Tuesday, August 19, 2008

Families forced to let homes they cannot sell

Families forced to let homes they cannot sell

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The seizure in the housing market is forcing families who cannot sell their properties to let them and move to rented accommodation, a new survey suggests.

Rental demand has soared to a ten-year high in the past three months and the number of properties to let has also hit record levels, figures from the Royal Institution of Chartered Surveyors (RICS) show. The balance of surveyors reporting a rise in business from new landlords soared to a record high of 43 per cent in the three months to the end of July, up from 30 per cent in the three months to the end of April, RICS said.

At the same time, some 37 per cent more surveyors said that tenant demand had risen rather than fallen in the three months to the end of July, up from 30 per cent in the previous quarter and the highest proportion since the RICS survey began in 1998. David Richardson of Arnolds, a chartered surveyor in Norwich, said: "People are letting their own house and then renting something more suitable to their current needs."

The housing market has virtually ground to a halt in the wake of the credit crunch, with lenders becoming more circumspect about lending to would-be buyers. Home sellers are being forced to cut prices and in some cases they still cannot secure a sale. About £22,000 has been wiped off the value of an average home since the market turned in August last year. Many economists predict that prices will continue to fall next year and even into 2010, prompting many households that have already sold to move into rental accomodation rather than buying a new home while they wait for the market to bottom out.

Andrew Cummings, of Chancellors, in Stanmore, said: "Many households have sold their family homes and move into rental acommodation for six to twelve months in order to reassess the market before buying."

Family homes were more sought after than flats, RICS said, with 43 per cent more surveyors reporting a rise in demand for houses compared with 34 per cent for flats.

But the rate at which tenants are seeking property is being outstripped by the number of rental properties coming on to the market, leading some to speculate that rents, which have been rising, may flatten out. Nearly a quarter more surveyors said they expected rents to rise rather than fall in the coming months, down from 29 per cent in the previous quarter.

Christine Burnett, of Countrywide Residential Lettings in Ashford, Kent, said that rents were already falling. "Rents have dropped due to the number of properties that, being unable to be sold, are now becoming available to rent," she said.

James Scott-Lee, of RICS, said that becoming a landlord was a profitable option but added: "Ever-increasing supply could have an impact on rental growth as tenant options increase."

Wholesale inflation surged in July at the fastest pace in 27 years

Wholesale inflation surged in July

Prices for past year rising at fastest pace in 27 years

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Wholesale inflation surged in July, leaving prices for the past year rising at the fastest pace in 27 years, according to government data released Tuesday.

The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected.

Core prices, which exclude food and energy, rose 0.7 percent. That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.

In other economic news, the Commerce Department reported that housing construction fell in July to the lowest pace in more than 17 years. Builders broke ground on 965,000 housing units at a seasonally adjusted annual rate last month — the weakest showing since March 1991 — as the housing industry continues to struggle with falling sales and rising mortgage foreclosures.

The bad news on wholesale prices followed a report last week that consumer prices shot up by 0.8 percent in July, leaving consumer inflation rising at the fastest pace since 1991.

The July price pressures reflected in part the big surge in energy costs during the month that pushed crude oil prices to a record of $147.27 per barrel and sent gasoline pump prices to an all-time high of $4.11 per gallon.

Crude oil prices have fallen by more than $30 per barrel since then, raising hopes that the surge in inflation will soon abate.

However, the price spikes in a number of areas seen in July raised concerns that the prolonged surge in energy prices was beginning to show up more broadly throughout the economy.

Sal Guatieri, an economist at BMO Capital Markets, said he believed inflation at both the consumer and wholesale levels will remain high for another month or so but then start to decline, reflecting the large decreases already seen in crude oil and other commodities.

“A firmer dollar, retreating commodity prices and continued economic weakness should damp inflation by the fall,” he said.

Such a development would put the Federal Reserve in a severe bind. The central bank would like to keep interest rates low to give a boost to the badly lagging economy, but Fed officials may feel pressured to start raising rates in an effort to make sure inflation does not get out of control.

For July, wholesale energy prices jumped by 3.1 percent following a 6 percent gain in June. That increase reflected big jumps in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs.

Food prices rose by 0.3 percent in July after a 1.5 percent surge in June. Beef prices jumped by 7.4 percent, the biggest increase in nearly four years. Milk prices shot up by 5 percent, the biggest gain in a year, while soft drink prices rose by 2.4 percent, the largest increase in four years.

Excluding energy and food, the 0.7 percent rise in core inflation reflected big gains in the prices of passenger cars and light trucks, pharmaceutical preparations and plastic products.

The Greenback Blues: Something's Gotta Give

The Greenback Blues: Something's Gotta Give

By Mike Whitney

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In a matter of weeks, the euro has been pounded into ground-chuck while the dollar has regained much of its former glory. What gives? The mighty greenback has surged 6% in the last month alone. Apparently, the early reports of the dollar's demise have been greatly exaggerated. The euro is caught in the same recessionary downdraft that is buffeting a number of currencies, all of which are unwinding at the same time although unevenly. Currency markets don't move in straight lines. But, don't be fooled, most paper money is steadily losing value due to the wild expansion of credit which started at the Federal Reserve. Investors are moving to cash and hunkering down. Who can blame them? As the massive equity bubble loses gas, balance sheets will have to be mended and lending will slow to a crawl. At present, Germany's slowdown and Spain's housing crash are drawing most of the attention but, just wait, the spotlight is shifting fast. Next week it could be shining down on the America's failing banking system or poor corporate-earnings reports in the US. Then it will be the dollar marching off to the gallows.

Europe's troubles have put to rest to idea that other countries can "decouple" from the US and thrive without help from the US consumer. That might be true in the long-term, but falling demand is already visible everywhere. Retail and auto sales are really taking a thumping and 2009 is shaping up to be even tougher. It's looking more and more like the Europeon Central Bank was faked-out by the early signs of inflation and missed the deflationary sledgehammer that was about to come crashing down. It was a rookie error by European Central Bank (ECB) chief Jean Claude Trichet and it should cost him his job. Raising interest rates while sliding into the jaws of recession is madness. Now all of Europe is headed for a hard landing and there's no way to soften the blow. The ECB doesn't have the same tools as the Fed; Trichet can't simply backstop the whole system with green paper and T-Bills like Bernanke. He can either slash rates or take a bleacher-seat and hope for the best.

The UK Telegraph's Ambrose Evans-Pritchard, sums up Europe's woes in last week's article "ECB Slammed as Europe Crumbles":

"The economies of Germany, France and Italy all contracted in the first quarter and may now be in full recession, shattering assumptions that Europe would prove able to shrug off the effects of the credit crunch....The picture is darkening so fast in Spain that Prime Minister Jose Luis Zapatero canceled holidays and called his cabinet back to Madrid yesterday for the first emergency session of its kind since the Franco dictatorship.

Growth has turned negative in Ireland, Denmark, Latvia, and Estonia, while grinding to a halt in Sweden and The Netherlands. Iceland contracted by a staggering 3.7pc. The grim data from Eurostat follows a recession warning in Britain, and shock news that the Japanese economy had shrunk 0.6pc in the second quarter. Almost the entire bloc of rich Organization for Economic Co-operation and Development (OECD) countries - still two thirds of the world economy - are now in the grip of a major downturn."

Evans-Pritchard's article reads like a chapter from the Book of Revelation all that's missing is the plague of locusts. The ECB is in a pickle and will have to allow the economy to cool off so the credit excesses can work themselves out. It's like a pig passing through the belly of the boa; it takes time.
As a result, deficits are likely to soar in the south (particularly Spain, Greece and Italy) while growth in the industrial north, Germany, will continue to shrink. Spain, Ireland and England are undergoing the biggest housing meltdown in history having fallen prey to the same Greenspan-inspired hanky-panky we've seen in the US. Hundreds of billions of dollars of low interest loans that were issued to unqualified mortgage applicants has clogged up the system. Now the bill has come due and the losses have to be written off. Expect more blood to come.

The problem is so big that the future of the EU and the euro are now very much in doubt. Currency traders are expecting the ECB to lower rates (and weaken the euro) just as the future's market is wagering that the Fed will raise rates to fight inflation. But don't bet on it. Interest rates are going down not up, regardless of the Fed's well-orchestrated PR campaign. Bernanke is just waiting for Trichet to make his move before he produces the Fed-scimitar and begins slashing rates. Don't forget, the Federal Reserve is essentially the board of directors for the nations banking system. If Bernanke is forced to choose between the people who depend on the dollar as a reliable store of value or bailing out the high-stakes gamblers who run the banks; the Fed chief will choose the banks 100 per cent of the time. In Vegas, that's called a "sure thing".

The perception that the dollar is getting stronger is an illusion. Deflation is "dollar positive" because investors who flee from toxic assets naturally move into cash. But that doesn't mean they have faith in the dollar; far from it. The fundamentals for the greenback get worse by the day. Fiscal and trade deficits are out of control, the national debt is tipping $10 trillion, foreign investment is drying up, and confidence in US leadership has never been lower. The dollar is on a time-line of roughly 6 to 18 months before it's rolled into spools and sold as toilet paper. Paper currency is a country's IOU; and foreign central banks are wary of taking checks from a country that no longer wins wars or has the capacity to pay off its debts. That's why, for the first time, there's serious talk about the US losing its triple A rating on government debt; and it could happen sooner than anyone thinks. Every time the Fed uses the dollar to prop up the faltering banking system or provide limitless capital for defunct GSEs like Fannie Mae and Freddie Mac; the dollar comes under greater pressure. At a certain point the dollar will crumble and the country will have to sell off its assets and industries to pay the bills. That's when the private equity vultures and Sovereign Wealth Funds will swoop down and scavenge anything of value for pennies on the dollar.

As the US housing market continues to collapse, trillions of dollars in equity and credit are disappearing in a deflationary bonfire. When a $400,000 home--with no down payment and negative equity--goes into foreclosure; $400,000 vanishes from the digital-pool of credit and has to be written down as a loss. So far, much of the losses have not yet been accounted for because the banks are using their own internal models for determining the downgraded value of their mortgage-backed assets. Two weeks ago, Merrill Lynch sold $30 billion of Mortgage-backed junk for 20 cents on the dollar. But they also financed the deal, so they really only received 5 cents on the dollar. This reflects the true "market value" of these assets. Naturally, Merrill's sale sent tremors through Wall Street where banks and other financial institutions are sitting on trillions of dollars of this garbage marking it down at a few percentage points every reporting period rather than doing what Merrill did and putting it all behind them. As a result, the banks have less capital to lend, which means economic activity will slow and the country will go into a deep recession. The point is, that the Federal Reserve now holds about $400 billion of this junk-paper on their balance sheets and the US Treasury is planning to take hundreds of billions more (perhaps as mush as $800 billion more under the new legislation!) to prop up Fannie Mae and Freddie Mac. The Bush administration is using the US taxpayer and the credibility of the dollar as collateral in its plan to bail out the most reckless, high-stakes Wall Street gamblers and their multi-trillion dollar ponzi scheme that has blown up in their face.

So, how does this affect the dollar?

The nation's debts are entirely balanced atop its currency. The greenback is like a circus strongman holding a barbell precariously over his head; as the weigh increases, the sweat begins to appear on his brow and the veins begin to bulge in his neck and forehead. Finally, the knees buckle and the and the over-matched weightlifter crashes to the canvas in a heap. That's the future of the dollar in a nutshell. Its just a matter of time.

But how does that explain the sudden fall in gold prices; after all, gold is the logical alternative to paper money, right?

Wrong. Gold is "real money" alright, but it's also a commodity. And when commodities are smashed by a deflationary tidal wave--as they have been the last few weeks-- gold will follow them into the basement. In truth, gold has taken an even worse pasting than the euro; free-falling from $980 per ounce in mid-July to $786 at Friday's market close. $194 in a month. Goldbugs are so fanatically committed to their views about "real currency" and "fiat money", that any correction in the market is seen as proof of government manipulation. (Even though they are right many times) There's plenty of evidence of meddling in the currency markets, just as one would expect. After all, the western banking system, led by the Fed, operates as a cartel. The head honchos are about as committed to free markets as Bush is to democracy, which isn't saying much. It's all a public relations ruse that's used to defend a de facto monopoly; the paper money scam. So, we shouldn't be surprised when foreign central banks unexplainably purchase $28 billion of US government securities at the 11th hour (as they did last month) to conceal our trade imbalance and prop up the waning dollar. Don't forget, it's their chestnuts they're keeping out of the fire, too. But, that doesn't mean the Fed has super powers or that every time gold goes into a tailspin its because the black helicopters fired invisible lasers into the currency markets. When the economy is in the grips of deflation; all asset-classes get dragged down, gold included. Many of the hedge funds and other big market players are selling their gold positions recognizing that the commodities boom is over and it's time to move on. That doesn't mean that gold won't rebound sharply when Bernanke slashes rates or if Bush blows up some new part of the globe. It simply means that in the short term, "cash is king". Pension funds and hedge funds will continue to deleverage to reduce their credit exposure to put themselves in a better position to roll over their debt. That means that gold's slide could last a while. This doesn't look like a conspiracy to me, but I intend to keep my tin-foil hat firmly strapped-on just in case.

No one knows where the bottom is for gold, but one thing is certain; it's future prospects are a lot brighter than the dollar's. The Bush administration has yet to demonstrate that it can enforce Dollar Hegemony via military intervention. That is a very big deal. If the dollar isn't backed by (stolen) Iraqi oil, then the $6 trillion stockpile of dollars and dollar-denominated assets that are languishing in foreign central banks and funds, will continue to dwindle until the dollar's position as "reserve currency" comes to an end.

That's one doomsday scenario, but there is another. If Bernanke and Paulson continue to pile all of the nation's credit problems on top of the greenback; foreign capital will head for the exits and the dollar will crash. Either way, the troubles are mounting and something's got to give.

Jim Rogers Predicts Bigger Financial Shocks Loom

Jim Rogers Predicts Bigger Financial Shocks Loom

Fueling a Malaise That May Last for Years

By Keith Fitz-Gerald

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The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.

The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”

During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:

  • U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he’s handed out as he’s tried to battle this credit crisis.
  • That the U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
  • That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
  • And that the average American has no idea just how bad this financial crisis is going to get.

“The next shock is going to be bigger and bigger, still,” Rogers said. “The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out.”

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers "retired" in 1980 that the investing masses got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released "A Bull in China." And he made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his home in Singapore:

Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.

Jim Rogers: There was a train wreck, yes. Two or three – more than one, as you know. [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue. Which is going to cover things up for a while. And then I don’t know how long the rally will last and then we’ll be off to the races again. Whether the rally lasts six days or six weeks, I don’t know. I wish I did know that sort of thing, but I never do.

(Q):What would Chairman Bernanke have to do to “get it right?”

Rogers: Resign.

(Q): Is there anything else that you think he could do that would be correct other than let these things fail?

Rogers: Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.

The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. Yeah, that’s what he could do. That would help. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).

The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “dot-com bubble” shock, so I guess Bernanke could try to start reversing some of this stuff.

But he has to not just reverse it – he’d have to increase interest rates a lot to make up for it and that’s not going to solve the problem either, because the basic problems are that America’s got a horrible tax system, it’s got litigation right, left, and center, it’s got horrible education system, you know, and it’s got many, many, many [other] problems that are going to take a while to resolve. If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better.

But this is academic – he’s not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign. That’ll be the best solution. Is he going to do that? No, of course not. He still thinks he knows what he’s doing.

(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?

Rogers:Yes.

(Q): What would you tell the “Average Joe” in no-nonsense terms?

Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.

Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.

I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered. Too complicated, or whatever.

I’m sure when the [British Empire] declined there were many people who rang the bell and said: “Guys, we’re making too many mistakes here in the U.K.” And nobody listened until it was too late.

When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.

(Q): Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?

Rogers: Bernanke is a very-narrow-gauged guy. He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.

Bernanke was [on the record as saying] that there is no problem with housing in America. There’s no problem in housing finance. I mean this was like in 2006 or 2005.

(Q): Right.

Rogers: He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else.

(Q): That’s problematic.

Rogers: It’s mind-boggling. Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics. His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows.

Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields. And his is printing money, which he’s good at, we know. We’ve learned that he’s ready, willing and able to step in and bail out everybody.

There’s this worry [whenever you have a major financial institution that looks ready to fail] that, “Oh my God, we’re going to go down, and if we go down, the whole system goes down.”

This is nothing new. Whole systems have been taken down before. We’ve had it happen plenty of times.

(Q): History is littered with failed financial institutions.

Rogers: I know. It’s not as though this is the first time it’s ever happened. But since [Chairman Bernanke’s] whole career is about printing money and studying the Depression, he says: “Okay, got to print some more money. Got to save the day.” And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.

(Q): And now we’ve got a dangerous precedent.

Rogers: That’s exactly right. And when the next guy calls him up, he’s going to bail him out, too.

(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?

Rogers: Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.

(Q): That’s pretty darn clear.

Rogers: Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.

You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.

(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?

Rogers: Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.

(Q): Throughout your career you’ve had a much-fabled ability to spot unique points in history – inflection points, if you will. Points when, as you put it, somebody puts money in the corner at which you then simply pick up.

Rogers: That’s the way to invest, as far as I’m concerned.

(Q): So conceivably, history would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own.

Rogers: Right.

(Q): Is there a point in time or something you’re looking for that will signal that the U.S. economy has reached the inflection point in this crisis?

Rogers: Well, yeah, but it’s a long way away. In fact, it may not be in our lifetimes. Of course I covered my shorts – my financial shorts. Not all of them, but most of them last week.

So, if you’re talking about a temporary inflection point, we may have hit it.

If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the [Dubai firm] buy the ports, et cetera.

But I’m really talking about full-fledged, all-out exchange controls. That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.

Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That’s a collapse. That was also a bottom.

These are not predictions for the U.S., but I’m just saying that things have to usually get pretty, pretty, pretty, pretty bad.

It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation. And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.

(Q): Treason? Wow, I didn’t know that.

Rogers: Yes…an act of treason. It used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies. Anything. You could even use other people’s currencies.

Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ’39 they had full-exchange controls. And then, of course, they had the war and that disaster. It was a disaster before the war. The war just exacerbated the problems. And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds. Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world.

Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus.

You know, even if Mother Teresa had come in [as prime minister] in ’79, or Joseph Stalin, or whomever had come in 1979 – you know, Jimmy Carter, George Bush, whomever – it still would’ve been great.

You give me the largest oil field in the world and I’ll show you a good time, too. That’s what happened.

(Q): What if Thatcher had never come to power?

Rogers: Who knows, because the U.K. was in such disastrous straits when she came in. And that’s why she came to power…because it was such a disaster. I’m sure she would’ve made things better, but short of all that oil, the situation would’ve continued to decline.

So it may not be in our lifetimes that we’ll see the bottom, just given the U.K.’s history, for instance.

(Q): That’s going to be terrifying for individual investors to think about.

Rogers: Yeah. But remember that America had such a magnificent and gigantic position of dominance that deterioration will take time. You know, you don’t just change that in a decade or two. It takes a lot of hard work by a lot of incompetent people to change the situation. The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time.

Even Zimbabwe, you know, took 10 or 15 years to really get going into it’s collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it’s a major disaster.

That’s one of the advantages of Singapore. The place has an astonishing amount of wealth and only 4 million people. So even if it started squandering it in 2008, which they may be, it’s going to take them forever to do so.

(Q): Is there a specific signal that this is “over?”

Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts. Linked inside bank accounts. When that happens, we’ll know we’re getting close because they’ll do it even after it’s illegal – after America’s put in the exchange controls.

(Q): They’ll move their own money.

Rogers: Yeah, because you look at people like the Israelis and the Argentineans and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.

(Q): We saw that in South Africa and other countries, for example, as people tried to get their money out.

Rogers: Everybody figures it out, eventually, including the politicians. They say: “You know, others can’t do this, but it’s alright for us.” Those days will come. I guess when all the congressmen have foreign bank accounts, we’ll be at the bottom.

But we’ve got a long way to go, yet.

[Editor’s note: After interviewing legendary investor Jim Rogers at his home in Singapore back in March, Investment Director Keith Fitz-Gerald caught up with Rogers again in July – this time in Vancouver, where both were speaking at the Agora Wealth Symposium. Rogers talked extensively about the ill-advised bailouts of Bear Stearns, Fannie Mae and Freddie Mac, and the potentially ruinous fallout from the financial “Super Crash” that’s about to engulf the U.S. market. To find out how to get a report on the once-in-a-lifetime profit plays that will emanate from this so-called "SuperCrash" – and to also get a free copy of noted market analyst Peter D. Schiff’s New York Times bestseller "Crash Proof: How to Profit from the Coming Economic Collapse" – please click here. And look for Part 2 of Money Morning’s latest interview with Jim Rogers tomorrow (Wednesday).]

Large U.S. Bank Collapse Seen Ahead

Large U.S. Bank Collapse Seen Ahead

By Jan Dahinten

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The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.

"The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.

"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.

"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.

"Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."

Rogoff's comments come as investors dumped shares of the largest U.S. home funding companies Fannie Mae and Freddie Mac on Monday after a newspaper report said government officials may have no choice but to effectively nationalize the U.S. housing finance titans.

A government move to recapitalize the two companies by injecting funds could wipe out existing common stock holders, the weekend Barron's story said. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses.

Rogoff said multi-billion dollar investments by sovereign wealth funds from Asia and the Middle East in western financial firms may not necessarily result in large profits because they had not taken into account the broader market conditions that the industry faces.

"There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them.

"That view neglects the point that the financial system has become very bloated in size and needed to shrink," Rogoff told the conference in Singapore, whose wealth funds GIC and Temasek have invested billions in Merrill Lynch and Citigroup

In response to the sharp U.S. housing retrenchment and turmoil in credit markets, the U.S. Federal Reserve has reduced interest rates by a cumulative 3.25 percentage points to 2 percent since mid-September.

Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as "dramatically" as it did.

"Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States."

Are You Ready For Nuclear War?

Are You Ready For Nuclear War?

By Paul Craig Roberts

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Pervez Musharraf, the puppet installed by the US to rule Pakistan in the interest of US hegemony, resigned August 18 to avoid impeachment. Karl Rove and the Diebold electronic voting machines were unable to control the result of the last election in Pakistan, the result of which gave Pakistanis a bigger voice in their government than America’s.

It was obvious to anyone with any sense--which excludes the entire Bush Regime and almost all of the “foreign policy community”--that the illegal and gratuitous US invasions of Afghanistan and Iraq, and Israel’s 2006 bombing of Lebanon civilians with US blessing, would result in the overthrow of America’s Pakistani puppet.

The imbecilic Bush Regime ensured Musharraf’s overthrow by pressuring their puppet to conduct military operations against tribesmen in Pakistani border areas, whose loyalties were to fellow Muslims and not to American hegemony. When Musharraf’s military operations didn’t produce the desired result, the idiotic Americans began conducting their own military operations within Pakistan with bombs and missiles. This finished off Musharraf.

When the Bush Regime began its wars in the Middle East, I predicted, correctly, that Musharraf would be one victim. The American puppets in Egypt and Jordan may be the next to go.

Back during the Nixon years, my Ph.D. dissertation chairman, Warren Nutter, was Assistant Secretary of Defense for International Security Affairs. One day in his Pentagon office I asked him how the US government got foreign governments to do what the US wanted. “Money,” he replied.

“You mean foreign aid?” I asked.

“No,” he replied, “we just buy the leaders with money.”

It wasn’t a policy he had implemented. He inherited it and, although the policy rankled with him, he could do nothing about it. Nutter believed in persuasion and that if you could not persuade people, you did not have a policy.

Nutter did not mean merely third world potentates were bought. He meant the leaders of England, France, Germany, Italy, all the allies everywhere were bought and paid for.

They were allies because they were paid. Consider Tony Blair. Blair’s own head of British intelligence told him that the Americans were fabricating the evidence to justify their already planned attack on Iraq. This was fine with Blair, and you can see why with his multi- million dollar payoff once he was out of office.

The American-educated thug, Saakashkvili the War Criminal, who is president of Georgia, was installed by the US taxpayer funded National Endowment for Democracy, a neocon operation whose purpose is to ring Russia with US military bases, so that America can exert hegemony over Russia.

Every agreement that President Reagan made with Mikhail Gorbachev has been broken by Reagan’s successors. Reagan’s was the last American government whose foreign policy was not made by the Isreali-allied neoconservatives. During the Reagan years, the neocons made several runs at it, but each ended in disaster for Reagan, and he eventually drove the modern day French Jacobins from his government.

Even the anti-Soviet Committee on the Present Danger regarded the neocons as dangerous lunatics. I remember the meeting when a member tried to bring the neocons into the committee, and old line American establishment representatives, such as former Treasury Secretary Douglas Dillon, hit the roof.

The Committee on the Present Danger regarded the neocons as crazy people who would get America into a nuclear war with the Soviet Union. The neocons hated President Reagan, because he ended the cold war with diplomacy, when they desired a military victory over the Soviet Union.

Deprived of this, the neocons now want victory over Russia.

Today, Reagan is gone. The Republican Establishment is gone. There are no conservative power centers, only neoconservative power centers closely allied with Israel, which uses the billions of dollars funneled into Israeli coffers by US taxpayers to influence US elections and foreign policy.

The Republican candidate for president is a warmonger. There are no checks remaining in the Republican Party on the neocons’ proclivity for war. What Republican constituencies oppose war? Can anyone name one?

The Democrats are not much better, but they have some constituencies that are not enamored of war in order to establish US world hegemony. The Rapture Evangelicals, who fervently desire Armageddon, are not Democrats; nor are the brainwashed Brownshirts desperate to vent their frustrations by striking at someone, somewhere, anywhere.

I get emails from these Brownshirts and attest that their hate-filled ignorance is extraordinary. They are all Republicans, and yet they think they are conservatives. They have no idea who I am, but since I criticize the Bush Regime and America’s belligerent foreign policy, they think I am a “liberal commie pinko.”

The only literate sentence this legion of imbeciles has ever managed is: “If you hate America so much, why don’t you move to Cuba!”

Such is the current state of a Reagan political appointee in today’s Republican Party. He is a “liberal commie pinko” who should move to Cuba.

The Republicans will get us into more wars. Indeed, they live for war. McCain is preaching war for 100 years. For these warmongers, it is like cheering for your home team. Win at all costs. They get a vicarious pleasure out of war. If the US has to tell lies in order to attack countries, what’s wrong with that? “If we don’t kill them over there, they will kill us over here.”

The mindlessness is total.

Nothing real issues from the American media. The media is about demonizing Russia and Iran, about the vice presidential choices as if it matters, about whether Obama being on vacation let McCain score too many points.

The mindlessness of the news reflects the mindlessness of the government, for which it is a spokesperson.

The American media does not serve American democracy or American interests. It serves the few people who exercise power.

When the Soviet Union collapsed, the US and Israel made a run at controlling Russia and the former constituent parts of its empire. For awhile the US and Israel succeeded, but Putin put a stop to it.

Recognizing that the US had no intention of keeping any of the agreements it had made with Gorbachev, Putin directed the Russian military budget to upgrading the Russian nuclear deterrent. Consequently, the Russian army and air force lack the smart weapons and electronics of the US military.

When the Russian army went into Georgia to rescue the Russians in South Ossetia from the destruction being inflicted upon them by the American puppet Saakashvili, the Russians made it clear that if they were opposed by American troops with smart weapons, they would deal with the threat with tactical nuclear weapons.

The Americans were the first to announce preemptive nuclear attack as their permissible war doctrine. Now the Russians have announced the tactical use of nuclear weapons as their response to American smart weapons.

It is obvious that American foreign policy, with is goal of ringing Russia with US military bases, is leading directly to nuclear war. Every American needs to realize this fact. The US government’s insane hegemonic foreign policy is a direct threat to life on the planet.

Russia has made no threats against America. The post-Soviet Russian government has sought to cooperate with the US and Europe. Russia has made it clear over and over that it is prepared to obey international law and treaties. It is the Americans who have thrown international law and treaties into the trash can, not the Russians.

In order to keep the billions of dollars in profits flowing to its contributors in the US military-security complex, the Bush Regime has rekindled the cold war. As American living standards decline and the prospects for university graduates deteriorate, “our” leaders in Washington commit us to a hundred years of war.

If you desire to be poor, oppressed, and eventually vaporized in a nuclear war, vote Republican.

Dr. Roberts was Assistant Secretary of the US Treasury in the Reagan Administration. He is a former Associate Editor of the Wall Street Journal, a 16-year columnist for Business Week, and a columnist for the Scripps Howard News Service and Creator’s Syndicate in Los Angeles. He has held numerous university professorships, including the William E. Simon Chair in Political Economy, Center for Strategic and International Studies, Georgetown University and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by the President of France and the US Treasury’s Silver Medal for “outstanding contributions to the formulation of US economic policy.”

U.S. Mint Suspends Gold Sales

U.S. Mint Suspends Gold Sales

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The U.S. Mint has suspended sales of American eagle gold coins and is refusing orders from dealers, two coin and bullion dealers confirmed Thursday.

The mint's suspension of gold coin sales follows its tight rationing of sales of silver eagle coins, begun in May, when sales to the public were terminated and sales to the mint's 13 authorized dealers were tightly limited.

Word of the mint's suspension of gold coin sales came from the American Precious Metals Exchange in Edmond, Oklahoma, (http://apmexdealer.blogspot.com/2008/08/news-alert-us-mint-suspends-sale...) and from Centennial Precious Metals in Denver, Colorado.

The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained -- as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.

Michael Kosares, proprietor of Centennial Precious Metals and host of its Internet bulletin board, the USAGold Forum (http://www.usagold.com/cpmforum/), explained Thursday:

"The U.S. Mint buys direct from the refiners, and this suspension of gold eagle sales may be an indication that the supply line is already backing up, or that the mint expects that it will back up for the rest of the year. I wonder who would give up physical metal at these prices and under these circumstances except distressed sellers. The central banks are in a hunker-down mode as far as I can determine, and it's the mines that supply the refiners. So if the mint, which buys from the refiners, is having a difficult time locating metal, what does that tell you? I keep saying that we may get a surprising rubber-band effect later in the year when the pre-holiday/festival season kicks off in September/October. It may happen sooner. One of our indicators of approaching a bottom in gold is how many calls Centennial Precious Metals gets from our U.S.-based Indian clientele. Here's a quote from my office's report to me at the end of the day today: 'Today was a good day. ... There must have been an Indian convention where someone was handing out USAGold business cards.' That may give you a clue as to thinking in India proper and probably the rest of the Asian rim."

That is, through their agents the bullion banks the Western central banks, desperate to prop up a corrupt and totteringt financial system, have put gold so much on sale that even the U.S. Mint can't find any now. The price reported from the commodities markets is a fiction -- a scary one, perhaps, but a fiction no less.

You can strike a blow at the market riggers who are defrauding the world -- just buy a little real metal. The dealers listed at the bottom right of this dispatch will be glad to help you do it.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

FDIC Presses Bank Regulators To Use Warier Eye

FDIC Presses Bank Regulators To Use Warier Eye

Flagging Woes Now Will Bolster Insurer; The 'Camels' Rating

By DAMIAN PALETTA

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The deteriorating condition of commercial banks is intensifying a debate among government officials over how to respond, illustrating the likely difficulties facing regulators bracing for a wave of bank failures.

In private meetings, Federal Deposit Insurance Corp. officials have pushed other agencies to more forcefully downgrade the confidential rating -- which is known only to regulators and bank management -- of troubled financial institutions, according to people familiar with the talks.

If the FDIC gets its way, it could result in more public enforcement actions and could give the FDIC more muscle to either force the companies to improve their balance sheets or seek a sale. It could also make it more expensive for companies to raise capital, as scrutiny from investors would likely spike.

The FDIC's push is being met with resistance from regulators with primary responsibility for these institutions.

For example, the Office of Thrift Supervision, a division of the Treasury Department that supervises more than 800 savings-and-loan institutions, largely focused on mortgage lending, has resisted the FDIC, arguing for a less-dire analysis, people familiar with the matter said.

FDIC officials have also tried to encourage other regulators, such as the Office of the Comptroller of the Currency, to downgrade more of the banks it supervises.

Regulators are struggling with one of the worst credit markets in decades amid questions about the adequacy of their existing patchwork of supervision. Only eight federally regulated banks or thrifts have failed this year, but more than 100 others are on the government's watch list. Many banks are struggling to raise capital and observers expect the frequency of failures to grow.

"The FDIC's job is to handle the failures, and it -- generally speaking -- would rather be tougher...on the theory that the sooner the problems are resolved, the less expensive the cleanup will be," said former FDIC chairman William Isaac, who now advises banks as chairman of consulting firm Secura Group. "The primary regulator tends to want to see if they can rehabilitate the bank and doesn't want to act precipitously as a rule."

The FDIC, led by Chairman Sheila Bair, backs the deposits of these companies, while the OTS, led by Director John Reich, is responsible for monitoring the safety and soundness of the S&Ls.

"Our examiners are very talented and take pride in doing a good job," said Scott Polakoff, senior deputy director at the OTS, who wouldn't comment directly on any tensions with the FDIC.

"The FDIC works cooperatively with primary regulators," FDIC spokesman Andrew Gray said. "Historically, the FDIC comes at determinations from the perspective of an insurer -- which tends to be a conservative point of view."

The disagreement centers on what is known as the Camels rating, a score between 1 and 5 that assesses an institution's financial position, based on areas such as asset quality and liquidity.

The best banks are rated as a 1 and the worst banks are rated a 5, and the ratings are never made public.

Banks rated 4 or 5 are put on the FDIC's problem list. The FDIC wants regulators to issue more 4's and 5's.

Of the 90 banks the FDIC listed as "problem" institutions at the end of the first quarter, just 12 were supervised by the OTS. IndyMac Bank, which was regulated by the OTS and failed July 11, wasn't on that list.

FDIC officials have struck the toughest stance thus far, in part because each bank failure diminishes the insurance fund it uses to back consumers' deposits, people familiar with the matter said.

Banks and thrifts with low capital must ask the FDIC for a waiver before they can accept a certain level of high-risk deposits. Of the 38 requests for waivers that the FDIC received in 2007, it granted 21. Through June 30, the FDIC received 51 requests for waivers andhad only granted 18.

Housing Starts in U.S. Fall to 17-Year Low; Building Permits Decline 18%

U.S. Housing Starts Fall to 17-Year Low, Permits Drop

By Shobhana Chandra

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Builders in the U.S. broke ground on the fewest houses in 17 years in July, signaling the residential- construction slump will continue to hurt economic growth.

The 11 percent decrease to an annual rate of 965,000, the lowest since March 1991, followed a 1.084 million pace the prior month, the Commerce Department said today in Washington. July's level was higher than economists anticipated. IND' ))">Building permits, a sign of future construction, also fell.

The report will reinforce concern that stricter lending rules, rising borrowing costs, falling property values and record foreclosures will further depress home sales and cause builders to keep retrenching. Housing, job losses and the credit crisis may weaken the economy for the rest of this year and into 2009.

‘‘There's still a lot of excess inventory,'' Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said before the report. ‘‘Foreclosures are competing with builders, and that will keep builders on the sidelines for a while.''

The Labor Department reported separately that prices paid to U.S. producers in July rose double the amount that economists had projected. The producer price index climbed 1.2 percent from June. Stripping out food and fuel costs, prices were up 0.7 percent, exceeding the 0.2 percent median projection among economists surveyed by Bloomberg News.

Treasuries, Stocks

Treasuries were little changed after the reports, with benchmark 10-year notes yielding 3.81 percent at 8:37 a.m. in New York, from 3.82 percent late yesterday. Futures contracts on the Standard & Poor's 500 Stock Index were down 0.9 percent at 1,270.20.

Starts were projected to fall to a 960,000 annual pace from a previously estimated 1.066 million in June, according to the median forecast of 77 economists polled by Bloomberg News. Estimates ranged from 875,000 to 1.09 million.

Compared with July 2007, work began on 30 percent fewer homes.

Permits decreased 18 percent to a 937,000 annual pace, lower than the 970,000 rate projected by economists, according to the survey median.

Construction of single-family homes fell 2.9 percent to a 641,000 rate, the fewest since January 1991, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, dropped 24 percent from the prior month to an annual rate of 324,000.

Northeast Slumps

The decrease in starts was led by a 30 percent decline in the Northeast. Construction fell 8.2 percent in both the South and West. Starts in the West slumped to a 26-year low. The Midwest showed a 10 percent gain.

The magnitude of the July drop in the Northeast reflected, in part, a payback from an unexpected surge the prior month. Starts and permits jumped in June as builders hurried to break ground ahead of new regulations in New York City's building code that took effect July 1.

Underneath the gyrations, demand is weakening. Sales of existing homes fell to a 10-year low in the second quarter, according to the National Association of Realtors. A third of all sales were foreclosures or ‘‘short sales,'' in which lenders take a loss on a property.

Financing is also becoming scarce, a quarterly survey of banks by the Federal Reserve showed. Compared with the April survey, more of the loan officers polled reported they tightened standards on prime mortgage loans and on non-traditional loans.

Mounting Losses

The five largest U.S. homebuilders reported a combined $1.08 billion in losses in their most recent quarters.

Builders are pessimistic as losses mount. The National Association of Home Builders/Wells Fargo's sentiment index yesterday showed optimism held at a record low in August for a second month.

Still, construction companies are making some headway in reducing the supply glut. The number of new homes for sale dropped in June by the most in four decades.

The government's tax rebates have helped some housing- related companies. Lowe's Cos., the world's second-largest home- improvement retailer, yesterday said full-year profit may fall less than it had anticipated and larger rival Home Depot Inc. today said profit fell les than analysts estimated as customers spent the rebates.

‘‘The macro economic factors pressuring consumers and the ongoing challenges and uncertainty of the financial markets suggest a cautious sales forecast for the balance of fiscal 2008 is prudent,'' Lowe's Chief Executive Officer Robert Niblock said in a statement.

Staples Says Profit Fell 15% on North American Sales

Staples Says Profit Fell 15% on North American Sales

By Carol Wolf

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Staples Inc., the world's largest office-supplies retailer, said second-quarter earnings per share probably fell 15 percent on a drop in North American sales.

Revenue rose 3 percent in the quarter, Staples said today in a statement on Business Wire. Sales in North America probably declined 1 percent, the Framingham, Massachusetts-based company said. The results exclude the July acquisition of Corporate Express.

Staples customers are shopping less frequently and buying less when they come into the stores, the company said. Staples said it expects per-share earnings excluding the acquisition to be little changed in 2008 from last year. Sales will increase on a ‘‘low single-digit'' percentage basis in 2008, it said.

Staples fell $1.09 to $23.49 at 7:46 a.m. before the start of trading on the Nasdaq Stock Market.

Fresh fears as Fannie and Freddie plunge

Fresh fears as Fannie and Freddie plunge

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Fears about the financial system grew on Monday as money market liquidity tightened and sharp falls in the share prices of mortgage financiers Fannie Mae and Freddie Mac led the US stock market lower.

Fannie’s and Freddie’s shares lost 22 per cent and 25 per cent, respectively, after an article in Barron’s suggested that the US government was considering recapitalising the companies on terms that would all but wipe out existing shareholders.

The concerns about Fannie and Freddie also spread to their debt, which fell in price. This threatened to push interest rates on mortgages backed by the two firms higher and put further pressure on the battered housing market.

The average rate on so-called “conforming” 30-year fixed rate mortgages has already risen by about 60 basis points since the start of June to 6.69 per cent.

Anxieties were also reflected in the money markets, where the three-month London interbank offered rate – the key rate at which banks lend to each other in US dollars – rose to a two-month high.

“There is still stress in the system,” said George Goncalves at Morgan Stanley. “Libor is creeping up and banks are still restructuring their balance sheets.”

A Treasury spokeswoman said the report in Barron’s was “speculative” and the US government still had no intention of using its newly acquired powers to invest in the two firms.

However, selling spread to other financial institutions with direct exposure to Fannie and Freddie, and to the housing market in general, highlighting the systemic importance of the two companies and the danger that their troubles could cause renewed financial contagion.

Financial shares also fell, helping to push the S&P 500 down 1.5 per cent.

The price of insurance against default on Fannie and Freddie subordinated debt hit record levels in the credit default swaps market, according to data from Markit. Risk spreads on their senior debt – which most analysts presume would be fully honoured by the government in any rescue – widened to levels last seen in the immediate run-up to the Treasury’s July 13 rescue plan, Credit Suisse said.

Under that plan, the US government secured from Congress blanket authority to invest in Fannie and Freddie, but held back from actually doing so.

Three-month Libor reached 2.81 per cent, a level not seen since mid-June, in spite of the decline in expectations of a Federal Reserve interest rate rise since then.

“A year’s worth of tightening credit is only now being felt,” said Tobias Levkovich, chief US equity strategist at Citigroup.

Swaps forecasting the difference between three-month Libor and the Fed funds rate for the end of the year rose to 93bp, up from 79bp less than a week ago.

Further evidence emerged last week that banks were scrambling to raise short-term funds. Concerns about banks’ health have made it harder and more expensive for them to access funds.

Reflecting this, demand for funds from the Fed’s Term Auction Facility, introduced as a prop to the banking system, has risen. Similarly, European banks have flocked to the European Central Bank for dollar funds.

Mr Goncalves said a sudden surge in Libor could lead to an expansion of the $150bn TAF.

'OPEC may cut output as oil prices set to fall further'

'OPEC may cut output as oil prices set to fall further'

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The Organization of Petroleum Exporting Countries may decide to cut the cartel's oil output quota as the price of crude risks falling under 100 dollars a barrel, energy consultancy CGES said Monday.

"The worsening economic outlook suggests that oil prices have further to fall, but OPEC, whose members are due to meet in early September, may act to prevent them from falling too far," the Centre for Global Energy Studies said in its latest monthly report.

"There is a danger, though, that the Organization will over-react, cut its production too sharply and send oil prices back up," added the London-based consultancy.

World oil prices rose on Monday as traders fretted about the potential impact of Tropical Storm Fay on energy facilities in the Gulf of Mexico. New York's main contract, light sweet crude for September delivery, added 35 cents to 114.12 dollars a barrel after bouncing above 115 in electronic deals.

London's Brent North Sea crude for October advanced by 43 cents to 112.98 dollars. Oil futures had fallen sharply last week on the prospect of reduced demand for energy around the globe owing to slower economic growth.

"The CGES believes that OPEC member-countries, facing increased government spending and rising inflation, will not be happy to see prices fall far below 100 dollars per barrel," added Monday's report.

Oil prices have sunk since hitting record highs above 147 dollars one month ago. However, crude futures are more than 10 per cent higher than at the start of the year when they surged past 100 dollars for the first time in history.

Pakistan After Musharraf

Pakistan After Musharraf

By TARIQ ALI

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Pakistan’s military dictators never go quietly. Field-Marshal Ayub was removed by a three-month long popular insurrection in March 1969. General Yahya Khan destroyed Pakistan before he departed in 1972. General Zia-ul-Haq (the worst of the lot) was blown up in his military pl;ane rtogether with the US Ambassador in 1988. And now General Musharraf is digging his heels. There is a temporary stalemate in Pakistan. The Army is in favour of him going quietly, but is against impeachment. Washington is prepared for him to go, but quietly. And last Friday the chief of Saudi intelligence agency, Prince Muqrin bin Abdul Aziz, had secretly arrived in Pakistan and held talks with coalition leaders and President Musharraf. He wants a ‘safe exit’ for the president. Sanctuaries in Manhattan, Texas and the Turkish island of Büyükada (Prinkipo) are being actively considered. The General would prefer a large estate in Pakistan, preferably near a golf course, but security considerations alone would make that infeasible.

One way or another he will go soon. Power has been draining away from him for over a year now. Had he departed peacefully when his constitutional term expired in November 2007 he would have won some respect. Instead he imposed a State of Emergency and sacked the Chief Justice of the Supreme Court. In January, the latter wrote an open letter to Nicolas Sarkozy, Gordon Brown, Condoleezza Rice and the president of the European Parliament. The letter, which remains unanswered, explained the real reasons for Musharraf’s actions:

At the outset you may be wondering why I have used the words ‘claiming to be the head of state’. That is quite deliberate. General Musharraf’s constitutional term ended on 15 November 2007. His claim to a further term thereafter is the subject of active controversy before the Supreme Court of Pakistan. It was while this claim was under adjudication before a bench of 11 learned judges of the Supreme Court that the general arrested a majority of those judges in addition to me on 3 November 2007. He thus himself subverted the judicial process which remains frozen at that point. Besides arresting the chief justice and judges (can there have been a greater outrage?) he also purported to suspend the constitution and to purge the entire judiciary (even the high courts) of all independent judges. Now only his hand-picked and compliant judges remain willing to ‘validate’ whatever he demands. And all this is also contrary to an express and earlier order passed by the Supreme Court on 3 November 2007.

Now Musharraf will go in disgrace, threatened with impeachment and abandoned by most of his cronies, who grew rich under his rule and are now sidling shamelessly in the direction of the new power-brokers. The country has moved seamlessly from a moth-eaten dictatorship to a moth-eaten democracy. Six months after the old, morally obtuse, political gangs returned to power, the climate has further deteriorated. The widower Bhutto and his men are extremely unpopular. The worm-eaten tongues of long discredited politicians and resurrected civil servants are on daily display. Removing Musharraf, who is even more unpopular, might win the politicians some time, but not for long.

Amidst the hullabaloo there was one hugely diverting moment last week that reminding one of pots and kettles. Asif Zardari, the caretaker-leader of the People’s Party who runs the government and is the second richest man in the country (funds that accrued when his late wife was Prime Minister) accused Musharraf of corruption and siphoning official US funds to private bank accounts. For once the noise of laughter drowned the thunder of money.

Musharraf’s departure will highlight the problems that confront the country, which is in the grip of a food and power crisis that is creating severe problems in every city. Inflation is out of control and was approaching the 15 percent mark in May 2008. Gas (used for cooking in many homes) prices have risen by 30 percent. Wheat, the staple diet of most people has seen a 20 percent price hike since November 2007 and while the U.N.'s Food and Agriculture Organisation admits that the world's food stocks are at record lows there is an additional problem in Pakistan. Too much wheat is being smuggled into Afghanistan to serve the needs of the NATO armies. The poor are the worst hit, but middle-class families are also affected and according to a June 2008 survey, 86 percent of Pakistanis find it increasingly difficult to afford flour on a daily basis, for which they blame their own new government.

Other problems persist. The politicians are weak and remain divided on the restoration of the judges sacked by Musharraf. The Chief Justice, Iftikhar Muhammad Chaudhry, is the most respected person in the country. Zardari is reluctant to see him back at the head of the Supreme Court. A possible compromise might be to offer him the Presidency. It would certainly unite the country for a short time.

Over the last fifty years the US has worked mainly with the Pakistan Army. This has been its preferred instrument. Nothing has changed. How long before the military is back at the helm?

Tariq Ali’s latest book, ‘The Duel: Pakistan on the Flight Path of American Power’ will be published on September 15 by Scribner.

Georgia-Russian Conflict Great for U.S. Weapons Manufacturers

Georgia-Russian Conflict Great for U.S. Weapons Manufacturers

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I think Digby is definitely right in saying that the hostilities in Georgia will give the neocons another historical incident they will use in the future as an example of how we cannot abandon fellow freedom fighters. But there's another consequence of this resumption of Cold War-era rhetoric - the resumption of Cold War-era weapons systems:

The Wall Street Journal's August Cole had an interesting take on Russia's invasion of Georgia this weekend: it's great for Lockheed Martin, Boeing and other mega-defense contractors. A stock analyst is quoted as saying that the invasion was "a bell-ringer for defense stocks."

Defense Secretary Robert Gates has recently thought out loud about cutting major weapons programs like Lockheed and Boeing's $143 million F-22 Air Force raptor jet and Boeing and SAIC's $160 billion Future Combat Systems. Gates has argued that they bear no relevance to counterinsurgency fighting that is currently taking place in Iraq and Afghanistan. But Russia's invasion of Georgia at least raises the possibility of a future U.S.-Russia conflict. according to Rep. Jack Murtha (D-Pa.), who said as much to the Journal.

As the piece notes, this is a bipartisan problem. There are pieces of the military industrial complex in every state and every Congressional district. The perceived threats we face in the world mean absolutely nothing to those who want to build weapons to face those threats. The mere appearance of a new Cold War is enough to build F-22's and missile defense systems and plenty of other prototypes. The Iraq war has been a windfall for contractors and a new arms race would just open that up even more. This is going to be unbelievably difficult to beat back, and without a recalibration of the military budget providing the kind of investments needed in moving to a post-carbon future, providing health care to all Americans and rebuilding our crumbling infrastructure will be next to impossible.

It's the cherry on top of all the neocon warmongering.