By
Sampson Iroabuchi Onwuka
Obama saving the world
Barely one week ago, World Markets, braced itself for a near repeat of the Lehman Saga with a zigzag stock market with many Americans seeking to understand what was essentially happening to their money and why. The events of the last few weeks are quite significant that necessary money, both foreign and local, may be a requisite for guesstimate on the general probability of US economy. The world is courting stability, and not only the world, much of the wealth trapped overseas and much of the wealth managed by big folios, are seriously looking to at least Grinch out the latest stagflation with US with barely a 1% improvement of from its quarterly GDP earnings.
Benoit B. Mandelbrot and Richard L. Hudson '2004, in their book treatment on risk and investment; 'The Misbehavior of Markets' asked a question that "if interest rates are high and T-bills pay well, then you will not touch stocks unless you think they will pay more, but to get more, you may have to accept more risk. By contrast if rates are low, a duller, safe stock portfolio for the economic and market climate" Apparently, these Zigzag is driven by the stock-bond rotation or conversion, a sort of inverse relationship between the Bond and Price, and between similar exercises and an outlook for a conversion rate.
Some of the Banks with book equity values are not without concerns, since public validity involves anything beyond Sovereign Wealth and Stress Test. Whatever may be the sponsored notions of the deferring schools of Euro and its currency, it needs be said that the instability of the no-gain economy is quite visible and the fear that the lack luster market will spiral into US or other areas of world market, is quite evident. That fear shook American markets and many were willing to sell on so slim an agenda.
For at least 3 weeks, the world grappled with improbability of another recession of US economy. The major selling point was the issue of Debt or raising Debt ceiling of US which led to the down grading of US Rating from AAA+ to AA+. As the story goes, the faith the general public placed on US Treasury was misplaced, which they say resulted from the additional debt ceiling by US Government. But this kind of Debt is designed to rescue American Banks exposed elsewhere and with that in mind, we should be able to state clearly that the emphasis on U.S liabilities would attempts at correcting the lapses in the housing industries, like we mentioned early, some of these programs are no where confined to that industry, but rather we are looking at the friendly junction
The result of this kind of ‘temporary default’ is that US market earn the possibility of choking a lot lending as money travel through tiers of the world market without actually landing, as if it plays into the Reverse Stock Dividend syndrome which has a tail. Until July 31st, 2011, US Second Liberty Bond Act of 1917 put a ceiling on the amount of bonds the United States can issue, and in respect to other debts in the past, this ceiling has broken several times, largely due to the problems of unemployment. But the conditions of world market and the ever expanding position of the US Central Bank – the FEDs, may have more than warranted the necessity of a new debt ceiling.
Both the Fiscal policies of US and its consequent Monetary policies, may not at any time be better placed to allocate such responsibility to Treasury, which represent the Executive Arm, and may likely continue this policy as long the public is not necessarily in flight or in danger. But the Feds is not without its share of political drama, for at least we are aware of the opposition that the Republicans has mounted. But it does not mean that after said and done that the actions of U.S Treasury was essentially right, but with fear that stagflation has been a constant threat to the American Economy and the redeeming the welcome news of deflation, we can almost regard the whole process as responsive in spite of Public expectations.
We shall approach the problem of the last few weeks from the context of three stimuli, (1) the Dow which Zigzag for a week finishing where it started, (2) the high price of Gold which resulted initially from Greek default, European Debt problem, and people seeking market stability away from pure currency, and (3), the availability of credit irrespective of the efforts made by the Feds. The last may that very reason why Americans should worry about their economy; beginning with stock market
(1) The Dow was down and everyone wanted to find out why? Well, from the long chain of academic consensus on the drop in Dow Market, Money was moving from currency and stock to debt and treasury. Naturally it created a whole and an overnight effect on the market, a fact that eventually led to many reverting to Gold. If money moved from stock market into debt, we are not to confuse such plunging of the numbers with the new 10 trillion dollar debt industry which only a few banks could benefit. Such hole created by the new ceiling means well for those interested in the long term view of American stock and bond market.
The near term reality of this view is that S&P 500 slash of US Ratings, forced the hands of FEDs – which in reality is a case that come between we must indicate that at no point does it mean that US economy is doing that badly. It is only here as market season for crude oil ends this August that Dow will experience less fluctuation. When there is so much shift from currency into Gold and from stock market into Debt, the market means exactly what it says, that investors are either counting on the natural weakness of the dollars, which naturally accompany the short falls in savings, which may or may not now apply since the US Feds are still buying debt from wherever.
(2) The high price of Gold may have set a lasting record of what lies beneath the business of the world, such that the only way forward for the rest of the world and the society is through the availability of gold by way of the Feds. No doubt that Bernanke has over the years demonstrated his softly approach towards big banks and has taken additional effort in gauging the hands of the Government.
But this new avenue of debt ceiling as backed by the congress and the Treasury, may be that useful in letting in the rest of the society in on what may probably happen from about Sept 15th 2011, when the price of Gold will more than likely diminish – assuming the elasticity of the market does not determine a breaking point for Gold. If the Gold experience additional pressure, the Treasury would more than likely offload some of the Gold which may be a great way to re-introduce cash into the system and a way of increasing the faith on US market.
The question many need to ask is why did Gold for instance get that ‘hot’ in the first place, well the answer is not that far from the incident of 2008 where the similarity of Lehman led to the roil of much of the world economy. As such the vacuous and indeterminate recession of 2011 is a fact driven by main stay media house, which has nothing to do with the rest of the economy. There is a question of Banks hugging a lot of action which is a way of saying that Banks in the last five years have more than doubled their holding of cash, an outcome of a lot of things which may or may take up the case for excess capacity of already made cash. It is merely a matter of value as a deep in US dollars seem to be a probability since the outcome is uncertainty and misleading notion of new world order. In essence there is a structural deferment from savings in terms of physical cash to Gold as a form of Reserve currency.
(3) There is no availability of credit irrespective of the effort made by the FEDs to pump money into the economy. Why could that be the case? The FEDs by their estimate shared that the view that pushing more money into the US economy from say 2008 was a way to increase liquidity, a financial acceleration process which they were willing to back up with the low and almost Zero interest rate. We are tempted to say that such action by the FEDs was a way out of the troubled waters of 2008, which I have maintained didn’t have to be taken to the land of excesses financing.
It was not a money problem but lack of market direction due to competing international valuation or lack thereof. But such effort as made by Bernanke and his group was done so to speak in good faith, on account of what they expected the banks to do; that is, reciprocate the lending to the general public as a way to move things forward and improve the health of general credit class.
But such action was unlikely to be the case for how could money machines such as the Banks, who have continued their relapsing into US FEDs and abusing of that false faith in the FEDs, be expected to magic the outcome of lending to the general public or financial institutions on so low an interest rate. What we have noted in the past few years, especially at the inception of Bernanke is that Banks now have more physical cash in their coffers more than ever, such that the talk at say Bloomberg Newsweek about the excess capacity of Cash among the banks. The Magazine did not cover the problems associated with such hoarding of cash, or did the magazine compare the new conditions with what happened sometime in the past – at least in the era of Great Depression.
We can now say for sure that the few problems associated with Feds lending and low interest rate, FEDs acquisition of the Debt, which left a lot of money in the hands of those who can – for instance the BIG BANKS – may be conditioned as (A) Emergent Property, largely for the new and untended consequences of proving and providing low interest rate facility. Banks have more than doubled their cash holding since Bernanke came into office, as if it was a game of give and not return, since it is no game at all and these group of Banks now merely exercise their option to lend or otherwise, and have additional impetus since there exist also among the tendency to procure buyers or other banks from Europe should they chose.
We can also say that these Banks have fewer and fewer American buyers or individual investors via direct savings, such that savings no longer count as part of the overall investment index necessary to determine the role or viability of Banks as a lending institution. What has happened is that more and more American Banks, have become conditioned into accepting large institutional investors, such as English BANKS raking and penetrating American Banks such as Bank of America as preferred customers, which to some degree means that the age of (B) Individual Investment or Shareholder status as necessary bait for Bank operation is seriously challenged and may no longer apply. This seismic shift may mean the operation of banks a form of Universal Bank, almost collapsing into US market mode.
We can also say that Banks may be responsible for the huge problems of US economy on the account of poor and non-existing lending facilities, such that the projects in many parts of the country can a difference in the economy may out.
If the estimate of US Bank’s history is wedged against the facts of over-capacity of liquid cash, it will mean a classic case of Bank of America, perhaps the world’s biggest bank by market value, yet seriously struggling to meet international standards. Bank of America is looking to offer new shares to would be investors and individuals, a move that shareholders are saying would further shed the value of their investment.
Bank of America is also facing a 10 billion dollar law suit from shareholders only the incidents of 2008, as if the incident of weakening investor stock of value through a claim of losses that allowed English Banks to nearly capture American biggest banks including BOA, but ultimately settled for Lehman which thanks to Geithner and Paulson was sold for ‘pennies’ and nothing to Barclay of England and others Lloyd, both of whom secretly acquired a lot of American financial institutions. In essence the experiment of Zero interest rate and new false hope of asking banks to return lending, has forced many American business and banks to yield grounds to Europe Banks and UK, whose 'moonwalking' and Shadow banking around Bank of America for instance, is not clearly defined, but the challenge to the suppression of BOA value by Brain Moynihan and his group as per market discipline or unconscionably, has attracted a lot of big money in US Markets
(c) UNIVERSAL Banking, operating in full since OBAMA’s bank reforms in 2009 which essentially repealed much of the Glass-Seagull Act of 1933, suggest a domination of only a few banks of both Main and Wall street.
By this BOfA example and the danger of running with scissors which involves the cheap credit by FEDs for such a long time and a spurious (1920's) comparison we can say for sure that Bernanke and his group may have noticed the serious flaws with Zero to 0.25 interest rate, that under the conditions available to us in the society, the low interest rate is of no effect or of no consequence since Banks - both foreign and local – are merely looking for avenues for wealth which cannot be achieved with a low interest rate, and cannot be achieved through the expectation of currency devaluation. In essence, low interest rate with particular respect to US interest rates, hedges against the weakening of local currency, particularly the dollars.
The facts on the ground now seem too clear that the Strategy of the FEDs is not working and that ‘Third Parties’ away from Banks, away from arbitrage groups, or the creation of financial institutions of various kinds must be initiated in other to allow the FEDs lower interest rate to such rate. In essence, the bad nature of employment and high earn jobs in US, is not function of the market, therefore not careful to a point.
In essence, Keynes spending and Milton’s fixed supply, are tools that mean nothing without penetrating the given financial institution and network. If Banks hug as much action as there are cash, the economy gives the impression that is doing badly it forces the general public to react. May be is not the direct intention of the men and women at upper levels of the industries. It also forces the hands of the government and the Debt and Lending Tree – the FEDs, but none of the money thrown to the general public via debt acquisition and banks, will make a difference is Banks do lend.
Banks cannot lend at such a low interest rate, despite the need for it in the general society, Banks will and must wait until 2013, when the FEDs begin to up their interest rate game – that’s assuming they will do so. In other to therefore solve the short term problems of the liquidity and lending, especially to Americans on Fixed Incomes (for personal consumption sake) and Americans doing small scale businesses, or Americans with intent at launching a New IPO (source of economic stability and growth) without being poached at the Hen house by Big Banks - new FINANCIAL INSTITUTIONS must be created bottoms UP (from the bottom of the scale) and from AD NOVO, even by a plausible transition clause from direct ownership via Debt receipt to independent. As such long they work between the requisite lines – even it means taking a bait or a resuscitation of the once great such as Lehman and Bear Stearn.
Another way of also achieving it is through raising the credit status of individual Americans. But this is really a welcome departure from what American institutions look like, since we may yet prove that No Bank can survive with mere 2.7% exponential growth, which is a lot of money, yet may prove insubordinate to market forces therefore bad by market estimate. the Banks would occasional have to try other means of achieving dividend besides the use of interest rate. With a lot of money what do these Banks care?
If Obama and his team would perform the magic of debt ceiling without absorbing the School loans of many living Americans and writing off much of the tuition for such historic period as raising loan ceiling, the efforts would have amounted to a page in history without helping the country, then we can be certain that a new repeat of the incident of 2011 would likely continue unless there is slash in interest rate of most Asian central BANKS.
