There’s much talk of the recession ending in another year or so, and things starting to get back to “normal”. This, I’m afraid, isn’t going to happen.

It’s always been said that when America sneezes the rest of the world catches a cold. So when the credit crunch started in the United States with the sub-prime fiasco, it wasn’t long before most other countries started suffering in the same way.

Let’s have a close look at the present situation in the US, so as to gauge whether there is any evidence that the recession may be flattening out or even, somehow, coming to an end.

The US housing market is where it all started, so what’s the situation there? Well, in April 2009 new constructions fell to the lowest level on record, down 12.8 per cent. One of the main symptoms of the recession is that banks, in spite of the billions pumped into them through “bail outs” are refusing, or unable, to lend money to people so they can buy those houses.

They’re unable to lend sufficient money because their assets, in the form of houses, are still shrinking in value. And nobody knows for sure how much longer they’ll continue to fall in value or to what level. Every bank now is in a battle for survival. They have to avoid further losses, even if that means a stagnant business.

Refusing further loans is the easy way out of the mess. So even credit-worthy individuals and businesses can’t get credit. Up to now, a huge part of the banking business was dedicated to lending money to house builders for constructing new homes. US banks have around $700 billion of exposure here. That’s about 70 per cent of their entire capital.

As we know, banks have historically lent up to and beyond ten times the amount of money that they actually have. We needn’t bang on about that again here, but what we’re concerned with is simply that the assets on which most banks have based their ability to create and lend money have shrunk in value and are continuing to do so. This has affected the “liquidity” of the banking system and is the reason why so many banks have failed.

There have been rises and falls in the value of the assets held by banks as security in the past. But nothing like this. This is scary stuff, and is the reason why the economies of many western countries are balanced on a knife edge. No wonder all that matters to banks is their balance sheets. But it gets worse.

The US sub-prime mortgage market, where all the trouble started in the first place, is valued at about $1.2 trillion. That’s the money that, for the most part, is lost. The banks won’t get it back. Most people think that the trouble is confined to that sub-prime mortgage sector – but it’s not!

There’s an even bigger mortgage bubble, and it’s set to burst in the summer of 2009 and on into 2010 in markets known as the option ARMs and Alt-A markets. These are conventional mortgages and commercial real estate loans. And they are two and a half times the size of the sub-prime sector.

All the leading indicators of foreclosure are rising. Probably commercial real estate will go first. The recession has decimated small to medium sized businesses, who are therefore unable to maintain the payments on their commercial loans.

Unemployment in the US has risen to over six and a half million (10 per cent), and in the UK to nearly 3 million, making it difficult if not impossible for vast numbers of people to continue paying their mortgages. And, as we’ve said, the properties they have been occupying, taken as security for the loans, have fallen significantly in value. It’s a vicious circle.

The US commercial real estate market is $3.5 trillion. Sub-prime was about $1.2 trillion, remember? So the coming catastrophe has the scope to be about three times as bad.

On top of all this we have the mountains of debt that have supported our economies in the west for so long. The US and the UK governments are bankrupt.

Take the US. The government has a tax revenue income of around $2 trillion a year. Added to that is around another $2 trillion that it is somehow able to borrow. It has a Treasury Bond Debt (or national debt, if you like) of $12 trillion. Some people maintain the true figure is much higher, but nobody really knows for sure. $12 trillion seems a conservative estimate, but lets stick to that for now.

Added to that is $65 trillion of unfunded social security and Medicare debt and the 2009 budget deficit of $2 trillion. That’s a total of $79 trillion total debt owed by the United States government.

If you, as a private citizen, earned $20,000 a year but had debts of $790,000 (the figures are proportionately the same as above) you’d be not only bankrupt but probably in prison for having obtained money by deception. Even if you could borrow another $20,000 each year it wouldn’t make much difference (though nobody in their right mind would lend it to you).

In the UK it’s not quite as bad, but still pretty awful all the same. Its growing debt burden is expected by S&P to balloon to 100 per cent of its GDP by mid-2010.

It’s a Ponzi scheme, a fraud, a racket. No wonder there’s such a mess. The only question is, how long can total collapse be staved off? That’s the question to ask any ignorant politician or economist who starts seeing “green shoots of recovery”.

Until then, remember – spread the word . . .

Philip Gegan

Other commitments prevent me from posting to this Blog as often as I
would like. Until my next commentary, take a quick read of this item
that was sent to me recently – there’s more truth in it than you
think.

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GLOBAL FINANCIAL CRISIS

It is August. In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business happening. Everyone is heavily in debt.  Luckily, a rich Russian tourist arrives in the foyer of the small local hotel.  He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100.

The butcher takes the money and races to his supplier to pay his debt.

The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.

The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.

The prostitute goes quickly to the hotel, as she was owing the hotel for her hourly room use to entertain clients.

At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his E100 back and departs.  There was no profit or income.

But everyone no longer has any debt and the small townspeople look optimistically towards their future.

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That’s it until next time. Don’t forget . . .

Spread the word.

Philip Gegan

The legendary giant American car-maker Chrysler has filed for bankruptcy. It may be saved by being bought by Fiat of Italy. With General Motors and Ford both still heavily dependent on the US Government for bail-out cash, the US auto industry is now in danger of complete collapse. It will probably join Britain’s car industry in being restricted to the minority top end of the market.

Meanwhile in the UK, where at least £35 billion of taxpayers’ cash has been pumped into bailing out the banks, the chief bankers have awarded themselves around £7 billion in bonuses for having done such a good job over the last 12 months. These people obviously live on another planet where bankers have a right to pay themselves millions of pounds or dollars, drive around in new, expensive luxury cars (imported from abroad), live in spectacular, sumptuous mansions or penthouses, and take frequent, expensive holidays in various idyllic, exotic locations, in return for having nearly bankrupted the whole country through reckless trading and disastrous decision-making in their blind pursuit of profits.

This even puts in the shade (and that’s saying something) the antics of our Members of Parliament, who are busy feathering their own nests with unlawful claims upon the public purse such as allowances for second homes that don’t actually exist, and so on. The list goes on.

Then in another room of the asylum there are politicians claiming to see the “green shoots of recovery”, and saying that before long we’ll be back on track again (i.e. living on credit, on the surface of a fragile credit bubble,  ostensibly well-off in spite of not producing anything much and importing most of what we consume).

Back in the real world, what we have is a calamity almost beyond belief. Whole wealth-producing swathes of the economies of the western world – particularly the USA and the UK – have been wiped out. Comparing this recession to the 1930s is a false comparison, because back then both countries had fundamentally strong economies and only limited foreign competition.

Now, taking the UK (where I live) as the main example, we have had most of our coal mines shut down, our oil and gas reserves are dwindling, our manufacturing base has been all but completely destroyed by cheap foreign imports, and our farmers, of course, have always been treated absolutely disgracefully. Agriculture could have flourished here over the last 50 or 60 years, instead of which many farmers have struggled to survive and have been made dependent on cash handouts from the so-called “European Union” for producing crops such as oil seed rape that nobody really wants.

I’m afraid the truth is that there is no real “recovery” round the corner. This recession is a watershed in the history of civilisation. It was inevitable from the moment the easy credit and free trade policies were ushered in some thirty or forty years ago. Nearly all politicians of all major political parties, in Britain, Europe and the US, supported these ludicrous policies and now everyone can see where they’ve brought us.

But it has benefited some people. The “global elite” of David Rothkopf’s “Superclass”, who control western politicians like puppets on a string, must be very pleased with themselves. They love weak, bankrupt governments and industries. It makes themselves more powerful and hastens the implementation of their hidden agenda.

And just what is their hidden agenda? This video clip of an interview of the late Aaron Russo exposing Nick Rockefeller’s admission to him of the aims of the global elite gives us a big clue.

So you know what you have to do now . . .

Spread the word

Philip Gegan