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Gold World Editor Greg McCoach discusses Gold and ETFs, coins and Central Fund of Canada. Beware of gold ETF’s. “They are not back by physical metal. There’s some metal behind it but underlining the whole thing it’s a derivative. It’s basically a tool by the big boys to manage the price of gold and silver. When the garbage hit’s the fan, you’re going to what physical possession of your metal.

Today, the Icelandic people are calling for revolution, literally:

Why are the Icelandic people now protesting? According to the BBC:

The banking system collapsed in October and the currency, the krona, has lost half its value in the past year. Iceland’s government was forced to take over three of its biggest banks last month when they could not keep up with billions of dollars of debt taken on to finance overseas expansion. The government has taken out $4.6bn (£3.1bn) in loans from the International Monetary Fund (IMF) and four of its Nordic neighbours to stay afloat.

That’s right, all that asset and currency inflation derived not from a miracle, but from the same old historical pyramid scheme of banking fraud. Now that con of seemingly free money is imploding globally and devastating Iceland’s small economy. Iceland’s neighbors in Scandinavia and the IMF have bailed it out with billions in emergency loans, but it will be a generation or two before the Icelandic people are dumb enough to fall for the “free lunch” con again. Before the credit crunch, this too good to be true economic miracle economy was sold to the Icelandic people with the help of the bankers and the media in such reports as this, “Where does the money come from?” More

Also See:
Thousands protest in Iceland; clash with police

France 24/7 REYKJAVIK
Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country. It was the latest in a series of protests in the capital since the financial meltdown that crippled the island’s economy. Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down. “They don’t have our trust and they are no longer legitimate,” Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament. A separate group of 200-300 people gathered in front of the city’s main police station demanding the release of a young protester being held there, Icelandic media reported.

Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid. Iceland’s three biggest banks — Kaupthing, Landsbanki and Glitnir — collapsed under the weight of billions of dollars of debts accumulated in an aggressive overseas expansion, shattering the currency and forcing Iceland to seek aid from the International Monetary Fund (IMF). This week, the North Atlantic island nation of 320,000 secured a package of more than $10 billion in loans from the IMF and several European countries to help it rebuild its shattered financial system. Despite the loans, Iceland faces a sharp economic contraction and surging unemployment while many Icelanders also risk losing their homes and life savings. A young man climbed onto the balcony of the Althing building, where the president appears upon inauguration and on Iceland’s national day, and hung a banner reading: “Iceland for Sale - $2.100.000.000″, the amount of the loan Iceland is getting from the IMF.

The rally lasted less than one hour and as daylight began to wane, demonstrators drifted away into the nearby coffee shops where the price of a cup of coffee has shot up to 300 kronas in the last few weeks, up by about one third from before the crisis struck, as the currency has tumbled. Opposition parties tabled a no-confidence motion in the government on Friday over its handling of the crisis, but the motion carries little chance of toppling the ruling coalition which has a solid parliamentary majority. “I’ve just had enough of this whole thing,” said Gudrun Jonsdottir, a 36-year-old office worker. “I don’t trust the government, I don’t trust the banks, I don’t trust the political parties, and I don’t trust the IMF. We had a good country here and they’ve ruined it.”

Also See: Photos

Also See BBC Video here
and here

AFP reports [source] that thousands marched in Reykjavik Saturday in what has become a weekly protest over the financial crisis, many charging that an International Monetary Fund bailout would lay waste to Iceland’s generous welfare system. Following the demonstration, a number of protesters also broke into a local police station to demand the release of a demonstrator arrested Friday, but no one had so far been arrested, police told AFP. “The IMF will crush education, welfare, healthcare and democracy,” one protests sign read, showing the International Monetary Fund portrayed as a monster eating the North Atlantic nation.

The demonstration came three days after the IMF, which is often criticized for imposing harsh conditions on already struggling nations, approved a $2.1 billion loan to Iceland. The island nation thus became the first Western European country to be rescued by the international body since the U.K. in 1976. Protesters, who have gathered every Saturday for the past six weeks, also reiterated demands for a new elections and a new government. One of the speakers at the event, law student Katrin Oddsdottir, went so far as to say that if the government failed to call new elections within a week, people would storm the parliament and other government buildings.

“Peaceful protest will do in peacetime, but there has been an attack on the Icelandic constitution and democracy in Iceland,” she said in her address, charging that the government through its negotiations for loans from the IMF and the European Union was making the island one of the most indebted countries in the world. “We will carry you out!” she shouted. “The Icelandic people will not be subjugated.” Police didn’t give an official number of demonstrators, but an AFP reporter on the scene estimated that roughly as many people showed up this week as last, when authorities said some 6,000 people had protested.

After the demonstration, around 200 people charged to a nearby police station to demand that they release a protester arrested on Friday. Police said they had been forced to use pepper spray against the protesters to prevent them from entering the station, but at least twenty people nonetheless managed to get in. Windows at the station were broken and blows had been exchanged, but so far none of Saturday’s protesters had been arrested, police said.

Also See: Photos

When the IMF’s top economist proposes doing what’s already being done — which will lead to hyperinflation — you know there’s no hope of recovery any time soon.

The financial crisis that has engulfed many top banks is spiraling into a broader economic crisis that has yet to peak, International Monetary Fund’s top economist Olivier Blanchard told a Swiss newspaper on Saturday. Blanchard said the crisis would continue for another year and called on governments to promote fiscal expansion and on central banks to cut rates toward zero. “The worst is yet to come,” he was quoted as saying in Finanz und Wirtschaft as he noted how the banking sector’s woes had started to spill over into the real economy by hitting the carmaking industry. “This is only the beginning,” he added. “The risk exists that the data will get worse and worse, which would then lead to more pessimistic expectations and accelerate a fall in demand.” More

Eric deCarbonnel writes,
Iceland shows how a nation can experience deflation (stock market down 81% this year) while also experiencing high inflation (soon to be hyperinflation when it allows its currency to float). The US, like Iceland, is heavily dependent on imports (especially for oil), and has accumulated an unpayable amount of debt. Only the dollar role as the world’s reserve currency has saved us so far from Iceland’s fate, but that will soon end. In six months to a year, you will be reading stories like this written by visitors to the US.

photo–Iceland, Jennie R.F.

Icelanders in shock after financial crisis
By eNews 2.0 Staff
15:22, November 18th 2008
Karlheinz Bellmann went to Iceland to find out what had happened to his savings of 110,000 euros (138,000 dollars), missing since the collapse of the country’s Kaupthing Bank. Four days later, on his way back to Germany, the father of four had other matters on his mind: “What can one do to help the people here?” Crying fathers who told him how they had lost their jobs, how their wives had experienced the same fate and how they had lost their homes left a strong impression, just as the cynical reactions among Icelandic bank executives at the bar in the Grand Hotel: “Of course we played Monopoly with the country,” they told me. “And we had fun. Most of the time it went fine.”

Finally, Kaupthing and the other major banks Landsbanki and Glitnir reached the end of the line and the 320,000 inhabitants of the Atlantic island faced national ruin. Prime Minister Geir Haarde has estimated that the aggressive expansion of the banks has resulted in a 19-billion-dollar mountain of debt. That equals two-and-a-half state budgets or twice the gross domestic product. The collapse of the financial sector and large layoffs have since October resulted in complete standstill in the construction industry, the first sign of a long downturn. Massive hoarding of goods at supermarkets and an inflation rate of 16 per cent are clear indications of the dire prospects facing the ancestors of the Vikings.

In return for a 2.1-billion-dollar loan the International Monetary Fund (IMF) has demanded that the currency, the krone, which has been weak for the past year be allowed to float freely. That would further reduce the currency’s value and make imported products for ordinary consumers even more expensive. A kilo of imported sugar will become a luxury product. The government has said that a 20 per cent inflation rate and an unemployment rate of over 10 per cent will now have to be reckoned with. Until October, Iceland’s “normal” unemployment rate was 1 per cent. “Sturdy men broke down in tears in front of me and said that the future for Iceland is like a black hole, and that one has to start back in the Stone Age,” Bellmann said.

Islanders fear that Iceland’s pension funds could be raided. They are practically the only possibility of getting funds without further running-up foreign debts. The anger expressed by ordinary citizens has been limited, so far. More and more people gather each Saturday in front of the parliament in Reykjavik. Some of the 6,000 protesters at a demonstration on Saturday threw rolls of toilet paper at the building where a few months earlier the premier had declared that the Icelandic banks were robust and the country’s finances were healthy.

Now Haarde’s party has made an about turn concerning membership of the European Union, Above all, there seems to be an mood of collective shock. “You have the feeling that the whole country has lost its self-confidence,” publicist Oskar Gudmundsson said. Bellmann expressed it differently: “It seems like on the Titanic, where people continued to dance even though the ship had hit the iceberg.” Staff at Kaupthing in Reykjavik have assured Bellmann that he is likely get back his assets.

Steve Lendman
Worse Than the Great Depression?
According to The New York Times, “leaders of 20 countries agreed Saturday to work together to revive their economies, but they put off thornier decisions about how to overhaul financial regulations until next year (when it plans) its next meeting for April 30, 101 days after (Obama) is sworn into office.” Whatever is finally agreed on, this much for certain is clear. Unchanged Washington/Wall Street dominance is planned along with putting the IMF in charge of global “neoliberalizing” with all its destructive fallout.

A Long-Term View on the Depression:

It’s from noted sociologist, social scientist and world-systems analyst Immanuel Wallerstein, now a Senior Research Scholar at Yale where he covers world-systems in three ways:

– the historical development of the modern world-system;

– the contemporary crisis of modern world-economy capitalism; and

– structures and knowledge.

He’s authored numerous books and writes regular commentaries on major world and national topics. A recent October 15 one is titled “The Depression: A Long-Term View.” It’s started in his view. We’re “at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation (or less likely) a runaway inflation, which is simply another way in which values deflate.” What caused it, he asks? Derivatives? Subprime mortgages? Oil speculators? It’s a “blame game of no real importance.”

Understanding it calls for far more revealing factors, such as “medium-term cyclical swings (and) long-term structural trends.” Over several hundred years at least, he describes two major ones. “One is the so-called Kondratieff cycles that historically” lasted 50 - 60 years. The other is called “hegemonic cycles” that are much fewer in number but last far longer.

America contended for hegemony as early as 1873, achieved it fully in 1945, and has been declining since the 1970s. “George W. Bush’s follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of US hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to come.” Nothing can change this.

Kondratieff cycles are timed differently. Its last B-phase ended in 1945, followed by “the strongest A-phase upturn in the history of the modern world-system.” It peaked around 1967 - 73, and headed down. “This B-phase has gone on much longer than previous (ones) and we are still in it.”

Its characteristics are as follows:

– “profit rates from productive activities go down, especially in those types of production that have been most profitable;”

– it directs capitalists to financialization and speculation for higher returns; and

– “productive activities, in order not to become too unprofitable, tend to move from core zones (like America) to (lower cost) parts of the world-system.”

Speculative bubbles are profitable while inflating, but they always burst. “If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be (the Treasury, Fed, IMF, and western European and Japanese collaborators) have intervened in the market regularly and importantly” to shore it up at times of economic disruptions - 1987, the 1989 S & L crisis, 1997 Asian contagion, 1998 Long Term Capital Management debacle, the 2001 - 2002 corporate scandal period, and more than ever today with big unanswered questions whether this time it will work.

It doesn’t matter because we’ve reached the limits of what can be done - “as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.” The present system won’t survive. A new one will replace it. It will not be capitalism as we know it, but may be far worse or far better (more democratic and egalitarian). Determining the outcome is “the major worldwide political struggle of our times.” More

Ambrose Evans-Pritchard
Latvia mulling IMF loan as crisis sweeps Nordic region
Latvia has been forced to bail out its second largest bank over the weekend and may soon need a rescue by the International Monetary Fund as the financial crisis engulfs the Baltic region, and much of Scandinanvia. Premier Ivars Godmanis stunned the country by announcing that Parex banka had been half-nationalised in an attempt to head off a serious crisis in the face of escalating capital flight from the country. Mr Godmanis said Latvia was examining a raft of measures to rescue the economy, including possible aid from the IMF and European Union. Iceland, Hungary, and Ukraine have already obtained loans for the IMF. More

“The history of science is the history of suppression and great inventions.”
Considering the exposure of Wall Street bankers’ pillage of financial assets around the world, the veracity of such claims may have been questionable until now. This is a short 6 minute documentary regarding energy secrets kept silent by powerful groups and the governments they control.

“What people have to understand is that those who run the energy business in this world — which is the biggest business on the planet, turning over 4-5 Trillion dollars a year, it’s bigger than guns and drugs, it’s bigger than defense — they control the newspapers, they control the governments, but these companies are so big that they regulate the governments which regulate them.”

Europe turned to Asia and the Middle East for help yesterday as the financial crisis threatened to overwhelm Hungary and other ailing economies. After talks with other Western leaders, Gordon Brown urged China and the oil-rich Gulf states to come up with hundreds of billions of dollars to aid countries struggling to survive. Any help from the East is likely to come at a high price. China, Japan and the Gulf states are demanding more say in the way that the International Monetary Fund and the World Bank are run. More

Ilargi
The Automatic Earth
Wherever I look this morning, Asia, Europe, Wall Street, I see journalists and analysts claim that bargain hunters are causing the rising stock prices. They’re not. There is something different going on. Prices these days fall when and because large investors need to sell assets in order to get cash. Prices rise when large investors need to cover their shorts.

The investors involved in both cases are largely identical, though not entirely. It’s important to understand that while, obviously, price drops cause loss of capital, price rises are now the result of the same. Everybody still tries to hide their losses, but it’s getting much harder. That’s what happens in casino’s: there comes a point where you have to show your hand. And when things get bad, sometimes you have to show both.

After Porsche said it wanted 75% of Volkswagen, VW went up 150% yesterday, and 93% more today, to become the biggest company in the world. Not because it’s doing great; in fact, it’s rumored to be drowning. Which is why parties like Morgan Stanley, Goldman Sachs and major hedge funds were shorting the stock. Porsche’s announcement forced them to cover their shorts and buy VW like mad men. And so you get to be the global no.1 because gamblers are paying off their losses.

The Bank of England reports today that the total cost of taxpayer funded bail-outs has surpassed $7 trillion. As insane as that is, it’s just the start. Now even Roubini wants to add another $500 billion plan in the US. That’s his second whopping no-no in a week. His first was a claim that the worst in the credit markets was over, and the real problems would from now on in be in the real economy.

Yes, Libor and other spreads are down a bit, and yes, the real economy now hits the real trouble. But the credit markets are still getting worse by the minute. That is because the underlying reason for the crash, the casino toilet paper is still being hidden, protected and even bailed out. A plan like Roubini’s, half a trillion dollars more for ‘infrastructure’, is a dead in the water duck -or worse- as long as it’s kept away from daylight. And Roubini should know that.

Turns out, the banks that got the bail-out billions are not using it to lend out, and they don’t give a hoot about Congress threatening to give them a grilling. They’ll use the taxpayers’ cash to buy other banks. Small fish gets eaten by bigger fish gets eaten by biggest fish, with Hank Paulson deciding who gets to be big.

And even that’s just a humble beginning. The IMF is running out of money to put thumbscrews on the world’s poor. But that won’t deter the fund, it can simply start issuing AAA rated bonds, which are rated by the …. IMF, and in real life are simply more casino bathroom paper. And if you don’t like that one, they’ll move to the most perverted financial instrument in centuries, the Special Drawing Rights, also called paper gold, introduced in 1969, in anticipation of Nixon’s 1971 decision to not honor US gold liabilities.

Who do you think determines the value of an SDR? Yup, you’re right, it’s the IMF. They can buy the world. That may seem far-fetched, but don’t forget that for a few billion dollars in loans that have to be paid back at high interest, they’ve bought themselves financial control of the likes of Hungary, Iceland, the Ukraine and soon Pakistan, Serbia, Croatia, Latvia and Turkey. And their eye is on Russia.

I was wondering last night how much money it would have taken me to drive up oil prices to $147 a barrel, go short oil all out, drive prices back down to $40, make a killer of a profit, and kill off OPEC control, Putin and Venezuela in the process. I concluded that $1 trillion would have been enough, when carefully utilized.

I’ve long since realized that it’s no use to fear for the future of mankind, since there’s nothing kind about man. But I still am surprised at how little people focus on the symbiosis of crisis and opportunity. There are people out there busy bankrupting the entire planet, and buying it back for pennies. Just like in the 1930’s, but this time on a global scale. More

The Telegraph
The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump. Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon. Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect. They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn. Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America. Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama. Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc. The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world. Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire. Hungary stunned the markets by raising rates 3pc to 11.5pc in a last-ditch attempt to defend the forint’s currency peg in the ERM.

It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills. “The economy is not strong enough to take it, so you know it is unsustainable,” said Simon Derrick, currency strategist at the Bank of New York Mellon. More

Ilargi
The Automatic Earth
Denmark joins the list of trouble with a desperate rate hike; Romania does the same. ING Groep loses another 20%, even though it got $14 billion last week. Sterling and the Euro keep plunging (which makes Europeans happy). The Yen is heading for the skies beyond infinity, which takes enormous additional amounts of credit out of the markets, a much bigger issue than you might think.

The IMF announces a plan to help developing nations, but even if we were to assume that they have noble intentions -which we don’t-, it is too little too late. The Fund is now talking to perhaps a dozen countries at the same time, and it can’t seem to conclude any deals. It doesn’t want to, it won’t, and it can’t. There’ll be token amounts handed out, but only to countries that agree to give up what can basically be labeled their sovereignty.

The Fed’s huge dollar swap injections included only the “richest economies” (it’s starting to get funny just to write that). For all the rest, it’s every man for himself. So now the poorer nations face steeply rising interest rates on their loans. Not good. East Asian stock exchanges lost $860 billion this week, and they come with an $80 billion rescue plan. Anybody got a calculator?

I don’t think the world markets have ever had a Black and Blue Sunday, but they could see a first. Investors have lost all confidence in Russia, and even though it has huge foreign reserves, there is a breaking point in every system. However, I still doubt that Russia will be exposed as the weakest link.

There is simply no way that all the holes around the planet can be plugged for much longer; it’s a matter of days now. Trillions of dollars ‘worth’ of global equity value have vanished today alone, regardless of Wall Street. We have started down the path towards the worst financial crisis in history, an unprecedented event. Don’t listen anymore to anyone anywhere saying there ‘might’ be a recession. This is a depression, and it will be much worse than the Great One.

How it will unfold is impossible to predict, but one thing is for sure: the rich will attempt to save themselves at the cost of the poor. And that should be a wake-up message for all of you. Politicians and bankers everywhere will keep insisting that their particular economy is in better shape than the others; they will continue to say this until it is no longer credible. I just see Canada’s central banker and Treasury secretary pull that very rabbit from the same old hat. No matter that personal debt in Canada is higher than in the US, I guess. Politics and economics are faith-based systems.

Politicians lie; it’s an integral part of their job description. It gets them votes. You vote for the guy and gal with a happy tale.

The problem with that is that it prevents their countries from preparing for what is the real, instead of the imaginary, future. And that in turn is a deadly threat for the poorer people within their societies, as well as the poor elsewhere in the world. The sense of entitlement of the middle classes, those who are not among the poor, is being maintained at unrealistic fantasy levels, and for an unrealistic length of time. The proof in the pudding: today’s report that US existing home sales numbers are up. You have to wonder what these folks are thinking. 98% are digging themselves into a hole for life.

Our societies, all of them, need to spread their remaining wealth, because if they don’t, they will fall apart. The poverty this crisis will unload upon our lands will make that inevitable. You either share, or you face street fighting men. Over 90% of the ‘money’ that makes the world go round is make believe, and it’s being renditioned and disappeared at lightning speed, to never be heard from again.

In a sense, that’s a very healthy development. Yet, the way we are approaching it to date will not end well for many of us. Forget the Wall Street “bloodbath”. Unless we change our ways real soon, we are talking real physical bloodbaths. More

Times Online
The world is on the brink of financial meltdown, the head of the International Monetary Fund (IMF) said last night. His bleak warning came as finance ministers tried to calm the frenzy in markets that saw share prices crash by more than 20% last week. Separately, the IMF’s chief economist predicted that shares could slump by another 20% before stabilising. Dominique Strauss-Kahn, the head of the IMF, warned that the measures so far “have not yet achieved the goal of stabilising markets and bolstering confidence”. He said: “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” Countries would need to take further measures, including interest rate cuts and steps to bolster the banks. Olivier Blanchard, his chief economist, said stock markets had further to fall. “At the worst, the governments will need another few weeks to make the right assessment and the stock exchanges could fall by another 20%; then there will be a turnaround,” he said. More

MarketWatch
The global financial system is on the brink of a meltdown and additional steps must be taken immediately by the richest nations to calm jittery bankers and investors, the International Monetary Fund warned Saturday. “Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown,” said Dominique Strauss-Kahn, IMF managing director….Ken Rogoff, a Harvard University professor and former chief economist at the IMF, told MarketWatch that there needed to be an “overwhelming” G7 statement. “I think the worst thing to do would be to come out with a very tepid response,” he said. “It would be the end of the G7.” On Saturday, Rogoff told Reuters that “markets are going to be very disappointed” by the G7 statement. More

PETER S. GOODMAN
Economic trouble has spread far beyond the United States to major countries in Europe and Asia, threatening American businesses with the loss of foreign sales and investment that have become increasingly vital to their sustenance. Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States.

Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007. “The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere,” the I.M.F. declared last month in its official World Economic Outlook. All this means that economic troubles in the United States could intensify into the presidential election season and beyond. It could also make it harder for financial companies like Lehman Brothers — which has been seeking fresh investment in South Korea — and the government-backed mortgage giants Fannie Mae and Freddie Mac to attract much-needed capital from abroad. More

Radio Australia
The International Monetary Fund says there’s no end in sight to the credit crisis gripping world financial markets. As Australia’s NAB and ANZ have already discovered, the IMF believes banks are in for more pain as mortgage defaults soar and economies slow. The IMF has a particularly gloomy assessment of the US economy, and it came on the same day as the Bush administration revealed America’s budget deficit will climb to a record high of more than half-a-TRILLION dollars.

Financial Times
Global financial markets are “fragile” and indicators of systemic risk remain “elevated” almost a year into the credit crisis, the International Monetary Fund said on Monday. The fund warned credit growth in the US could fall further as a result of ongoing financial system stress and warned that emerging markets would be tested as global financing conditions tighten and policymakers grapple with rising inflation. The IMF also noted that house prices had softened in a number of European economies including the UK, raising the possibility of further problems in those markets.

The assessment came in the July update to the Global Financial Stability Report, led by former Bank of Spain governor Jaime Caruana. The IMF said that while likely losses on US subprime mortgages have “largely been acknowledged” in the form of writedowns, financial institutions faced a second wave of losses on other loans. Credit quality “across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.” The Fund said bank balance sheets were under “renewed stress” and that the decline in bank share prices had made it more difficult for them to raise new capital.

This “increased the likelihood of a negative interaction between banking system adjustment and the real economy.” With mounting inflationary pressure, the Fund added: “Policy trade-offs between inflation, growth and financial stability are becoming increasingly important.” The IMF reaffirmed its controversial earlier estimate that total losses in this cycle could total $945bn – a number that combines mark-to-market losses on subprime-related securities and estimates of likely losses on loans.

Relative to April, when the Fund published its last GFSR, it said “systemic strains in funding markets continue” and the “low level of risk appetite remains unchanged.” Interbank lending rates “remain elevated” while “long term funding costs have risen” for financial institutions. The IMF said financial institutions globally have written off about $400bn since the crisis began last August, and that while they had raised substantial amounts of capital, the losses “exceeded capital raised.” Banks also faced problems maintaining their earnings, weakening stock prices, and making it more difficult to raise further capital.

The Fund said that policy interventions – mostly by the US Treasury and the Federal Reserve – had so far succeeded in containing systemic risk. But it said the “nature of resolution strategies and the extent of support have come into sharper focus” in recent months – a polite way of saying that the authorities in the US in particular have had to intervene further to preserve financial stability. It in effect endorsed the need for the US to shore up Fannie Mae and Freddie Mac in the short term – saying their failure would have systemic consequences – but said “the policy challenge now is to find a clear and permanent solution” for the troubled government-sponsored mortgage groups. The US Treasury has tried to deal with the immediate threat to Fannie and Freddie, while postponing discussion of their long term futures to a later date.

In a study of 162 countries, the Washington, D.C.-based IMF said surging global oil and food prices are causing the most pain in poor countries that rely on imports. With food taking up more than half of household spending in emerging and developing economies, the IMF warned that the share of undernourished could rise rapidly to above 40% of the total of their populations. “Some countries really are at a tipping point,” said IMF Managing Director Dominique Strauss-Kahn in a statement. “If food prices rise further and oil prices stay the same, some governments will no longer be able to feed their people and at the same time maintain stability in their economies,” he said. More

Gabor Steingart in Washington
Humiliation for Mr. Dollar: Ben Bernanke, the chairman of the United States Federal Reserve Bank, faces a general investigation by the International Monetary Fund. Just one more example of the Fed losing its power. The United States Federal Reserve Bank, or Fed, seems as much a part of America as Coca-Cola or Pizza Hut. But at least one difference has become apparent in recent days. While the pizza chain and soft-drink maker are likely to expand their scope of influence in the age of globalization, the US central bank is finding that its power is shrinking.

No Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing. This is partly down to circumstances. Inflation is going up and up, and this year’s average will likely top 4 percent. But this time Mr. Dollar is also Mr. Powerless. He can raise interest rates in the fall, or he can pray, which would probably be the better choice. At least prayer would not prevent the US economy from growing, a highly likely outcome if interest rates go up.

After years of growth, the United States is now on the brink of a recession, one that is more likely to be deepened than softened by a tight money policy. Investments will automatically become more expensive, consumer spending will be curbed and economic growth will slow down, immediately affecting unemployment figures and wages. More

The US economy is likely to “stagnate” in the second half of this year, the International Monetary Fund warned on Friday, as stock markets in the US and Europe fell to their lowest levels since March and US bank shares hit a five-year low. The Dow Jones Industrial Average closed below 12,000 for the first time since March, while the broader S&P 500 fell 1.9 per cent, as oil rallied and concerns about the financial sector intensified. The S&P financials index hit its lowest level since April 2003, 5 per cent below its March low. Commercial and regional banks have borne the brunt of the recent pullback, because of fears about rising housing and consumer debt delinquencies. More