating within 2 years. Moody’s warns that the tax cut deal – in combination with soaring pork barrel spending – will raise the US federal government debt as a percentage of GDP from around 62% today, to about 72-73% in 2012, meaning the US ability to repay the debt is growing increasingly problematic.
Unfortunately for us all – Moody’s (once again) has it backwards. As we will simply illustrate herein, the counterintuitive reality is that the greater the deficit – and the higher the US debt relative to the economy – the higher the long term credit quality of currently outstanding US Treasury bonds. The more irresponsible the politicians – the lower the percentage of the future economy that will be represented bycurrent long-term US government debt.
Moody’s warning is based on a common mistake when talking about the US budget deficit. Simply put, countries that can borrow in their own currency – such as the US government contracting to repay its debts to Japan not in yen but in US dollars – rarely go bankrupt. They debase the value of their currency, and easily repay their creditors with money that is worth much less. US government spending is currently being funded by the straight up creation of new money out of thin air, and the worse the situation gets, the greater the rate of inflation, and the lower the burden of repaying current debts with much cheaper future dollars.
The implications for investors are potentially catastrophic, and arguably much worse than a “mere” default on the US public debt. Indeed, wiping out debt through inflation doesn’t just pay off the US debt, it wipes out the value of all savings and all debts that are denominated in US dollars. Add in the damage to economic growth in a highly inflationary environment, and stocks get wiped out as well. This three way destruction of the value of money, value of bonds and value of stocks is catastrophic to most investors – but also has the potential to create real wealth in often unexpected ways for those investors who, unlike Moody’s, take a reality-based approach to the soaring US budget deficits.
Let’s start with the graph below, which illustrates the problem that Moody’s is concerned with.
Posted by PW Bailey
Saturday, November 6, 2010
Recreating The Monster
Each of the regional Fed banks is at Jekyll Island, Georgia today, congratulating themselves and celebrating the 100 year anniversary of a secret meeting in November 1910. This date marks the beginning of our current fiat currency based financial system. It also marks the beginning of a world view that encourages the legalized robbery of every citizen by big government, through big corporations, big media, and inflation.
FIRETOWN!
World News – Truth Spread Like Fire
Below is a list of reasons and facts of why I believe that prosperity is coming to Asia. But before we got through a list of today’s facts below, I want to give you my opinion of what is going to happen in Asia in the next few years to decades ahead:
1. The next superpower country, replacing the United States, is going to be one of the Asian countries. I have two countries in mind that I predict may turn out to become a superpower country, one being China and the other one is just a country that is not even being looked at for now.
2. The ruling political party of the People’s Republic of China, which is the Communist Party of China, will fall from power. Just like communism ended in East Germany 1989, it will also end in China. When this happens, the New World Order will be led by China, after probably a war against the United States, allying with Russia.
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