Emerging South

 The last 2 weeks I've been hearing more people around me claiming that by Q1 2009 things will brighten up economically wise.   The only substance for that claim I've heard sofar is that they believe inflation will go down and as thus the economy will pick up again.

First of all: credit will remain tight, for long times ahead, just read that Libor signals tigther credit as banks balk at lendingor read what the IMF is saying :
A towering grizzly bear guards the doorway to the Federal Reserve's annual policy retreat in this Teton Mountain resort, serving a reminder to central bankers of the battle to sooth the credit crunch. "This turmoil is not going to go away quickly and will require serious efforts to overcome it," a top official of the International Monetary Fund, John Lipsky, told Reuters.

There's the Russian clouds coming over and another piece of the puzzle to consider is China's Olympic Sized Bust. The opening ceremonies were fantastic, but where was the payback? In a command economy there does not have to be a payback. Appearances are often more important than realty, and deviations from plans are simply not tolerated.  Things look extremely troubled in Chine, the China hink thank expects 10,3% growth in Q3, personally I can hardly believe this growth is sustainable into 2009.  Just look at the environmental disasters there.   China's growth story is stopping.


I will keep repeating myself: don't expect thing togo back to 'normal', the 'old times' are not coming back, cheap credit is over, foregood. Once upon a time, central banks had bank vaults. In these vaults were blocks of gold. This was used as the basis of all banking. In addition, all the member banks had to collect something we called 'savings'. This was also called 'liabilities' by the bankers since they had to pay these savers 'interest'. The interesting thing about interest is, this money has to be relent at a higher rate so the bankers could then collect interest, too. And they were allowed to do this on a reserve of savings of less than 10%. Even with the central bankers controlling this reserve requirement, the member banks often ended up in the ditch, overextending loans too much. This is because they love collecting interest rather than paying interest! The investment bankers decided to play this game with less than 1% reserves. To do this, they needed the Bank of Japan's 0% lending. At 0%, a bank can lend forever.  US banks sit on virtually no reserves while Asian banks sit on mega-reserves. And this is hyper-unbalanced. And mirrors unbalanced trade relationships.Now, the central bankers no longer hold more and more gold as they lend. They don't hold more and more capitalist profits. Or more and more worker's savings. The FAKE interest rates are responsible for this situation! Since all the central banks set rates below the rate of real inflation, everyone is putting their money into various instruments that THEY HOPE, HOPE will grow faster than the other nasty hag, Inflation. But Inflation gets stronger and bigger, the faster money grows! The more everyone seeks a greater return outside of the banks, the more powerful Inflation is.