Satire on Eurozone Debt Crisis

“To understand Europe, you have to be a genius – or French.” Madeleine Allbright

FDP-Bundesparteitag: Abrechnung mit den Euro-Rebellen folgt

“Es wird niemals so viel gelogen wie vor der Wahl, während des Krieges und bei Bundesparteitagen.” David Berger (frei nach Otto von Bimarck)

***

DAS JÜRGEN M. SYNDROM DER FDP: LAUTER QUARTALSIRREN UNTERWEGS

Eine Glosse von Narcisse Caméléon, Ressortleiter Deppologie

Die populistische Anti-Euro Fraktion bei der FDP um Frank Schäffler und Konsorten ist gerade dabei die FDP zum Narren der bundesrepublikanischen Politik zu machen. Hoffentlich wird es mit diesen Quartalsirren bei der Bundestagswahl 2013 abgerechnet und bekommen keine Investitur für die Wahl.

Sie können sich eine andere Partei aussuchen wie etwa die rechtspopulistische Partei “Die Freiheit”.

YES THEY CANNES!

“The euro is our common fate, and Europe is our common future.” German Chancellor Angela Merkel

Bundestagswahl 2013: Davids Prognose aus dem Kaffeesatz

Eine Glosse zur Eröffnung der Jagdsaison von David Berger

“Machen Sie sich erst einmal unbeliebt, dann werden Sie auch ernst genommen.” Konrad Adenauer

Angela Merkel hat keine ernsthafte Rivalen zu fürchten. In der Union herrscht ohnehin erheblicher Personalmangel, seitdem sie alle Größen inkl. den Emporkömmling Guttenberg aus dem Weg geräumt hat.

Ledliglich Steinbrück könnte ein qualifizierter Herausforderer werden. Deshalb wäre die SPD gut beraten, ihn zum Kanzlerkandidaten zu machen.

Merkels Machterhalt hängt sehr viel davon ab, wie die Euro-Krise ausgehen wird. Sie sagte selbst: “Scheitert der Euro, scheitert Europa”. Schlussfolgerung: Scheitert Europa, scheitert Angela Merkel.

Eine große Koalition CDU-SPD im Jahre 2013 ist meines Erachtens die wahrscheinliste Option: die FDP ist am Boden und die Grünen scheinen nicht mehr bereit, jede SPD-Kröte zu schlucken (siehe Berliner Wahl). Hinzu kommt der für die Kanzlerin willkommene Störfaktor Piratenpartei“, eine junge Partei, die die ideologische Macht der Grünen bei Öko- und Alternativen Wählern unterminiert.

Farewell, Jean-Claude Trichet!

EZB auf dem Weg zur Bad Bank?

“Die Insolvenz der EZB ist aus unserer Sicht eine absurde Vorstellung.” Jean-Claude Trichet

Aus gegebenem Anlaß: Tausend Milliarden Euro für den Euro-Rettungsschirm

AKTE XY BERICHTETE ÜBER DEN BUNDESBANK-ÜBERFALL

Weitere Hinweise über den Verbleib der Beute nimmt FDP-Finanzexperte Frank Schäffler gerne entgegen…

Davids (Bild) Satire zum Tag der Deutschen Einheit

“Wenn man vorher gefragt hätte: Was ist die deutsche Einheit wert? hätten alle gesagt: Alles. Nur war das nicht so viel, wie sie heute kostet.” Ignatz Bubis

Davids Bild (Satire) am Sonntag: European Casino Royale

“In Wirklichkeit haben wir Europa reduziert auf das Treffen mehr oder weniger alter Männer plus einer Frau.” Peer Steinbrück

Guest Editorial: The Currency War

What’s Behind the Currency War?

By Professor Dr. Antony P. Mueller

In September 2010, a short time before the international financial summit of the Group of Twenty (G20) took place in South Korea, Brazilian finance minister Guido Mantega declared that the world is experiencing a “currency war” where “devaluing currencies artificially is a global strategy.”

Dr. Antony P. Mueller is a professor of economics at the graduate business school of the University of Caxias-do-Sul (UCS) in Brazil. He is an adjunct scholar of the Ludwig von Mises Institute and president and founder of The Continental Economics Institute.

By announcing the outbreak of a “currency war,” Mantega wanted to draw attention to the problems caused by the ongoing exchange-rate manipulations that governments put in place in order to gain economic advantages. In this sense, “currency war” denotes the conflict among nations that arises from the deliberate manipulation of the exchange rate in order to gain international competitiveness by way of currency devaluation.

Competitive Devaluation

Calling competitive devaluation a “war” may seem like a gross exaggeration. Yet in terms of its potential of destruction, the current global financial conflict may well rank at a level similar to that of a real war.

In a wider historical perspective, the current currency war is the latest conflict in a series of acute crises of the modern international monetary system. In a world of national monetary regimes based on fiat money without physical anchors, domestic monetary instability automatically transforms into exchange-rate instability. As before, the current crisis of the international economic order is mainly the result of monetary fragilities coming from the unsound national monetary systems and reckless domestic monetary and fiscal policies.

The immediate cause of the currency war entering an acute stage is the policy of massive quantitative easing practiced by the US central bank. Whatever the original intention of this policy may have been, the consequences of the Fed’s measures include monetary expansion, low interest rates, and a weaker US dollar. With dollar interest rates approaching the “zero bound,” the United States is joining Japan in the effort to stimulate a sluggish economy with massive monetary impulses.

Until recently, the currency war was contained as a kind of financial cold war. The conflict entered its hot phase as a result of the expansive monetary policies that were put in place in the wake of the financial-market crisis that began in 2007. In defiance of the fact that the financial crisis itself was the result of the extremely expansive monetary policies in the years before, many central banks have now accelerated monetary expansion in the vain attempt to cure the disease with the same measures that had caused it in the first place.

Easy Money and International Financial Flows

What has emerged in the global financial arena over the past couple of years is the interplay among easy money, low interest rates, international trade imbalances, financial flows, and exchange-rate manipulations. The failure of attempts to cure overindebtedness with more debt, and to stimulate weak economies by giving them interest rates as low as possible, provokes a repetitive pattern of bubble and crash where each phase ends in a higher level of government debt.

A global search for higher yields has been going on not unlike what happened in the late 1960s and 1970s, when the United States inflated and the countries that had linked their exchange rates to the US dollar suffered from imported inflation. Nowadays, the formal dollar-based fixed-exchange-rate system no longer exists. It has been replaced by a system that sometimes is called “Bretton Woods II”: a series of countries, particularly in Asia this time, have pegged their exchange rates (albeit without a formal agreement) to the US dollar.

If a country wants to slow down the appreciation of its exchange rate that comes as a consequence of the financial inflows from abroad, it must intervene in the foreign-exchange markets and monetize at least a part of the foreign exchange. This way, the monetary authorities will automatically increase the domestic money stock. Additionally, under this system relatively poor countries feel forced not only to buy the debt issued by the relatively wealthy countries like the United States but also to buy these bonds at their current extremely low yields.

Under current conditions, the monetary expansion gets globalized and invades even those countries that wish to practice restrictive monetary policy. Relatively high levels of the interest rate improve the restrictive currency’s attractiveness. Thus, more and more monetary expansion happens on a global scale, which in turn provides the fuel for the next great wave of international financial flows.

The weaker countries, which compete with each other on the basis of low prices, are getting pushed to the side; it was just a matter of time until more and more governments would begin to intervene in the foreign-exchange markets by buying up foreign currencies in order to try to prevent their exchange rates from appreciating too much, too fast.

Yet using the exchange rate as a tool in order to gain economic advantage or avert damage for the domestic economy is inherently at variance with a sound global monetary order, because one country’s devaluation automatically implies the revaluation of another country’s currency and thus the advantage that one tries to obtain will be achieved by putting a burden on other countries.

Escalation

By recycling the monetary equivalent of the trade surplus into the financial markets around the globe, monetary authorities in surplus countries form a symbiosis with trade-deficit countries in fabricating a worldwide monetary expansion of extreme proportions.

The paradoxical, or rather perverse, features of the current state of affairs were highlighted a short time ago when in January 2011 the monetary authorities of Turkey decided to lower the policy interest rates so as to make the inflow of foreign funds less attractive, despite a booming Turkish economy that shows plenty characteristics of a bubble.

Exchange-rate policies produce the usual spiral of interventionism: the de facto consequences tend to diverge from the original intentions, prompting further rounds of doomed interventions. This interventionist escalation is not only limited to an incessant repetition of the same failed policies, but the errors committed in one policy area also affect other parts of the economy. Thus, it is only a matter of time until errors of monetary policy lead to fiscal fiascos, and exchange-rate interventions lead to trade conflicts.

At first sight, exchange-rate intervention may appear tolerable as the legitimate pursuit of national self-interest. But exchange-rate policies are intrinsically matters that tend to stir transnational controversies. When a country’s exchange rate policy collides with the interests of the trading partners, the tit-for-tat of mutual retaliation automatically tends to lead to an escalation of the conflict. Once the process of competitive devaluation has started, a devaluation by one country invites other countries to devaluate their exchange rates as well. As a consequence, the international monetary order will eventually disintegrate, and sooner or later the conflict will go beyond currency issues and affect a wide spectrum of economic and political relations.

Therefore, because of the unsound monetary system, a peaceful international political system also is constantly at risk. Monetary conflicts provoke political confrontations. Besides the immediate costs of exchange-rate conflicts that come from the damage to international trade and investment, and thereby to the international division of labor, harm will also be done to confidence and trust in the international political arena.

The dispute about exchange rates is the consequence of contradictory tensions that are innate to the modern monetary system. In this respect the currency war is an expression of the defects that characterize an unsound and destructive financial system. The outbreak of the currency war is a symptom of a deeply flawed international monetary order.

Brazil

When Brazil’s finance minister repeated his warnings in January 2011 and said that “the currency war is turning into a trade war,” Mantega sent a signal to the world that the escalation of the trade war had started. Because of the massive inflow of money from abroad, the Brazilian currency had sharply appreciated and the Brazilian economy was losing competitiveness.

In order to reduce the impact on is domestic economy, Brazil had been intervening in the foreign-exchange markets, diminishing the degree of currency appreciation. In doing so, the monetary authorities had to buy foreign currencies, mainly US dollars, in exchange for its domestic money.

By pursuing such a policy over the past couple of years, Brazil has increased its foreign-exchange reserves from around 50 billion to 300 billion US dollars. Yet even despite these foreign-exchange interventions, the Brazilian currency appreciated drastically against the US dollar and other currencies.

By various estimates, Brazilian foreign trade suffers from an exchange-rate overvaluation of around 40 percent. As a consequence, Brazil’s current account balance, which was still at surplus in 2007, has plunged into a deficit of 47.5 billion US dollars in 2010. At the same time when an artificial boom is taking place as the result of massive monetary expansion, the Brazilian economy suffers from creeping deindustrialization.

Part of the explosion of Brazil’s current-account deficit can be explained by weak demand from its trading partners, which have plunged into a prolonged recession. Yet beyond this circumstance, there has been another causal chain at work: the inflow of funds from abroad that boosts the exchange rate provides the grounds for an exorbitant increase of the country’s monetary base.

The combination of ample liquidity at home, weak demand from some trading partners abroad, and a strong exchange-rate appreciation provides the basis for an extreme import expansion that vastly exceeds exports. Unlike a country such as Germany, for example, whose industry is pretty resilient against currency appreciation, Brazil resembles in this respect the countries of the Southern periphery of the eurozone in its incapacity to cope effectively with an overvalued currency.

When, in January 2011, a new government took power in Brazil, the newly-elected president, Dilma Rousseff, declared in her inauguration speech that she will protect Brazil “from unfair competition and from the indiscriminate flow of speculative capital.” Guido Mantega, the former and new Brazilian finance minister, did not hesitate to join in when he asserted that the government has an “infinite” number of interventionist tools at its disposal with which to protect national interests. Mantega said that the government is ready to use taxation and trade measures in order to stop the deterioration of Brazil’s trade balance.

China

The countries that form the favored group that gets targeted by international financial flows in search of higher yields compete among themselves in order to prevent their currencies from appreciating too much, and as a group these countries compete against China in their efforts to maintain a competitive exchange rate.

China’s position forms part of a long causal chain, which includes low interest rates and monetary expansion in the United States, that fuels higher import demand. Given that China drastically devalued its exchange rate as early as in the 1980s, this country was at the forefront of gaining advantage of America’s import surge; China grabbed the golden opportunity to turn itself into the major exporter to the United States.

In order to maintain its currency at its undervalued level, the Chinese monetary authorities must buy up the excess of foreign exchange that accumulates from its trade surplus, preferably by buying US treasury notes and bonds. In this way, China became America’s main creditor. Over the past decade, China increased its foreign exchange position from a meager $165 billion in 2000 to an amount that was approaching $3 trillion at the end of 2010.

From the 1980s up to the early 1990s, China devalued its currency from less than 2 Yuan to the US dollar to an exchange rate of 9 Yuan against the US dollar. And despite its huge trade surpluses, China has only slightly revalued the Yuan ever since, establishing the current exchange rate at 6.56 Yuan per US dollar.

Over the past decade, China has become the major financier of the US budget deficit. Together with other monies flowing in from abroad, the US government was relieved from the need to cut spending. The inflow of foreign capital also allowed the US government to pay lower interest rates for its debt than it would have if only domestic supply of savings were available. Foreign imports put pressure on the price level, and the US central bank could continue monetary expansion without an immediate effect on the price-inflation rate.

If China wants to hold its competitive position through an undervalued currency, the Chinese monetary authorities must continue their policy of intervention in the foreign-exchange markets. As a consequence of buying dollars from its exporters, the domestic money supply in China continues to rise, throwing additional fuel on a domestic boom that is already in full swing.

Even more so than their Brazilian counterparts, China’s political-decision makers have failed to exert moderation or restraint when it comes to interventionist measures. As long as China’s leadership presumes that it gains from exchange-rate manipulation, its currency interventions will go on.

Global Financial Fragilities

Since the abandonment of the gold standard, the global financial system has been in disarray. All the international monetary arrangements that have been established since then have ended in crisis and finally collapsed. For almost a hundred years now, one interventionist scheme has been established and then soon fallen to pieces.

When the monetary and fiscal decision makers in the United States and Europe discarded all restraints against intervention in the wake of the financial market crisis, socialist and interventionist governments around the globe felt vindicated. They had long been convinced that only through state control could financial stability be obtained. Due to the policies adopted by Western countries in their futile attempt to overcome the financial-market crisis, the leaders of the so-called emerging economies have become even more unscrupulous interventionists.

Political leaders around the globe have shed the little that was left of support for free markets and set the controls for a way back on the road to serfdom. It is mainly due to ignorance that the modern monetary system gets labelled as a laissez-faire or free market system. In fact not only the basic “commodity” of this scheme, i.e., fiat money, but also its price and quantity are largely determined by political institutions such as central banks.

It is more than absurd when, in the face of crises and conflicts, more government intervention gets called upon: it was state intervention in the first place that laid the groundwork for the trouble to appear.

So-called “speculative” international capital flows already happened decades ago. What has changed since then is the amount of hot money and the speed with which it floats around the world. It would be wrong to describe these financial movements as an expression of free markets. The fact, for instance, that in 2010 daily transactions on the international currency market have reached a volume of four trillion US dollars is the result of unhampered fiat-money expansion and massive state intervention in the foreign-exchange markets.

The increase in the global money supply that has been going on for many years finds its complement in a global asset boom. The inflation of money drives up the price of precious metals, natural resources, and food. Once more, the world experiences a period of fake prosperity not much different from the real-estate bubble, and many other episodes, that led to previous financial crises.

Conclusion

The political endeavours to gain competitive advantages through exchange-rate devaluation sows mistrust among nations; and the ensuing regime uncertainties frustrate the business community. Over time the conflict over exchange rates tends to destroy the global division of labor.

Once again, the international monetary system is on the brink of a breakdown. As in the past, the main reason behind the current conflict is extreme monetary expansion. Unsound monetary systems produce turmoil not just at home but also in the international arena. Excessive monetary expansion, which is the cause of domestic malinvestment, is also the root of economic distortions at a global level.

Without a fundamental change of the monetary system itself, without a return to sound money, the international monetary system will remain in a state of permanent fragility — ever oscillating between the abyss of deflationary depression and the fake escape of hyperinflation. This is the fate of the world when nations implement fiat monetary systems and put them under political authority.

© 2011, Dr. Antony P. Mueller.

Germany’s Recession

The Financial Times reports Germany’s economy shrank at a record pace during the first three months of 2008, shrinking at a faster rate than analysts had predicted and confirming that Germany is among the European countries hardest hit by the crisis.

The New York Times reports the economy of the eurozone as a whole shrank 2.5 percent during the same period. 

Theory of Integrated Macroeconomics

Prof. Solomon Budnik has developed his project of the Internet Stock Exchange for global securities settlements. This project is based on Prof. Budnik’ project and bylaws of the Alternative Int. SE solicited by the Israeli Finance Ministry.

By Professor Solomon Budnik

Professor of Comparative Law, currently chairman of the Aerospace company UTG-PRI LTD. – Tel Aviv, Israel.

Subtitle: Crisis of Unified Economic Systems and Uniform Currency. Macroeconomic Geometry.

ABSTRACT

IN RE: New advances in open economy modeling

With regard to economic modeling, it should be noted that we deal now with the expanding economic universe with ever changing space-time continuum due to ever expanding world population and consumer market. No artificial economic model could adjust to such  circumstances or fit various rigid and incompatible economic systems, particularly not the Nobel Prize in Economics gained behavioral, equilibrium, and game models.

In re:   human behavior and free market  are unpredictable, being unstable, and exercise a cumulative effect upon given economy due to mass public and monetary upheavals. For example, the economy of ill-conceived socio-communist and socialist states was and is based on social rules instead of the rule of capital, and couldn’t therefore be properly planned and predicted, as proven by history.

Astoundingly, the  economic system in USA, etc. is not capitalistic but Capitolistic, judging by politically induced state interference into free market affairs, with catastrophic results remedied by same state with trillions of dollars of misappropriated taxpayers’ money, forcing thereby future generations to slave themselves to repay that national multitrillion dollar debt to totalitarian and human rights violating China and totalitarian, racist and terrorist Arab states controlling the US State Dept. with oil dollars.

The equilibrium model is also wrong, since it contradicts the common sense, physics and geometry, for a physical or economic system doesn’t function or operate in a vacuum of economic space, and  an equilibrium can only be reached  by two corresponding systems positioned in the same economic plane, which is impossible. It means that no monetary system can reach a state of equilibrium in ever changing environment and monetary parameters. In fact, a model or a system in equilibrium is a dead, non-functional body, as is Zimbabwean Central Bank which has abolished its worthless national currency.

The  economic game model is wrong as well, since a game needs at least two players, with the end result of a  winner and a looser, or means a single player that plays with a third-party invented program (Russian and Israeli central banks that used the American FED’s model with devastating results), and usually a game theory is applied post-factum to a past event, as the Israeli economic game theorist applied his game paper to a so-called Oslo Accord and its step-by-step Israeli concessions  never matched by the opposing PA,  the Arab terror outcome of which the Israeli people and economy suffer under since 1993.

In all such circumstances, the society and the free market rebel and correct themselves via revolutions and financial downfalls, with trillions of dollars lost. Accordingly, as the Church had separated itself from the state and became a quasi financial institution above the state, the free market economy should function as a non plus ultra financial institution ruled and protected by integrated macroeconomics with a self-correcting mechanism of a three-tier stock exchange system developed by me.

Accordingly, I suggest that in order to prevent future economic depressions and collapses, the common  macroeconomics should be replaced by integrated macroeconomics (as formulated by me) separated from the monetary and fiscal economics induced and controlled by the state via central bank and the treasury which are self-conflicting bodies without taxpayers’ control.

The reason for such a change is that the capital market should be free from the state control in both

THESIS

Preamble: this paper has been composed due to the fact that all previous economic theories and models have failed in the modern turbulent economic circumstances of the intertwined, dependable and unstable global markets and economic powerhouses, with unpredictable fluctuations of domestic and foreign capital.

In re: let’s reminiscent briefly on the history of the past empires, state unions and confederations that had led to the rise and fall of the British Empire (despite the gold standard of the Pound Sterling which was the primary reserve currency for much of the world in the 18th and 19th centuries, but perpetual account and fiscal deficits, financed by cheap credit and unsustainable monetary and fiscal policies used to finance wars and colonial ambitions eventually led to the pound sinking (read current U.S. economic situation), Spanish and Dutch empires, whose economics were based on colonial assets, and the fall of the Austrian-Hungarian entity. The USA had united independent states which then exist on cash injections of the Treasury and the Federal Reserve via dollar printing and the issue of now unsellable state bonds, e.g., the state of California, which has now a budget deficit of $42B, while the overall national debt per American household is now $35.000, to rise to $75.000 due to President Obama’s financial policy. Economic crisis in America happened a number of times, albeit dollar was the world reserve currency guaranteed by gold.

In post World-War II, the US dollar took over the sterling’s dominant position and became the world’s newest reserve currency. The Bretton Woods Accord, the first major economic transformation toward the end of World War II, established the International Monetary Fund (IMF) and a way to value the various currencies of the world relative to each other. All foreign currencies would trade in relationship to the US Dollar and only the US dollar (as the reserve currency) would be tied to a gold standard (meaning the value of dollars circulating must be backed by gold reserves). The Roosevelt dollar was a schizoid, two-tier dollar, whose purchasing power at home did not match its gold parity abroad. At home, it was a fiat monetary unit, not convertible to gold; abroad, it was convertible to gold at $35 per ounce.

Americans of that era learned rather quickly that the maintenance of wealth in tangible form was preferable to paper wealth, so as bank runs became more pronounced, they rushed into and hoarded gold, since a growing distrust of banks meant an equal distrust of paper money.

Executive Order 6102 of April, 1933 and the United States Gold Reserve Act of January, 1934 changed all that. The 1934 Act raised the official price of gold to 35$ per ounce from the 20.67$ paid to Americans who, under the threat of a 10,000$ fine and/or 10 years imprisonment, had been forced to turn in their gold a few months earlier.

The gold standard caused major problems in the 1960′s when France (under the London Gold Pool) called America’s bluff and demanded gold for payment of debt, rather than US dollars (they understood that USA were printing more money, to finance the Vietnam conflict and fund new social programs, than we had available in gold reserves).

Due to the rapid loss of US gold reserves, President Nixon had no choice but to abolish the Bretton Woods accord in August of 1971 and he took the US dollar off the gold standard (it was $35 per ounce then).

Ruble of the Imperial Russia had also been guaranteed by gold, but that colonial and agrarian country, notwithstanding its industrial output of the 1913, existed due to wars and foreign loans. The crash of that economically poor, on bayonets unified empire was inevitable, as well as the crash of the following Soviet empire due to its domestic and international aggression and annexation, failed Communist ”planed” economy, fifteen fictitious republics on Moscow’s payroll,  one-side introduced fake ruble-dollar parity, purchases of grain abroad for dollars, arms race and non-repaid foreign loans, paid-off by Russia only recently.

And nothing have come up of  the idea of the  Belarus-Russia economic union and  unified currency, and  Belarus now lobbies the EU.

With regard to Euro, it had lost  30% of its value at the issue, and that issue and the annulment of the former European currencies has cost tens billions of dollars. The economy of the leading EU states had thereby been undermined due to the incompatibility of the different economic systems and internal state protectionism of the EU members. The economy of minor states had been damaged due to sharp discrepancies  between the low wages and 2-3 times higher prices due to joining the EU where wages are 10-20 times higher. Example: Bulgaria, Czech Republic, and Baltic States which are virtually bankrupt.

Euro keeps its mark due to free circulation of the paper money in a monetary spread now affecting the UK and Switzerland, but  Euro can fall to a critical point due to reduced  consumption and production,  credit crunch and the strengthening dollar.

EU Central Bank and the Bank of Israel (BOI) had followed suit by emulating FED’s actions applicable in USA only, i.e., by zeroing all interest earning saving deposits and to buying-in own state bonds. In  Israel, the American-led BOI had unreasonably devalued the strong shekel by 30% in favor of  weak dollar and Euro due to threats of total strike and extortion  by the leftist subversive Israeli Labor Union (so-called New Histadrut), albeit the Israeli import is 3-4 times larger then export, and BOI had bought-in the Israeli state bonds, albeit there was no huge foreign debt as in USA, had depleted the Treasury of its large  tax income of 15% on now non-existing shekel saving deposits of the bank customers, had reduced the interest rate to 0.5% thus depriving the bank clients and the banks of their earnings, and made thereby poorer  the consumers. Said erroneous and highly damaging actions had deflated the Israeli economy with no official inflation, caused mass unemployment, closed companies and factories, and caused the 20%-50% rise in travel expenses, food, gas and RE prices due to actual inflation concealed by the BOI, since  its actions are in contradiction to all written and unwritten free market rules, with negative results for Israeli economy, for the reduced money supply wasn’t compensated by a $750B stimulus  package and capital infusion in banks and companies, as in USA.

In Russia, on the contrary, its Central Bank had opted for inflation vs. deflation, and had allowed large interest rates at falling consumer and RE prices, with now value appreciating ruble, thus saving the consumer market, its money circulation and earnings on saving deposits.

Paradox but fact: dollar had appreciated against foreign currencies despite the collapse  of the U.S. economy, since all countries buy up dollars for currency reserves and support of their U.S. market dependent economies.

Hence, it is obvious in my opinion that the U.S. and EU economies and monetary expansions were based quasi on the Einstein’s formula Е = мс2, i.e. energy of the economy is equal to the money mass  multiplied by the speed of its circulation in the quadrature of the given monetary territory. But in case of  the  reduced  circulation of money, as occurs now everywhere, the economy of a state shrinks and is subject to a gravitational collapse due to a  financial black hole.

I would elaborate and picture the economic model in geometric terms of universal macroeconomics, i.e. a circle within a square. Central Bank and the SE of any state are the gravitational monetary bodies in the center of the circle of thereby attracted  economy, and distribute financial energy – the money mass and securitized wealth within the boundaries of given economic universe, whose revolving circle represents the circulation of capital. The ”square” of the GDP, cornering the circle of the economy forms four corners – fields of the given financial space, representing respectively the banks, the RE market, consumption and production.

This represents my Unified Field Theory in Economics, as per Einstein’s theory in Physics, applicable to macroeconomics where accordingly monetary forces between the objects of  economy are not transmitted directly between them, but instead go through intermediary financial fields whose  interactions should be unified  (from strongest to weakest) to prevent the crisis of economy.

To substantiate: when too much monies are pumped into that system as in USA prior to the crisis, the ill fetched economy expands and depresses said fields – cornered banks, RE market, consumers and companies,  constituting the depression with corporate bankruptcies where macroeconomics enter into the conflict with the microeconomics (strongest vs. weakest). To rebound, the economy must contract to relieve the tension from said affected segments of the economy and that had happened recently in USA, proving my assumption.

 Here I also introduce the terms of the “spot” money, “intangible” money with delayed transaction and repayment, and “remote” money, the discrepancies in which had led to enormous consumers’ debt and credit crunch in USA. The matter is that the US economy and financial market were erroneously oriented toward assumed  wealth of the consumers, i.e.,  their unsecured credit cards and loans (intangible money with delayed transaction and repayment), but the actual wealth of the consumer is the real money in his pocket (spot money) and remote money in his bank saving account, so if the US credit report companies and lenders would have had checked and calculated the actual cash status of the consumers/debtors using my money terms above prior to issuing  a mortgage or a loan, the monetary and economic crisis in USA could have been avoided.

It means that apart from the usual state and corporate credit rating, the new gross consumer credit rating (GCCR) should be introduced and used to constitute the essential part of the advanced modern macroeconomics, and that is particularly applicable to REITs, Fannie and Freddie in USA. Here, my term of the General Growth Personal Income (GGPI) should be introduced (as previously applied to RE properties), and calculated by the FED or any Central Bank via IRS and Tax Authorities to keep the economy in check and prevent any crisis.

Nota bene: the problem of common macroeconomics is that it is not based on the Rule of Golden Section and the Fibonacci sequence, albeit all universal systems from the human body, plants and up to the universe are based and develop on this very same principle. To elaborate, I would define the monetary correlation between various states and economic systems in the  following approximate ratio, applying Fibonacci figures: USA to the EU as 1:2, USA - UK as 2:3, to China, Japan, India, Mexico respectively as 3:5, 5:8, 8:13, 13: 21, and so on, showing the dilution of capital, having in mind the relevant buying potential of the consumers  which is low in China and India,  in relation to  the billions of people in said states.

The expanding global economy also reflects the geometry of the Fibonacci spiral that approximates the golden spiral of the universal macroeconomics and globalization based on irrational constant of economic dynamics.

This is all because the GDP based common economy is assumed to be closed, no imports or exports occur.

So my opinion  is that any economy should be based  on  the financial pillars consolidated under one roof, i.e., the real estate market, the stock exchange and the gold trade should constitute a uniform, self-containing system, as the project developed by me, namely the Alternative Int. Stock Exchange, to include the Real Estate SE  and the Gold SE, constituting my Integrated Macroeconomic Theory.

I suggest therefore that apart from the GDP, modern economy should be linked to the Gross Foreign Product  (GFP), as termed by me, including foreign revenues of domestic companies and the offshore assets. This implies the repatriation and reinvestment of the foreign gained income and fled capital as the amortization of the domestic corporate and private assets that constitute thereby  the Cumulative Gain Product (СGP), a term  formulated by me. Said new measure  can mitigate the domestic economic crisis and attract foreign capital due to adjusted financial parameters and upgraded credit rating of the given state.

In re: Concerning the collapse of major U.S. and EU investment banks, with heavy losses at the NYSE,  Russian, EU and Asian stock exchanges and monetary systems and to mitigate the economic and financial situation, I have devised the  project  of the innovative Alternative  Int. Stock Exchange  (AISE), to be established in Jerusalem, to include the Real Estate Stock Exchange and the Gold Exchange to secure investors’ assets and gains. Said project is based on my previous project and bylaws of the Tel Aviv Alternative Stock Exchange solicited by the Israeli Finance Ministry.

Said uniquely integrated three-tier financial system would attract large capital due to innovative self-compensating triple index which is not entirely GDP oriented, as the world economies are based  erroneously upon, leading to collapses, so the Israeli economic and financial system would thereby be based on our introduced GFP as well, thus securing the stability of capital and market and bringing the economy out of recession.

Reprinted with kindly permission of Solomon Budnik. (C) 2009 by Solomon Budnik. All Rights Reserved.

G-20-Finance Ministers Meeting

News reports indicate a meeting of finance ministers from the G-20 countries, laying the groundwork for a major April 2nd, 2009 heads-of-state summit addressing the financial crisis, produced agreement in several areas.

Australia’s representative at the meetings said: “Everybody agreed: It’s fiscal stimulus plus. We’ve got to do something about the flow of credit in the financial system; we’ve got to reform our international financial institutions.”

Reportedly the delegates reached general agreement on the need both to boost International Monetary Fund (IMF) resources in the short-term and to reshape the fund in the longer term, including a timetable to increase the voting rights of emerging economies.

Reuters reports the group also agreed to boost funding to the Asian Development Bank (ADB) by $100 billion, bringing the bank’s war chest to $150 billion total.

Keynes and the triumph of hope over economics

In a Financial Times op-ed, Benn Steil, author of Money, Markets, and Sovereignty, satirizes the tendency of economists to cite John Maynard Keynes in support of dramatic fiscal interventions where cold analysis should give us pause.

“Citing Keynes gives us special licence to talk economics without using any. To paraphrase the lawyers’ dictum, when the facts are on our side, we pound the facts; when theory is on our side, we pound theory; and when neither the facts nor theory are on our side, we pound Keynes – and to great effect.

Keynes, not coincidentally, had nothing to say about the proper components of fiscal stimulus. This allows him to be cited with great effect by both paternal progressives (who favour government spending) and caring conservatives (who favour middle-class tax cuts).”

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Die neue Einsamkeit des Josef Ackermann

Die Frankfurter Allgemeine Zeitung berichtet über die neueste Hetz- und Medienkampagne gegen den eigentlich ganz vernünftigen und erfolgreichen (nicht der Tod, sondern der Neid ist ein Meister aus Deutschland, um den Spruch von Paul Celan aktueller zu machen) Deutsche Bank-Chef Josef Ackermann, der in seiner Wortwahl über Staatskapitalismus sich nur treu geblieben ist.

Vermutlich versuchen Politiker (die in Aufsichtsgremien von Banken sitzen, und von dem Ernst der Lage wussten) und Mitläufer (sprich Bänker) vom eigenen Versagen abzulenken, in dem sie Ackermanns Aussage, die nicht anders als die blanke Wahrheit ist, anprangern, um ihn als Sündenbock für das gereizte Volk zu präsentieren.

“Er ist jetzt wieder ganz allein. Alle dreschen auf ihn ein: härter, grausamer als jemals zuvor. Josef Ackermann, der Schweizer, hat alle Hochs und Tiefs in Deutschland erlebt. Aber so hoch oben wie in den vergangenen Monaten war er noch nie. So tief gefallen wie in der letzten Woche ist er ebenfalls noch nie. Ob er sich davon je wieder erholen wird, ist ziemlich ungewiss.”

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Ralf Dahrendorf zur Finanzkrise

Während Europäer allzu schnell die freie Marktwirtschaft begraben und den Staatssozialismus einführen wollen, äußert sich im Gespräch mit der Frankfurter Allgemeinen Zeitung  die Galionsfigur des europäischen Liberalismus Ralf Dahrendorf zur globalen Finanzkrise, und plädiert für eine Erneuerung des Kapitalismus:

“Zur Freiheit gehören die Krisen der Freiheit. Und dass die Freiheit des Marktes Regeln, braucht, habe ich immer vertreten. Der Finanzkapitalismus hatte sich zuletzt verselbständigt: für bestimmte Innovationen, die Spekulation auf Schulden oder Indexentwicklungen, hatte sich ein ungeregelter Handel entwickelt. Das war noch kein Markt – und es war auf Dauer so nicht durchzuhalten. Jetzt werden sich die verbleibenden Banken und Investmenthäuser Regeln suchen. Für diese neuartige Ökonomie wird ein Markt mit Regeln entstehen.”

Vollständiges Gespräch lesen.

Bloody Party on financial markets has just begun

The Central Banks have lost control, market panic spreads and several exchanges suspend trading.

Yesterday’s rapid sell-off on Wall Street, which dragged the Dow Jones Industrial Average down more than 7 percent in late trading, kicked off a wave of global selling today that some analysts termed a panic selling.

Japan’s Nikkei index plunged nearly 10 percent, as did London’s FTSE index at market open, before making a slight recovery to losses of around 8 percent. In Asia, markets in Hong Kong, South Korea, India Thailand, Indonesia, Australia were among those that suffered major losses.

Shares also fell sharply across Europe, with Germany and France each showing early losses over 7 percent. Russia, Indonesia, Iceland, Austria, and Thailand all halted trading after steep losses.

The New York Times reports the United States and UK appear to be converging on coordinating global action to end the decline. The article says the idea that governments should inject money into banks in return for partial ownership and guarantees of loan repayment will be closely examined when IMF finance ministers meet tomorrow.

The Wall Street Journal reports the U.S. Treasury has begun a process of interviewing financial executives to gauge interest in new programs aimed at injecting capital into banks.

European economy goes into recession

European and Asian markets stabilized today, showing sober gains following unprecedented coordinated interest rate cuts by many of the world’s major central banks. Russian stock markets, which had suffered worse losses than any major market, gained 17 percent.

Meanwhile, the International Monetary Fund (IMF) said it projects Europe is headed toward a recession and that the continent’s banking system is currently under “extraordinary financial stress”.

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Globalised Economy

In the International Herald Tribune, Paul Kennedy, director of International Security Studies at Yale University, and author of the bestseller The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000, comments on how the consequences of the financial crisis are affecting all parts of an increasingly globalised economy.

“Even the rising Chinese superpower is being blasted by these distant capitalistic convulsions. How could its Finance Ministry, seduced by the advice of Wall Street bankers and consultants to place billions of dollars into American so-called ‘safe havens,’ not be badly shaken by the financial tumults of the past few weeks?

Should China trust the Yankee capitalist system? What will happen to its vital exports to that enormous, volatile consumer market? Already The People’s Daily in Beijing has published a noteworthy piece by the economist Shi Jianxun calling upon the world to create ‘a diversified currency and financial system and (a) fair and just financial order that is not dependent on the United States.’ Where goes the dollar then, and its reputation as a safe haven?”

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Coordinated interest rate cuts by central banks worldwide to stop breakdown in financial markets

Following a bloody Tuesday on Wall Street, in which the Dow Jones Industrial Average dropped more than 500 points, over 5 percent of its value, Middle Eastern markets also collapsed today, with Egypt’s main index falling 16 percent and Saudi Arabia’ s falling over 8 percent.

Japanese markets fell over 9 percent in early trading, and Hong Kong’s main index fell over 8 percent. Markets in UK, France, and Germany all suffered heavy losses as well.

Great Britain also announced a rescue plan the Financial Times says amounts to a part-nationalization of the country’s banks.

In response to the growing crisis, the U.S. Federal Reserve, Bank of England, European Central Bank, and other major central banks all cut interest rates this morning in a coordinated move.

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Russia Call to Action On Financial Crisis

President Medvedev records his video at the Kremlin. Photo: © ITAR TASS

While the severe global crisis of confidence in financial markets continues to grow, and with a succession of EU countries announcing individual rescue plans, the Wall Street Journal reports on greater call for a coordinated response to the crisis threatening the bloc’s financial system.

Iceland, one of the countries hardest hit due to its highly developed banking sector, says it has arranged for a 4 billion euro bailout package from Russia, though the Financial Times reports Russia thus far has denied reports of the loan.

Russian President Dmitri Medvedev issued a call for coordinated global action to confront credit problems and said he would present a plan for how to tackle the crisis in meetings later this week in France.

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Europe’s Financial Storm

Stocks fell sharply in Asia and Europe this morning as fears over breakdown in the European financial system spread out.

The slowdown came as Germany took what the Financial Times calls a “dramatic move” by saying it would guarantee all funds in German bank accounts – currently worth nearly 570 billion euros – to protect against panic withdrawals. The Economist reports a number of European central banks have started taking similar moves and looks at some of the fallout in European financial markets.

In an editorial, the Guardian comments that the financial storm is now on Europe’s doorstep. As this crisis turns from a financial to an economic one, government intervention will surely become more the rule than the exception.

An editorial in The Wall Street Journal says that the only thing more predictable than European Schadenfreude at American economic trouble is how quickly it falls away amid Europe’s own big problems.

In the Sydney Morning Herald, columnist Paul Sheehan comments on a book written five years ago by George Soros, warning about the dangers of excessive debt and asks why nothing was done until the financial system was on the brink of collapse.

China’s Financial System

China’s Prime Minister Wen Jiabao said China’s financial system as a whole has proven well buffered to the financial concerns elsewhere in the world.

He says Chinese financial firms have generally increased their strength during the course of the crisis.

The Wall Street Journal looks at how East Asian central bankers, including China’s, have responded to the U.S. bailout plan.

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America’s Economy Will Recover Faster Than Britain

In The Times of London, Lawrence B. Lindsey says the economic crisis will not result in Depression-era hardship.

“Even the smartest people make mistakes. Sir Isaac Newton lost money in the South Sea Bubble. He not only figured out gravity, but was Master of the Mint, as close to being a central-bank governor as one could be back then. Recognising the developing bubble, he sold his position. Then, when prices continued to rise, he felt that he might have been mistaken and bought back in just before the top, losing a small fortune.

With roughly three and a half centuries of experience with financial bubbles that burst, we can make some reasonable judgments on how this one will end and what the world will look like afterwards.”

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Central Banks respond to worst financial crisis since 1929

Several of the world’s most influential central banks unveiled a coordinated response to this week’s market turmoil and broader concerns about financial markets.

The U.S. Federal Reserve announced it would make an additional $180 billion available to foreign banks for overnight and longer-term money markets.

The European Central Bank, Bank of Japan, Bank of England, Bank of Canada, and Swiss National Bank made a joint statement that they would work with the U.S. Fed to help make short-term loans available to financial institutions in their countries.

Separately, the Financial Times reports Russia will inject over $19 billion to support its sputtering financial markets, following a dramatic stock slide.

A backgrounder from the Wall Street Journal says the credit crisis, spawned from bad U.S. mortgage-backed debt, has spread into the worst financial crisis since the 1930s, and that there is no clear end in sight.

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Fed’s Follies

In an op-ed in the Wall Street Journal, Benn Steil argues that the U.S. Federal Reserve has damaged the credibility of inflation targeting by pursuing other objectives inconsistent with price stability.

“In the dozen or so years until 2007, it had become as close to a global orthodoxy in economic policy making as we ever see: Central banks should target a low and stable rate of inflation.

This replaced earlier orthodoxies – such as that central banks should maintain a fixed exchange rate with an ounce of gold, which was abandoned in 1971. Though inflation targeting left far more latitude for government officials to expand the money supply, it too ultimately proved too great a shackle on the exercise of central bank wisdom.

The U.S. Federal Reserve, the European Central Bank, the Bank of England and other rich-country central banks have generally made 2% inflation, give or take a smidge, the touchstone of good performance. Fed officials have for 20 years paid public obeisance to their statutory ‘dual mandate,’ to maximize employment as well as stabilize prices. But in practice, until recently, they treated it much like a mildly embarrassing biblical injunction that could be safely ignored, if not repudiated.”

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Eurozone Stagflation

The Financial Times reports economic indicators from the Eurozone countries show a significant risk of economic slowdown and rising inflation across the region.

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Europe and US want a stronger dollar

U.S. and European officials have come together in the belief that the U.S. dollar should strengthen against the euro, following more than a year of sharp decline.

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