Pacific Free Press was launched in March 2007 by Dutch-Canadian Richard
Kastelein of V.O.F. Expathos, in the Netherlands along with Chris Cook- CFUV radio journalist and Editor in Chief of Pacific Free Press. Cook is based in , Victoria, British Columbia.
The site is a sister to Atlantic Free Press and Brick Ogden an American Expatriate in Amsterdam has been a key supporter of this project.
The mission of Pacific Free Press is simple: to dig out nuggets of truth from
the slag-heap of lies, ignorance and witless diversion that has buried
public discourse today. Pacific Free Press provides a new venue for
disseminating hard news and insightful, fact-based analysis of the
harsh realities too often ignored or distorted by the mainstream press.
Three Easy Pieces: The Dollar, Paulson, and Carlyle Capital
by Mike Whitney So far, so bad. On Wednesday, crude-futures topped $110 for the first time, the dollar slipped to $1.55 per euro, and gold zoomed to a new high of $1,000 per ounce. Yikes!
The dollar has been shoved off a cliff and no one knows where it will land. Last week, the G-7 nations announced that if “irrational” prices movements persisted, they would “collectively take suitable measures to calm the financial markets.”
Their statement was taken to mean that foreign central banks will secretly intervene in the currency markets to stop the dollar from crashing. But can they do it?
The Bedraggled Greenback
Only the Fed can raise interest rates and the market is betting
that Bernanke will slash another 75 basis points at its next meeting.
That ought to send the sinking greenback to Davey Jones Locker in a
hurry.
The dollar has plunged from $.87 on the Euro in 2002 to
$1.55 on March 12, 2008; losing nearly half its value since Bush took
office. And there's no sign of a turnaround. Henry Paulson's “strong
dollar” policy is a load of malarkey. The Fed has been pummeling the
dollar for the last six years. Why stop now? They've already said they
want a cheap dollar to increase exports; now they've got it, along with
$110 oil and $6 per gallon milk. Any other bright ideas?
Now, living
standards will fall, prices will soar, and the public will get restless.
No country ever devalued its way to prosperity, but that doesn't mean
we can't be the first. Just look at Zimbabwe; there's a success story,
right?
The plan to debase the currency is as loony as invading Iraq and the country will pay dearly for it.
Recently,
the Wall Street Journal broke down the relationship between the dollar
and oil and revealed the ugly truth; that consumers are getting gouged
at the pump because of Bush's policies not Saudi greed:
“Since
2001 the dollar price of oil and gold have run almost in tandem. The
price of gold has risen 240% since 2001, while the price of oil has
risen 270%. That means that if the dollar had remained “as good as
gold” since 2001, oil today would be selling at about $30 a barrel, not
$100. Gold has traditionally been a rough proxy for the price level, so
the decline of the dollar against gold and oil suggests a US monetary
that is supplying too many dollars”.” (“Oil and the Dollar” Wall Street
Journal)
There it is in black and white. Bush's dollar policy
has taken us where Bin Laden never could; the edge of ruin. The
consumer is getting clobbered, the country is slipping into recession,
and the greenback is hanging by a thread. Thanks, George.
According
to Bloomberg News the dollar has bounced back slightly from its
historic lows at $1.56 per Euro on the news of possible intervention by
foreign banks. But what a humiliation. The dollar is like Blanche
Dubois in "A Streetcar Named Desire" who “Always depended on the
generosity of strangers”. Pretty soon, foreign lenders will get tired
of America's reckless behavior and let the dollar shrink to the size of
a peso. Why would they care?
For now, Japan and the European Central
Bank still think the US can be cajoled into acting like a responsible
adult and put the ship of state and its currency back on course. But,
they're dreaming. There's not an adult in the entire Bush
administration. Foreign exporters will have to slow production as
demand decreases.
We're headed into a deflationary slump and there's no
longer any doubt about it. Bernanke is planning to ride interest rates
into the ground just to prove that his nutty Depression-aversion
theories have some merit. But, guess what? They don't. In less than a
year the greenback will be worth less than a hand-D-wipe.
According
to Bloomberg News: Goldman Sachs Group Inc. and Morgan Stanley said
coordinated action by policy makers to stem the currency's slide is
increasingly likely. In intervention, central banks buy and sell
currencies to influence exchange rates. (But) Sentiment remains
overwhelmingly dollar negative, though preliminary technical factors
warn that a broader period of dollar consolidation may be at hand.
So,
the banksters are planning on rigging the currency markets. What
else is new? But do they ever think "outside the box", like doing
something honest for a change? Not likely.
This is their system and
they run it the way they like. Period. But the fate of the poor
greenback is out of the Fed's control no matter what the banks do. As
the housing bust continues, the credit crisis will worsen and the US
will begin a protracted recession. That means that foreign capital will
seek other markets where the growth potential is stronger. Bye, bye
"purple mountains majesty". When foreign investment packs up and
leaves, the dollar will follow the stock market straight into the
fish-tank.
Glub, glub.
There's another reason to
believe the dollar won't rebound, too, that is, that Fed chairman
Bernanke is deliberately undercutting the dollar to stimulate the
economy. Bernanke believes that we are presently in a deflationary
recession, which is more serious than a normal downturn in the business
cycle. If that is the case then he is probably following a strategy
which he mapped out during his time as an academic.
"It's
worth noting that there have been times when exchange-rate policy has
been an effective weapon against deflation,'' Bernanke said, citing the
40 percent devaluation of the dollar against gold enacted in 1933 to
1934.
"The devaluation and the rapid increase in money supply it
permitted ended the U.S. deflation remarkably quickly. Monetary actions
can have powerful effects on the economy.''
This quote
suggests that Bernanke will continue to cut rates and debase the
currency in an effort to shorten the looming recession. Unfortunately,
there are roughly $6 trillion in US dollar-backed assets around the
world which could be quickly dumped on US shores if Bernanke goofs up
and foreign holders of USDs start selling their paper on the open
market.
That would trigger a round of Wiemar-like hyperinflation in the
homeland that would terminate the dollar's position as the world's
reserve currency as well as America's role as the global superpower.
Let's hope that Professor Bernanke knows how to tip-toe his way through
the mine-field or the whole economy could get a unwelcome jolt.
THE DISSEMBLING SECRETARY OF THE TREASURY
“We've taken a clear position on this saying a strong dollar is in our nation's interest,” Henry Paulson
Yesterday,
Treasury Secretary Henry Paulson unveiled a number of proposals to
address to question of regulation. A great deal of pressure is being
put on administration officials to come up with ideas that will avoid
another market meltdown like the subprime fiasco. The "President's
Working Group on Financial Markets" made a number recommendations all
dealing with the basic issues of transparency, oversight, due
diligence, and disclosure. On every issue, the slippery Paulson managed
to avoid the idea that the Federal government actually has a role to
play in regulating big business. Its funny, really. Here's Paulson,
sitting amid the ruins of the subprime/securitization meltdown that he
and his carpetbagging bankster buddies engineered; and he still resists
every suggestion that the markets be better policed. It's mind-boggling.
Here's
a sample of the gibberish that Paulson used to conceal the fact that he
really plans to do “nothing at all” and that the crooked sideshow they
run on Wall Street will just move to its next shell-game completely
unregulated:
“State and federal authorities should coordinate
to enforce the rules evenly across all types of mortgage
originators...” (Ed. Note: So, where was the Fed and the SEC while all
this crappy paper was changing hands, Hank)
“Overseers of
institutional investors (for example, the Department of Labor for
private pension funds; state treasurers for public pension funds; and
the SEC for money market funds) should require investors (and their
asset managers) to obtain from sponsors and underwriters of securitized
credits access to better information about the risk characteristics of
such credits...” (ed note: More official sounding gobbledygook which
means: “You probably should tell the investors that they are getting
ripped off when they buy worthless subprime garbage from Wall Street
hucksters like Paulson)
“Supervisors of global financial
institutions should closely monitor the firms' efforts to address risk
management weaknesses, taking action if necessary to ensure that
weaknesses are addressed...” (ed note: Oh, Please. The statement
presumes that some of the brightest people in the country didn't know
they were wrapping up goose-poop and selling it as Beluga Caviar. The
subprime scam was an obvious swindle from the get-go.)
“U.S.
banking regulators and the SEC should promptly assess current
guidance...and should adopt policies that provide incentives for
financial institutions to hold capital and liquidity cushions
commensurate with firm-wide exposure...” (Ed note: Here we go again;
incentives, incentives, incentives. That's not how one regulates a
pirate's cove like Wall Street. What's needed is tasers, truncheons and
a 25 ft post and beam gallows on the street in front of the New York
Stock Exchange. That's the only way to get the attention of the crooks
who run the banking system)
None of these recommendations will
fix the system or provide the oversight needed to save the financial
industry from its own self-destructive impulses. The first step is
campaign reform so we get the money out of the political system so the
captains of industry (the foxes) like G-Sax Paulson are not put in
charge of the industry (the hen-house)
POST MORTEM FOR CARLYLE
The
politically-connected Carlyle Capital hedge fund was wheeled into ICU
on Thursday unable to make a measly $400 million margin call. Carlyle
boasted a $21.7 billion portfolio of AAA-rated residential
mortgage-backed securities issued by Freddie Mac and Fannie Mae. So
where's the money?
The fund had leveraged its $670 million in
equity to 32 times its value. Now the stock has lost over 90 per cent
of its value and has defaulted on $16.6 billion of its debt. About $5.7
billion of the defaulted debt has been sold, the Carlyle Group said
Thursday.
What is interesting here is the fact that “$5.7
billion of the defaulted debt has been sold” but Carlyle still couldn't
pay its paltry $400 million margin call? Why?
Is the $5.7
billion the estimated face-value of the Freddie Mac bonds? If that is
the case---and I suspect it is---then we have discovered something very
important, that even triple A rated mortgage-backed bonds are
worthless. That's a very scary prospect for the many banks, hedge
funds, insurance companies, and retirement funds that are currently
holding trillions of dollars of these toxic MBS. They could be worth
zero, which means we could see a rash of defaults and bankruptcies
unlike anything in history.
According to Reuters: “Carlyle
Capital shook financial markets last week after it was unable to offer
more collateral to protect its $21.7 billion portfolio of
residential-mortgage-backed bonds. The banks that had loaned money
demanded more collateral, known as a margin call, to cover the gap
between the previous value of the securities and their current, lower
level.”
Again, this is a very small margin call for a fund of
this size that's loaded with Triple A-rated securities. All we want to
know is, what they got paid for their Fannie Mae bonds? How much? But
the media is not reporting that critical bit of news.
Reuters offers this one revealing clue in a statement issued by Carlyle:
"Overall,
it has become apparent to the company that the basis on which lenders
are willing to provide financing against the company's collateral has
changed so substantially that a successful refinancing is not possible.”
Ah-ha!
“Refinancing is not possible”. Not possible at any price regardless of
the quality or the rating. That is exactly what we wanted to hear.
Guess
what; the subprime meltdown just got a whole lot bigger. As the massive
cycle of de-leveraging continues for the over-extended hedge funds;
Triple A assets will be sold for merely pennies on the dollar sending
the faltering banking system into a last, lethal swan dive. Good
riddance.
Writings 
So far, so bad. On Wednesday, crude-futures topped $110 for the first time, the dollar slipped to $1.55 per euro, and gold zoomed to a new high of $1,000 per ounce. Yikes!
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