JBS CEO Art Thompson's weekly video news update for January 23-29, 2012.
The European Commission (EC) on Tuesday threatened to take legal action against Hungary unless it revised its brand new constitution to allow the country’s central bank to operate without interference from the Hungarian government. The EC’s threat requires a response within 30 days.
U.S. credit ratings giant Standard & Poor's (S&P) lowered its rating on the credit-worthiness of nine European nations January 13. "It's not the cut in the rating that is historic," BNP Paribas economist Dominique Barbet told the Wall Street Journal. "It's the depth of the euro crisis that is historic."
Central banks are often justified on the basis that a complex, modern economy requires top-down management by experts. These people, it is said, can study the markets and then “fine-tune” the economy to keep it humming along.
As if the last few years haven’t provided evidence enough that such notions are pure folly, newly released transcripts of 2006 Federal Reserve meetings offer further proof. The transcripts show that the “experts” — members of the Federal Open Market Committee (FOMC) — were so clueless that even as late as December, when the housing market was displaying serious signs of decline, most showed little concern that the bursting bubble could take down the entire economy.
One of the unintended consequences of the ongoing and accelerating crisis in the eurozone is that ordinary citizens are taking their money out of the banks and burying it. Lack of both confidence in the stability of the European economy and credible solutions to the crisis have led to the exit of currency from banks in Greece, Italy, and other European countries.
Former Massachusetts Governor Mitt Romney won the first-in-the-nation New Hampshire primary January 10 with 38 percent of the vote, and Texas Congressman Ron Paul placed a strong second with 23 percent (with 78 percent of the precincts reporting).
"The president has run out of ideas," Romney said in his victory speech. "Now he's running out of excuses. And tonight, we're asking the good people of South Carolina to join the citizens of New Hampshire and make 2012 the year he runs out of time."
"He had a victory," Ron Paul said of Romney. Regarding his own second-place showing, Paul said, "We had a victory for the cause of liberty tonight."
Paul's speech had a different substance than Romney's partisan speech. Paul focused upon ideas in his talk. "I sort of have to chuckle when they describe you and me as being dangerous," Paul told his supporters. "We are dangerous to the status quo in this country. And we will remain a danger to the Federal Reserve system as well." The mostly young audience broke out in loud chants of "End the Fed! End the Fed!" Paul had predicted the housing and financial crisis as early as 2001, and warned that the United States was currently in the midst of a currency crisis.
In the clearest indication yet, a high French government official confirmed last week that an FTT — Financial Transaction Tax — will be implemented by the European Union by the end of 2012, a year earlier than planned. Jean Leonetti, France’s minister for European affairs, said on television that “This is on the program for the next European summit [on January 30th]. Nicolas Sarkozy and Angela Merkel have decided on this and it will be put in place before the end of 2012.”
The tax would be levied, initially at least, on every financial transaction taking place by any entity with a connection to the Eurozone, and would be levied at the rate of 0.1 percent on shares of stock and bonds, and 0.01 percent on all derivatives transactions. It is estimated that the FTT would cover about 85 percent of all transactions between financial institutions such as banks, investment firms, insurance companies, pension funds and hedge funds. It is expected to raise, in the beginning, about $70 billion annually to help fund the EU.
It’s being touted as punishment for the banks that were allegedly instrumental in causing the economic meltdown, but would have no impact on ordinary citizens or small businesses. According to the European Commission, the FTT “would help to reduce competitive distortions in the single market, discourage risky trading activities [such as high frequency trading and highly leveraged derivatives contracts] and complement regulatory measures aimed at avoiding future crises.”
Republican presidential candidate Ron Paul noted on Tuesday that efforts to rein in government spending appeared to be in vain, due to an agreement reached with the White House during the recent debt ceiling negotiations. Congress would have to pass a joint resolution to oppose any extension of the debt ceiling, which President Obama is free to veto. Said Paul: “A default is becoming more mathematically unavoidable with ... every debt ceiling increase.”
Not only is the word “default” becoming commonplace but also the words “economic collapse.” A study conducted by Leflein Associates and published by EcoHealth Alliance showed that of the 1003 individuals interviewed for the survey, 63 percent — or more than six out of ten of them — feared an “economic collapse” more than a natural disaster, a terrorist attack or a global outbreak of disease. This study was picked up by Michael, the author of his Economic Collapse Blog, who piled on by adding a long list of reasons why concerned citizens should be afraid of such an event:
In her article on Monday, financial journalist Jessica Mortimer said that the euro had just set a new record low against the Japanese yen: Its value is now the lowest it’s been in 10 years. The irony wasn’t lost on her as she also noted that it was just 10 years ago that the euro was first denominated in coins and currency, three years after being introduced electronically among the member states.
And she sees further weakness in the euro, now trading below $1.30 versus the dollar, and likely to move ever lower into the New Year: “In the absence of a comprehensive European policy response to the debt crisis, the euro could test its 2010 low of $1.18.” This would imply at least another nine-percent loss in value in less than a year.
She touched on only one of the few remaining options open to keep the euro from blowing up altogether: more austerity on the backs of the citizens of the member states who took excessive advantage of lower-than-market interest rates to load up on debt that they can't pay back. She noted the survey that came out over the weekend indicating that a key European manufacturing index remains persistently below recovery levels, with further declines into a full-blown recession in Europe likely. Additional austerity measures would simply hasten that recession. Kathleen Brooks, director of research at FOREX.com, told her clients: “We remain a sell on rallies (with the euro) as we tend to think the euro zone crisis will actually get worse before it gets better.”
The government of Japan and the communist dictatorship ruling mainland China announced a landmark agreement this week to facilitate trade between the two powers without using the U.S. dollar, relying instead on the Japanese yen and the Chinese yuan.
According to the terms of the deal, the two governments agreed to encourage trade directly in yen and yuan without having to use American dollars as an intermediary — the current practice. Companies in Japan and China will soon be able to convert the currencies directly. And the Japanese government also agreed to hold Chinese yuan in its foreign-reserves portfolio.
It remains unclear exactly how and when the agreement will be implemented. But according to news reports, both governments have already set up a working group to iron out the details. Officials said the move was aimed at reducing risk and transaction costs.
The new currency deal comes as the communist Chinese dictatorship has been taking increasingly bold steps to expand the international role of the yuan. The regime’s officials have also become ever-more vocal in attacking the dollar’s global reserve status, calling instead for a more international system managed by a world entity such as the International Monetary Fund (IMF).