Howard's End: World Financial Blowout Matters Here
While most of New Zealand seems to be satisfied with the smoke and mirrors of Paintergate, Corngate and political spin, some of us have been taking notice of the more mundane things in life - like New Zealand's economic survival in a global financial meltdown. Maree Howard writes.
For many months Scoop has reported on the U.S. financial and corporate blow-out which is at the bottom of the bloodiest financial smash-up in history.
The facade of U.S. financial impregnability built up over the past decade is kaput.
No matter what the Federal Reserve's Plunge Protection Team now does, the slide into a full-blown but much delayed recession has begun - evidenced by the immediate danger of a staggering and volatile stock market.
Total losses on the Wall Street meltdown now exceeds $US 6 trillion, all of it from investors' pockets.
So far, the crash has destroyed up to half of people's life savings and scrambled the retirement nest-eggs of more the 46 million baby boomers due to retire over the next five years.
In sheer $ terms, the collapse since March 2000 has brought the largest loss of wealth in the history of humanity, dwarfing the great 1928-29 crash by a factor of 29-1.
The resources, financial and otherwise, squandered in a vain attempt to keep the Dow between 10,000 and 11,000 forever, don't even bear thinking about. It's gone below the accepted threshold of 9,000.
With zero savings, American householders hold $7.6 trillion in debt. This is the highest level in U.S. history with consumers now holding $1 trillion more in debt than they earn in disposable income.
Personal bankruptcies have more than doubled.
The U.S. Government insists that its "Strong $ Policy" remains intact. Pity the $ doesn't. Today, it crumbles before the eyes of the world.
The U.S. trade deficit is huge and growing. Morgan Stanley recently wrote that the trade deficit is now 4.3% of U.S. trade. If the trade deficit of a developed nation reaches as high as 5% of GDP, there is usually a drop of 20% in that nation's currency within three years.
Morgan Stanley projects the U.S. trade deficit will reach 6% by next year, which means a deficit of $2 billion a day. Net real investment in the U.S. is now nil.
Much of corporate America is in deep trouble. There have been five consecutive quarters of declining corporate profit. U.S. companies now owe a record $4.7 trillion to banks and other financial institutions with the Federal Reserve saying this debt is growing almost three times faster than GDP.
Corporate America is swamped with debt to the tune of 156% of GDP. In 2001 more than 40,000 businesses filed for bankruptcy. Some of the household names like Kellogg's, Ford, Boeing, Levi Strauss, Mack Trucks, and Campbell Soup are in trouble.
The U.S. Government estimates that 9% of banks are "very vulnerable" to a real estate downturn as workers are laid off and cannot pay mortgages with another 16% of banks "some-what vulnerable."
The U.S. needs to import $1,6 billion of capital each day just to fill the deficit. That's no longer happening with foreign investors deciding to take their money out of the U.S.
The raw facts are terrifying. The physical U.S. economy us cluttered with massive over-investment, malinvestment and horrendous mismanagement, all of it held up by minuscule investment rates and very fancy bookkeeping.
It's worthy to note that before the 1929 Great Depression, the Federal Reserve lowered interest rates eight times without effect. This time, it's lowered interest rates eleven times.
Asian economies are now being advised to pool their vast foreign reserves as a step towards a reshaped monetary system independent of the U.S.
Many hearts elsewhere in the world will probably not bleed too much for the U.S. and its dire calamities.
Following September 11, America has imposed a draconian clampdown on the freedom of its own citizens, it has dived headlong into deficits, it has lost control of government spending, it has antagonised its friends and allies with import tariffs, and it has demanded military alliances and ultimatums that you are either with us or against us with no neutrality allowed.
For any historian, all that is necessary is to substitute Greece, Rome, France, Spain Germany, Britain or, indeed, the USSR, for the U.S. because all of the above events have been duplicated in every Empire in the process of its destruction and ultimate dissolution.
Does all this "global stuff" matter to New Zealand?
You bet it does - and we had better get out of our beds of apathy and wake-up and smell the coffee, or there might not be any coffee.