Those who inhabit the financial world know about Sovereign Funds, but they are almost unknown to the American public.
These funds are mostly the product of dollars accumulated by those with whom we trade. A Sovereign Fund is a fund created by a nation to invest surplus foreign currencies they have in surplus from a positive trade balance. Heretofore these nations usually bought bonds with the surplus. If they had surplus US dollars they would buy US Treasuries. They still do that but now they have branched off into other directions. This has the world’s top central bankers and finance ministers concerned as well as the US Senate Banking Committee.
Twenty-eight nations have Sovereign Wealth Funds (SWFs) with assets of about $2.1 trillion. In 2011 and 2012 that figure could b $8 trillion and perhaps $12 trillion. Washington is concerned that these funds may not just be used for economic reasons, but also for political and strategic purposes. The concern is not of foreign ownership but rather government ownership. These investors will be acting in the interests of foreign governments, not in the interests of the US. At today’s accelerating pace the US will end up with a “sharecropper economy” where Americas largely work for foreign-owned firms. Foreign governments would employ them.
These are the benefits of free trade and globalization. The deliberate destruction of the American economy. This is part of the plan on our road to serfdom.
Foreign governments are faced with an annualized 7-1/2% loss if they hold US Treasuries at today’s rates of US inflation and dollar depreciation and that is why they are diversifying.
As an overview the value of all traded securities, that is stocks and bonds, denominated in US dollars is $50 trillion. For the world, it’s $165 trillion. The SWFs have $3 trillion, which is twice what global hedge funds manage and twice the size of global private equity. Thus far it’s all free trade, etc., but nations are getting uneasy regarding the secrecy in which they operate. The IMF is trying to put rules in place. We are skeptical as to their effectiveness. The temptation to blackmail other countries or to seriously disrupt their economies is overriding. We can promise you that some nations will try it. Nations have no choice but to only allow sanctioned investments. If that isn’t good enough then nations can always buy gold.
We cannot understand how financial institutions fell for the CDO, SIV and ABS frauds. These are professionals with a fiduciary responsibility. What could they be thinking? Didn’t they even look into these tranches – these bonds to see what they contained? They expedited the fraud and now defaults are appearing everywhere. This real estate crisis has triggered a credit crisis and the result is the breakdown of our modern-day banking system. The combination of fraud and leverage has made part of the system illiquid while other parts of the system are rolling in money and credit. The hidden system of banking of derivatives of CDO, MBS, SIV, ABS’s and who knows what else has run rampant beyond regulation for years. Now these investments are being held worldwide as part of free trade and globalization. As you can see, as usual the bankers in their greed have finally destroyed the banking system this time by globalizing debt fraudulently. This is the same thing they and the transnational conglomerates, they in part control, are doing to support our economy. This is what brought down the Lombard System in 1348, and the Hanseatic League in the 1600s, only then it was Trans-European. This banking wrinkle, beyond regulation, has not democratized debt. It has distributed financial toxic waste using fraud. The public and professionals are finally, hopefully, now realizing what frauds these banksters are. Behind the banking scenes there is chaos. Trust and confidence are gone. The commercial paper market has been cut in half, which has forced the Fed to open the discount window – wide open. Loans of all kinds have gone ballistic.
Then there are the victims of this fraud who have lost hundreds of billions of dollars worldwide. In total these financial crimes have expedited the worldwide financial system into economic depression. Make no mistake about it. This is where the blame lies, in banking, on Wall Street and within the Fed. The only way you can protect yourself from these villains is to be in gold and silver assets and Swiss franc government paper. This is for the long haul and you must be patient.
Next we have the pot calling the kettle black. The rating agencies were the centerpiece of the CDO fraud with there AAA ratings on BBB paper. Now in order to confuse and defuse blame they say fraud by subprime mortgage borrowers was rampant. They are correct but that doesn’t mitigate their criminal acts. If so much fraud went on in borrowing why is our Goldman Sachs Treasury Department trying to bail the borrowers out with the assistance of the lenders who had to know the borrowers were lying. Fitch ratings reviewed documents for 45 loans that were packaged into bonds last year and defaulted within 6 months found 2/3’s contained occupancy fraud, in which borrowers falsely claimed they planned to live in the properties. Almost every file indicated some type of fraud or misstatement of the borrower’s financial condition that was missed or encouraged by the lenders. This is massive fraud. Why hasn’t criminal charges been brought against the borrowers and lenders, or at the least civil actions? Why? – Because they all were involved – that’s why. As a result 23.4% of loan balances from 20 subprime bonds created in the first half of 2006 were at least 60 days late, in foreclosure, subject to borrowers bankruptcy or were already turned into seized property. Wait until the remainder reset in 1-1/2 years. One third of ARMs in subprime nationwide were delinquent in August. If this isn’t bad enough, commercial real estate is a full-blown bubble that is near a bursting point. The cost of derivatives (insurance) protecting investors from defaults on the highest-rated bonds backed by properties, more than doubled in the past month. The prices suggest traders anticipate defaults rising to the highest level since the Great Depression. In September the commercial real estate boom ended as prices fell 1.2%. Worse yet, we are going to get a replay, the retail fiasco in commercial property, because banks are holding $54 billion of commercial mortgages they cannot sell. Does that mean another 50% loss? We think so.
Just to show you how expensive these bankruptcies are: 189 major mortgage companies have gone bust. New Century Financial, the biggest subprime lender in bankruptcy, faces $34.9 billion claims from creditors.
In the third quarter house prices fell 1.7% qtq and 4.5% yoy. The 20 big cities were off 4.9%. The bloodbath continues and has a long way to go.
The question is, where are we? The encouraging news is that the Illuminist Carlyle Group’s Blue Wave hedge fund lost 9.3% since being started in March.
The Fed extended today’s problems in 1991/92 when they had the best opportunity to purge the system and have a recession. Real estate had bottomed and by 1995/96, they would have had a clear, clean start. No, their greed knows no bounds. They started the blossoming leveraged speculation game, as we know it today. As interest rates fell, leverage increased. They pushed it as far as they could and now they have destroyed the structured credit products market. All the trust and confidence is gone. This was the force behind the stock market bubble, the real estate bubble and finally the credit bubble collapse. That will collapse the stock market again and send us from recession to depression. As you can see there was no genius in our financial and economic achievements since 1992. It was cheap money, low interest rates, negative interest rates, a massive current account deficit, and, structured derivatives, a massive increase in money and credit and fraud. Now they do not have securitization and derivatives to help them out, which means all that leverage will be lost. In 1981, the 30-year Treasury bond was 8-3/16%. In 2000, the rate was 6% and today the long bond, the 10s, are under 4%. The Fed had lots of room on the downside in 1991 and 2000 to lower rates and gain momentum for recovery. That opportunity isn’t there today. In addition, the Fed has been increasing money and credit for four years at over 10% annually. This year it is 14.3% or perhaps 15% by yearend. No matter how much they lie about it they are flooding the economy with aggregates. The bottom line is the fed is in the worst position to defend the economy in 20 years. Wall Street, banks and hedge funds are dangerously extended and have serious balance sheet problems after several years of wild, reckless speculation. The recent Ohio court decisions making banks show standing and ownership of loans is going to be devastating for lenders. They will have to dig each loan out in order to prove ownership in order to repossess. In the latest attempt to stall foreclosures who is going to shoulder the losses? If the banks do they will go under. Whoever heard of a 4 or 5 years moratorium? What happens when negative equity happens on these loans? Do lenders really believe that these “homeowners” with FOIC’s of 500 and 550 will keep their payments up? In a recession many of these people will lose their jobs. We just saw a $92,000 two-month drop in California median prices. Does Washington and the bankers really believe they can stop the momentum generated by this housing collapse, which is really just getting underway? Stopping subprime resets won’t work. The equity won’t be there. First the homeowners, then the banks and then Fannie and Freddie will all go under whether it takes three years or six years. All the while the Fed will be increasing money and credit, perhaps 20% or 50%, who knows. We do know that there will be hyperinflation and gold and silver will be headed for the stars. This time what the Fed is doing won’t work, and will send us headlong into a perilous situation and a collapse of the financial system.
As you know our government has an official strong dollar policy. As you also know that is not the case as the dollar has fallen in value over the past seven years. It is just another official lie. This false policy is accompanied by again falling interest rates and the injection of massive amounts of money and credit. As a result, the economy is headed for its just reward – deep recession and depression. The expansion will go forward until speculators will choose not to borrow to leverage or the public will have no further ability to borrow. Both are currently in process and that is sure to cause a global crisis. You cannot devalue your country into prosperity.