Get Prepared, Goldman Sachs Rules the World, The End is Near.

INTERNATIONAL TRADER: ‘I GO TO BED EVERY NIGHT AND I DREAM OF ANOTHER RECESSION’ | While European government and financial leaders are scrambling to prevent a financial crisis in the Eurozone that would likely throw the global economy into even more turmoil, stock trader Alessio Rastani took to BBC today to tell the world that traders were looking forward to the possibility of a second big recession. “For most traders, it’s not about – we don’t really care that much how they’re going to fix the economy, how they’re going to fix the whole situation,” he said. “Our job is to make money from it.” Rastani, who also claimed “Goldman Sachs rules the world,” said, “Personally, I’ve been dreaming of this moment for three years…I go to bed every night and I dream of another recession. When the market crashes… if you know what to do, if you have the right plan set up, you can make a lot of money from this.”

THINK PROGRESS

US foreign indebtedness increased 62% in 2008

Back to the future?

As bad as that sounds, and it is, the situation is far worse for our significant others:

15. United States - 95.09%
External debt (as % of GDP): 95.09%
External debt per capita: $44,358

Gross external debt: $13.627 trillion (2008 Q3)
2008 GDP: $14.330 trillion

14. Norway - 114%
External debt (as % of GDP): 114%
External debt per capita: $118,353

Gross external debt: $551.59 billion
2008 GDP: $481.1 billion

13. Finland - 116%
External debt (as % of GDP): 116%
External debt per capita: $62,579

Gross external debt: $328.56 billion (Q4 2008)
2008 GDP: $281.2 billion

12. Sweden - 129%
External debt (as % of GDP): 129%
External debt per capita: $73,245

Gross external debt: $663.58 billion (Q4 2008)*
2008 GDP: $512.9 billion

T-10. Spain - 137.5%
External debt (as % of GDP): 137.5%
External debt per capita: $57,091

Gross external debt: $2.313 trillion (Q4 2008)
2008 GDP: $1.683 trillion

T-10. Germany - 137.5%
External debt (as % of GDP): 137.5%
External debt per capita: $63,767

Gross external debt: $5.25 trillion (Q4 2008)
2008 GDP: $3.818 trillion

9. Denmark - 159%
External debt (as % of GDP): 159%
External debt per capita: $107,026

Gross external debt: $588.7 billion (Q3 2008)
2008 GDP: $369.6 billion

8. France - 168%
External debt (as % of GDP): 168%
External debt per capita: $78,070

Gross external debt: $5.001 trillion
2008 GDP: $2.978 trillion

7. Austria - 191%
External debt (as % of GDP): 191%
External debt per capita: $100,787

Gross external debt: $827.49 billion (Q4 2008)
2008 GDP: $432.4 billion

6. Switzerland - 264%
External debt (as % of GDP): 264%
External debt per capita: $171,478

Gross external debt: $1.304 trillion (Q4 2008)
2008 GDP: $492.6 billion

5. Netherlands - 268%
External debt (as % of GDP): 268%
External debt per capita: $145,959

Gross external debt: $2.439 trillion (Q4 2008)
2008 GDP: $909.5 billion

4. Hong Kong - 295%
External debt (as % of GDP): 295%
External debt per capita: $93,539

Gross external debt: $659.93 billion (Q4 2008)
2008 GDP: $223.8 billion

3. Belgium - 327%
External Debt (as % of GDP): 327%
External debt per capita: $155,362

Gross External Debt: $1.618 trillion (Q4 2008)
2008 GDP: $495.4 billion

2. United Kingdom - 336%
External debt (as % of GDP): 336%
External debt per capita: $153,616

Gross external debt: $9.388 trillion (Q4 2008)
2008 GDP: $2.787 trillion

1. Ireland - 811%
External debt (as % of GDP): 811%
External debt per capita: $549,819

Gross external debt: $2.311 trillion (Q4 2008)
2008 GDP: $285 billion

Source CNBC

U.S.'s debtor status worsens dramatically

Foreigners hold 50 percent

By David M. Dickson Washington Times | Saturday, June 27, 2009

In the midst of the longest, and probably deepest, postwar recession last year, the U.S. investment position with the rest of the world sharply deteriorated.

At the end of 2008, America's net international investment position was minus $3.47 trillion, the Commerce Department reported Friday. That represents the difference between the value of U.S. assets owned by foreigners ($23.36 trillion) and the value of foreign assets owned by Americans ($19.89 trillion).

At the end of 2007, the U.S. net international investment position was minus $2.14 trillion. Thus, America's net indebtedness with the rest of the world increased by $1.33 trillion, or 62 percent, during 2008. It was by far the biggest annual increase in data that go back to 1976.

Foreigners now hold nearly 50 percent of the federal government's publicly held debt. If foreign investors significantly reduce their purchase of future U.S. Treasury debt securities, without even dumping their current holdings, U.S. interest rates could soar and the dollar could collapse, analysts fear.

At minus $3.47 trillion, America's net debtor status with foreigners represents nearly 25 percent of U.S. gross domestic product, the highest level in history.

"Three decades of massive [trade] deficits have converted the United States from the world's banker - able to 'pay any price and bear any burden in the cause of freedom' - to the world's largest debtor, utterly dependent on China and other foreign interests," said Charles McMillion, chief economist of Washington-based MBG Information Services.

Essentially, America's net international investment position is driven by what the United States borrows from the rest of the world to finance its ongoing trade deficit, said Brad Setser, a fellow for geoeconomics at the Council on Foreign Relations.

Over the 2003-07 period, however, foreign equity markets outperformed the U.S. stock market, and the dollar steadily depreciated. These two factors reduced the annual deterioration in America's investment position that otherwise would have been dictated by massive U.S. trade deficits during this period.

"Both of those factors reversed themselves last year," Mr. Setser said. The dollar appreciated, and foreign stock markets suffered bigger declines than America's. As a result, America's net debtor status worsened significantly more during 2008 than its nearly $700 billion trade deficit would have dictated, Mr. Setser explained.

Over the years, America's status as a creditor or debtor has changed enormously. In the early 1980s, America's net international investment position averaged $350 billion, or 11 percent of GDP, making the United States the world's largest creditor. Today, it is the world's largest debtor - by far.

As recently as 1996, America's net debtor status was minus $456 billion. Since 1996, it has increased by more than $3 trillion, or 660 percent, as America's 12-year cumulative trade deficit soared by $5.7 trillion.

Foreign governments have taken notice - in particular, China, which now holds more U.S. Treasury debt than any other country. In the 12 months through April, China's portfolio of Treasury debt securities has soared by more than a quarter of a trillion dollars to nearly $800 billion.

In its annual financial stability report issued on Friday, China's central bank once again declared there were serious problems with the global monetary system's reliance on a single dominant currency - the dollar. An estimated 65 percent to 70 percent of China's $2 trillion in foreign exchange reserves, the world's largest stockpile, is held in dollar-denominated assets.

The People's Bank of China also warned the United States on Friday about its very expansionary monetary and fiscal policies.

"We are so deeply in debt and this money is so liquid that it hamstrings our monetary, fiscal and trade policies," Mr. McMillion said. "We've really mortgaged our financial future."

What is more worrisome, blowing up our currency or a NORK nuclear test?

The usual suspects are deploring and rejecting, shocked and dismayed at the nuclear shenanigans of Heaven on Earth, North Korea. The newest rookie, Barack is desperately seeking international consensus. However the country that actually has an attached border with North Korea seems to be even less amused by the detonation of the US dollar.

Everyone knew that hyper inflation was possible and likely when the fed started a program of buying US treasuries, but few thought a calamity would start soon. The Obama solution is to keep spending and taxing.  That is barely possible when things are going well but has been sustained by an excess pool of savings coming from Asia and Germany. That pool is shrinking along with  the international appetite for US debt. 

Washington has not  diminished its appetite for deficit spending and has done its own financial nuclear test by going from borrow and spend to print and spend. 

The Chinese are not happy:

________________

China warns Federal Reserve over 'printing money'

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds.

By Ambrose Evans-Pritchard Telegraph
Last Updated: 9:19PM BST 24 May 2009

Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.

Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.

However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart".

Nor, he added was there much risk of inflation taking off yet. The Dallas Fed uses a "trim mean" method based on 180 prices that excludes extreme moves and is widely admired for accuracy.

"You've got some mild deflation here," he said.

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of "creative destruction", has been running a fervent campaign to alert Americans to the "very big hole" in unfunded pension and health-care liabilities built up by a careless political class over the years.

"We at the Dallas Fed believe the total is over $99 trillion," he said in February.

"This situation is of your own creation. When you berate your representatives or senators or presidents for the mess we are in, you are really berating yourself. You elect them," he said.

His warning comes amid growing fears that America could lose its AAA sovereign rating.

Contraction in Europe and shrinking wages in US. Bad news.

I see that the geniuses in the US Senate succumbed to the banks and failed to force the banks to adjust existing mortgages to realistic housing prices.

The UAW is told that they have to be realistic and downsize their paychecks in light of the reality of the market. Unions and labor are to take a hair cut as have most investors and anyone with a 401K. Everyone must adjust to the new reality except the banking industry and the US Senate.

Europe is shrinking.

Employment and prices are falling, all of this in the apparent face of massive deficits. 

There is a need to re inflate. 

That requires disposable income in the hands of the American public. A radical and equitable solution would be to force drop every residential mortgage in the US to 3%, regardless of size, location, and term. That would affect a massive tax decrease and permit increased  spending. It would preserve capital as it would not be necessary to reduce the face value of mortgages.

It would stabilize pricing and slow falling wages. 

Give the break to consumers, taxpayers and workers. If some banks fail as a result, hard bread to them.

__________________________________________

E.U. Says Europe Faces Deep Recession
NY Times
Published: May 4, 2009
Filed at 5:19 a.m. ET

BRUSSELS (AP) -- The European Union says Europe faces a "deep and widespread recession" and that unemployment will rise sharply over the coming two years.

It says both the 27-nation EU and the 16 countries that use the euro currency will shrink 4 percent this year, way more than its previous forecasts.

It says some 8.5 million jobs will disappear in the EU in 2009 and 2010, more than wiping out the number of new jobs created in the last two years.

It predicts a subdued recovery next year but only if the banking sector and world trade start to recover.

The EU says Germany's economy will contract 5.5 percent this year, Britain and Italy will shrink by between 4 percent to 4.5 percent, while Spain and France will post a 3-percent drop.

Falling Wage Syndrome

By PAUL KRUGMAN
Published: May 3, 2009

Wages are falling all across America.

Some of the wage cuts, like the givebacks by Chrysler workers, are the price of federal aid. Others, like the tentative agreement on a salary cut here at The Times, are the result of discussions between employers and their union employees. Still others reflect the brute fact of a weak labor market: workers don’t dare protest when their wages are cut, because they don’t think they can find other jobs.

Whatever the specifics, however, falling wages are a symptom of a sick economy. And they’re a symptom that can make the economy even sicker.

First things first: anecdotes about falling wages are proliferating, but how broad is the phenomenon? The answer is, very.

It’s true that many workers are still getting pay increases. But there are enough pay cuts out there that, according to the Bureau of Labor Statistics, the average cost of employing workers in the private sector rose only two-tenths of a percent in the first quarter of this year — the lowest increase on record. Since the job market is still getting worse, it wouldn’t be at all surprising if overall wages started falling later this year.

But why is that a bad thing? After all, many workers are accepting pay cuts in order to save jobs. What’s wrong with that?

The answer lies in one of those paradoxes that plague our economy right now. We’re suffering from the paradox of thrift: saving is a virtue, but when everyone tries to sharply increase saving at the same time, the effect is a depressed economy. We’re suffering from the paradox of deleveraging: reducing debt and cleaning up balance sheets is good, but when everyone tries to sell off assets and pay down debt at the same time, the result is a financial crisis.

And soon we may be facing the paradox of wages: workers at any one company can help save their jobs by accepting lower wages, but when employers across the economy cut wages at the same time, the result is higher unemployment.

Here’s how the paradox works. Suppose that workers at the XYZ Corporation accept a pay cut. That lets XYZ management cut prices, making its products more competitive. Sales rise, and more workers can keep their jobs. So you might think that wage cuts raise employment — which they do at the level of the individual employer.

But if everyone takes a pay cut, nobody gains a competitive advantage. So there’s no benefit to the economy from lower wages. Meanwhile, the fall in wages can worsen the economy’s problems on other fronts.

In particular, falling wages, and hence falling incomes, worsen the problem of excessive debt: your monthly mortgage payments don’t go down with your paycheck. America came into this crisis with household debt as a percentage of income at its highest level since the 1930s. Families are trying to work that debt down by saving more than they have in a decade — but as wages fall, they’re chasing a moving target. And the rising burden of debt will put downward pressure on consumer spending, keeping the economy depressed.

Things get even worse if businesses and consumers expect wages to fall further in the future. John Maynard Keynes put it clearly, more than 70 years ago: “The effect of an expectation that wages are going to sag by, say, 2 percent in the coming year will be roughly equivalent to the effect of a rise of 2 percent in the amount of interest payable for the same period.” And a rise in the effective interest rate is the last thing this economy needs.

Concern about falling wages isn’t just theory. Japan — where private-sector wages fell an average of more than 1 percent a year from 1997 to 2003 — is an object lesson in how wage deflation can contribute to economic stagnation.

So what should we conclude from the growing evidence of sagging wages in America? Mainly that stabilizing the economy isn’t enough: we need a real recovery.

There has been a lot of talk lately about green shoots and all that, and there are indeed indications that the economic plunge that began last fall may be leveling off. The National Bureau of Economic Research might even declare the recession over later this year.

But the unemployment rate is almost certainly still rising. And all signs point to a terrible job market for many months if not years to come — which is a recipe for continuing wage cuts, which will in turn keep the economy weak.

To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation.

Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss. But the risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be rising.

Forget the Franklins. We are going for Clevelands.

You didn't even know President Cleveland was on a note, well he is, and on a big one. The necessary reflation will result in the printing of lots of these. Someone will get blamed, but there were plenty of architects of the eventual inflation in our future.

Plan accordingly.

Imported Oil and Imperial Overreach Has a Price.

The Pain begins. I do not see how the Republicans can talk their way out of this mess which has been building and accelerating under a Republican President and a Republican Congress. This will be a much larger concern than what is happening in Iraq.

A prescient article written June 2005

The Deal Story of 2008:
Will the U.S. Get LBOed?
November 20, 2007 WSJ

China and the Gulf states are hungry, and they've just sat down for an American buffet. In the last few months alone, state-affiliated funds and companies have taken bites of American icons, picking up small stakes in Advanced Micro Devices, MGM Mirage, Nasdaq Stock Market, Blackstone Group and Bear Stearns.

The deals were designed to be small enough to avoid scrutiny from the U.S. government. This conveniently played into the hands of sellers, who were able to offload pricey positions while giving virtually nothing in return, such as board seats or veto rights.

But the mergers-and-acquisitions story of 2008 will be how these foreign sovereign funds -- sitting on an estimated $2 trillion to $3 trillion of reserves -- direct their appetites. Fattened by the U.S.'s own trade imbalances and encouraged by favorable currency rates, they aren't likely to stay so compliant for long. Further down the buffet line sit entire U.S. companies.


Seven sovereign funds, including those of Abu Dhabi, Kuwait, China, Singapore and Russia, now sit on piles greater than $100 billion. Outside the U.S., these funds have proven more adventuresome, with a Dubai company recently moving to take ownership of the airport in Auckland, New Zealand.

This foreshadows some uncomfortable economic and cultural reckonings for the U.S. The modern gamesmanship of corporate interests is beginning to look more like "The Great Game" of national interests, where capital, as much as armies, can be deployed for strategic effect. And on this field of play, the U.S. looks caught off guard -- not unlike the cocksure Olympic basketball squad, run out of the gym by ostensibly weaker teams.

"When governments act in this field, the motives are different," says Deszo J. Horvath, Dean of the Schulich School of Business at Canada's York University. "The motives are longer-term security issues, which can have nothing to do with current economics."

Sen. Evan Bayh captured the new concerns at a congressional hearing last Wednesday. "The definition of national security interest is broader than it used to be," he said. "[Y]ou'll see the Chinese going around the world acquiring what they view as strategic energy interests, and it is not impossible that financial positions might be used in a similar vein."

That's why this incoming wave of foreign money will reveal more about the U.S. than about countries initiating the deals. Laws overseeing foreign investments were just given a much-needed overhaul. But at its core, the issue is as much about emotion and pride as it is about process, says Ivan Schlager, a partner in the Washington, D.C., office of Skadden Arps, who handles cross-border transactions.

Foreign investments touch a nerve, especially when so much American economic power appears at the mercy of China, which holds U.S. Treasury bills, or the Gulf states, which have such a big say over U.S. energy costs. For 2007, foreign buyers have accounted for 20% of M&A in the U.S., according to Dealogic, the second-highest level since 1995.

"We have not fully grasped what is happening here, and we have no counterstrategy," said Patrick Mulloy, Washington representative of the Alfred P. Sloan Foundation, a group studying technology, business, and economics.

Can the U.S. accept the foreign investments as an essential element for lubricating a dynamic economy? Tighter economic ties create less incentive for war and terrorism. And below the radar, a recent series of foreign investments have closed without incident. "No one raised serious objections when Sabic [a state-owned Saudi Arabian company] bought GE Plastics in a competitive auction. Are we culturally ready? We're a very welcoming and open society," adds Mr. Schlager.

Until it's not. Already the country has proven touchy, famously fretting when a Japanese businessman overpaid for the Pebble Beach golf resort back in 1990, or when a Dubai-backed company looked to take over a series of U.S. ports in 2006, setting off a talk-radio furor that squelched the deal.

It's easy to find conspiracies in these governmental funds, in part because they have such little transparency. The Group of Seven leading nations recently called upon the International Monetary Fund and World Bank to study ways to improve disclosure and accountability.

With a weak dollar and the ever-enriched positions of petro-based economies, it's inevitable that the worries will continue to stew. And it's inevitable that they will one day interfere with a big sovereign-fund investment plan.

The irony is the U.S. is, in essence, funding its own potential takeover. In Wall Street parlance, they call it getting LBOed. "We're moving to a sharecropper economy," said Mr. Mulloy in an interview. "The other guys are going to be owning, and we're going to be working for them."

Email dennis.berman@wsj.com. For a daily comprehensive look at the world of deals visit wsj.com/deals.