Trumpet: Great Depression Imminent; Say No

[Gregory Pratt]

I loathe the Trumpet. They predict the End of the World every single issue and predict a Great Depression every issue, no matter what the economic situation. These guys are baboons and I think a good rule of thumb is, If they believe it, take the opposite stance.

 

(I don't actually believe that per se. But I am weary about them. I hadn't read that mag. in forever, ever since they removed it from the Orange Line.)

 

But what I really want is -- I know the article is BS, at least in its conclusions. The "Great Depression" is not around the corner.

 

Can one of you who are more knowledgeable about economics than I tell me why?

 

he Con That Turned the World Against America

October 1, 2007 | From theTrumpet.com

How greed almost triggered a global financial collapse—and why we can expect the fallout to continue. By Robert Morley

 

The world’s financial system came precariously close to seizing up these past couple months.

 

In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of money—the lifeblood of today’s economic structure—came uncomfortably close to clotting up.

 

Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting a half trillion in dollar steroids into the economic pulmonary system.

 

But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.

 

Irrevocable damage to America’s economic system has taken place.

 

And because the world’s largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the world’s financial system—a system based on the dollar as the reserve currency—is failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly spouted economic causes, but because of broken faith. The result will be a new world financial order—one without America at the head.

 

Here is what happened and why you need to know about it.

 

The world’s economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving that Jackson in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worth—ultimately it’s all relative. Its value could disappear overnight.

 

The same is true for every currency, whether yen, ruble or peso. Each is backed by confidence—confidence that the government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.

 

When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.

 

In August, when fallout from America’s popping housing bubble began to hit the market, trust in America cracked—and with it, so too did confidence in the global economic system.

 

Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way: “The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion” (August 17).

 

He continued: “The ongoing subprime mortgage crisis … presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world.”

 

Trust in America is quickly disappearing. Why? Because America single-handedly brought the international financial system virtually to its knees by foisting off fraud-ridden subprime debt on an unsuspecting world, which resulted in the ensuing credit crunch.

 

America will not escape unscathed. You can’t cheat the very people you rely upon to lend you money without a backlash.

 

Here is how American greed ripped off the rest of the world.

 

In 2000, America faced a recession. But rather than letting the economy rebalance, the Federal Reserve decided to slash interest rates to artificially stimulate the economy—even though it knew that doing so would probably create even bigger problems later.

 

Consequently, mortgage rates in America plummeted and, suddenly, millions more Americans could buy homes. House prices skyrocketed: tripling and quadrupling in many areas. The bubble fed on itself as prospective homeowners, often acting more like speculators, rushed to buy homes as quickly as possible to capitalize on further price appreciation.

 

As home values rose, fewer people could afford traditional loans. To keep their profits growing, banks and lenders began offering easy-to-get subprime mortgages—mortgages to borrowers normally considered too risky due to credit history, income status and other factors.

 

Oftentimes these loans were adjustable-rate, or had initial teaser rates that would ratchet up later. Often the loans were given without any applicant background checks at all. As long as a borrower could write his own name and yearly income (regardless of whether or not it was true), he could get a loan.

 

And everyone was happy. Record house prices fueled a building boom and jobs were created. Borrowers were glad because they got huge loans and could purchase homes that were rising in value. Real-estate agents were pleased because the bigger the house sold, the bigger their profit. Lenders and loan brokers were cheerful too because they each got their cut of the action.

 

But there was just one problem: The whole boom was based on artificially low interest rates. What would happen when interest rates rose, homes stopped appreciating and borrowers had more difficulty making payments?

 

American banks, understanding the risk involved in holding so many chancy (and possibly largely overvalued) subprime mortgages on their own books, decided to get rid of them. But who would want to buy all the risky mortgages? Certainly not Americans who were already maxed out on subprime debt. The answer was foreigners.

 

But here was the catch. To make the sales profitable, the risky mortgages had to be marketed as a “safe” investment.

 

So American banks sliced and bundled their subprime mortgages together into packages. Using complex computer models, and by geographically and otherwise diversifying the bundled mortgages, American banks convinced world-renowned and trusted American investment-rating agencies like Moody’s and Standard & Poor’s to give the mortgage securities higher valuations than regular subprimes would typically rate.

 

Later it became public knowledge that these same ratings agencies, which foreign investors were relying on for impartial advice, were being paid by the very banks and lenders that were bundling and selling the subprime mortgages—a huge conflict of interest that produced some terribly misleading data for foreign investors.

 

It has also emerged, at least in Moody’s case, that the agency knew for years that the mortgages securities they rated as safe were more than 10 times as risky as other similarly rated bonds (Daily Reckoning, September 3).

 

But at the time, even the banks were happy. They could merrily issue subprime mortgages (and still collect all their fees) because they were able to both quickly remove the mortgages from their books and get top dollar for them, thanks to the high ratings. And foreign investors (as well as domestic investors) confidently purchased these supposedly safe mortgage investments.

 

That is, until interest rates started to rise—and subprime borrowers began defaulting in droves.

 

As with all parties, the fun and games eventually end. Suddenly the world woke up to the fact that subprime mortgages were just that—subprime—regardless of what American ratings agencies and banks pretended. As the U.S. housing market slumped, suddenly nobody wanted any American mortgage securities anymore, let alone subprime ones.

 

Investors around the world tried to sell American mortgage securities, but by this time, the shoddy credit ratings had become public knowledge. American credit-rating agencies embarrassingly began to issue massive ratings downgrades, and foreign investors found that to even get any bidders on their American mortgage portfolios, they had to accept steeply marked-down prices.

 

Hedge funds and other investment vehicles began to seize up as people tried to pull their money out of any and all businesses associated with U.S. mortgages. Panic ensued.

 

As the credit crunch spread, it became evident that the “made in America” economic crisis was not contained. America’s trade partners would also take the hit for the moral breakdown in America, a breakdown that could have been avoided had greed not been such a big factor.

 

Banks and mortgage lenders across Europe and America began to fail.

 

German, French and British banks, as well as stock market investors around the world, got hit especially hard as the credit crunch and fears of new restrictive lending practices shook international bourses. Investors lost billions.

 

Things got so bad in Germany that the government had to step in to save two banks from failing. In France, bnp Paribas, one of the nation’s largest banks, had to suspend redemptions from three investment funds it managed.

 

In Britain, Northern Rock Plc., the nation’s fifth-largest lender, experienced an unprecedented bank run as customers lined up for hours to clamor for their money when it was revealed that it was having trouble accessing enough credit to continue normal operations. The Telegraph compared the scene to something out of Zimbabwe.

 

And the few big-name collapses experienced so far may be just the beginning.

 

You can be sure that billions in losses—all as a result of what amounts to a con—will not pass without a response. International backlash is growing.

 

“The entire world is growing in its disgust for having been defrauded,” says economic analyst Jim Willie. “French, British, German, Japanese and Chinese banks have been harmed from ingesting falsely labeled food items. What was sold as ‘AAA’ rated milk products was actually highly toxic acid ….”

 

For example, in a foreign-policy speech on August 27, French President Nicolas Sarkozy called for an enhanced global rule book to avoid financial crises—a rule book governing America. Sarkozy, who has vowed to “moralize financial capitalism,” said America’s crisis could recur if “the leaders of major countries” did not take “concerted action to foster transparency and regulation of international markets.”

 

Peter Bofinger, a member of the German government’s economic advisory board, agrees. “We need an international approach, and the United States needs to be part of it,” he said.

 

Dick Bryan, a professor of economics at the University of Sydney, says the world must respond as well. “[T]here is the need to challenge the sovereignty of national regulators—why should the rules of lending in the U.S. be left to U.S. regulators when the consequences go everywhere?” he said. In this globalized world, “a problem in one location is a problem everywhere.”

 

If and how long Washington can resist international pressure is unclear. So far the response from Washington is that it wants “no form of oversight.”

 

But a new global rule book may be the least of America’s worries.

 

While regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves.

 

What if foreigners stopped lending to the U.S.? Worse, what if they started dumping U.S. debt in the form of treasuries and bonds?

 

“America depends on the rest of the world to finance its debt,” Bofinger reminds us. If foreigners stopped buying America’s financial products, it would be a catastrophe.

 

Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. America has become so dependent on foreign money that if foreigners stop lending to America, the America you know today would not survive.

 

Even now, the foreign backlash is beginning to be felt. The U.S. dollar is dropping to lows never before experienced. In September, the dollar fell to the lowest it has ever been against the euro. Against the Canadian dollar it hit a 31-year low, making the two dollars almost equal in value.

 

So while U.S. officials continue to brag that all will work out just fine and that the credit crunch is contained, they are missing the bigger point: America cheated the very people it depends upon for loans. Now, foreigners are voting with their feet and are choosing to reduce investment in America. They are abandoning the dollar.

 

As Jim Willie warns, we “might be in the early stages of … a boycott of U.S.-dollar-based financial assets.”

 

But who can blame them?

 

Greed and corruption have been exposed for being endemic to so many levels within America’s economy. Who is to say that even U.S. government bonds more closely resemble subprime mortgages than their conventional reputation as a safe investment?

 

The world is approaching an end of an era. America’s moral collapse now lies exposed to all—a virtual death sentence to an economic system based on trust. Confidence lost, America’s reputation as a financial safe haven is being replaced with subprime status—and as foreigners have found out, subprime risks just aren’t worth it. •

[Jenksismyhero]

The author points out the common concerns, but to say it would lead to a huge recession or another great depression is pretty ludacrous.

 

I also like his anti-American style writing, as if it's Americas fault that we utilize global markets. Foreign banks that are about to get burned by the whole subprime lending fiasco have no one to blame but themselves. Many banks before have gone under for buying up trade debt without knowing much about it. That's essentially what happened the last 10 years, except that instead of one or two banks doing it, the entire world was doing it.

[NorthSideSox72]

I only got about a third of the way in, but already this author is off in space somewhere. He thinks there is no system to dictate the value of a dollar? Is he not familiar with FX markets? And yes of course confidence is key, but does any sane person think the US government is suddenly going to go under because it can't service its debt? We are all worried about the massive amounts of it, don't get me wrong, but its not as if it would make any sense for China or some other country to suddenly call all of the US debt they hold. That would hurt them as badly as us. And he thinks this wasn't about a housing bubble, or credit decisions made by banks and individuals in this country? Is he blind?

 

This dude needs needs a tinfoil hat. Kap, do you have a spare you can lend him?

 

[kapkomet]

I only got about a third of the way in, but already this author is off in space somewhere. He thinks there is no system to dictate the value of a dollar? Is he not familiar with FX markets? And yes of course confidence is key, but does any sane person think the US government is suddenly going to go under because it can't service its debt? We are all worried about the massive amounts of it, don't get me wrong, but its not as if it would make any sense for China or some other country to suddenly call all of the US debt they hold. That would hurt them as badly as us. And he thinks this wasn't about a housing bubble, or credit decisions made by banks and individuals in this country? Is he blind?

 

This dude needs needs a tinfoil hat. Kap, do you have a spare you can lend him?

 

Maybe.

 

I have a lot to do this morning. I'll chime in a while if I can... but there's some good points in here, but not so good points as well.

 

[southsider2k5]

Usually I'll go for some original material, but this seems apt here...

 

what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

 

Seriously, my cats puke up hairballs that understand macroeconomics and finance better than this guy.

[kapkomet]

Usually I'll go for some original material, but this seems apt here...

Seriously, my cats puke up hairballs that understand macroeconomics and finance better than this guy.

 

Yea, those hairballs were made by freshly grown cat food in the eco-green-capitalistic-moneymaking system that is the United States.

[southsider2k5]

 

Yea, those hairballs were made by freshly grown cat food in the eco-green-capitalistic-moneymaking system that is the United States.

 

In all seriousness, with all of the hypebole, cute cutdowns, and leaps of faith in there, this could have been written by Jay Mariotti himself.

[kapkomet]

There are good concerns in the article that were dressed up as hyperbole, that's for sure.

 

Some of the points behind the language are a concern of mine, but not to the point that we're going to be in a "great depression" or anything like that.

[Gregory Pratt]

Is anyone here familiar with The Trumpet?

[NorthSideSox72]

Is anyone here familiar with The Trumpet?

Nope. But if they publish articles like this, I now know to avoid it.

 

[southsider2k5]

Nope. But if they publish articles like this, I now know to avoid it.

 

Couldn't have said it better myself...

[Gregory Pratt]

Nope. But if they publish articles like this, I now know to avoid it.

 

Yeah, they're bad. I used to read them because it was like satire to me, but they got rid of them at the Orange Line. I'd forgotten them, too, until a friend posted this article. I told him it was bulls*** -- he said, "okay, the source sucks but the points are good, right?" I said, "I don't think so but I'm too busy to refute it myself and besides, I don't know the economics as well as I could." So I came to The Masters here.

 

(Really, I appreciate you guys. Keep it coming -- more dissection of this piece, moremore.)

[sox4lifeinPA]

 

greatest song ever

[Gregory Pratt]

 

greatest song ever

 

There you go again.

 

[sox4lifeinPA]

There you go again.

 

 

 

youtube + plus my random brain triggered by keywords = posting on soxtalk.

 

 

sorry.

[mr_genius]

Is anyone here familiar with The Trumpet?

 

oh wow, i haven't heard about 'The Trumpet' in years. i've read their articles before.

Edited October 5, 2007 by mr_genius

[Gregory Pratt]

oh wow, i haven't heard about 'The Trumpet' in years. i've read their articles before.

 

Do you enjoy the Trumpet/

[kapkomet]

This thread has turned silly.

 

[mr_genius]

Do you enjoy the Trumpet/

 

lol. they are wacko, but i like reading stuff like that. i also roll over to 'dailykos' now and then, mainly for the same reasons i would read 'The Trumpet'

Edited October 5, 2007 by mr_genius

[Gregory Pratt]

lol. they are wacko, but i like reading stuff like that. i also roll over to 'dailykos' now and then, mainly for the same reasons i would read 'The Trumpet'

 

I have no use for places like Kos and freerepublic. But I used to get a big kick out of the Trumpet's nonsense just because it was nice to step off the train and get a free magazine and read it and it was always, "Oh, the Germans are The Holy Roman Empire" (remember that? always, "Oh, it's the Holy Roman Empire II," every issue) and "ECONOMIC COLLAPSE IMMINENT!!!!!!!!"

 

Fun paper. Not so good for legitimate insight.

[mr_genius]

I have no use for places like Kos and freerepublic. But I used to get a big kick out of the Trumpet's nonsense just because it was nice to step off the train and get a free magazine and read it and it was always, "Oh, the Germans are The Holy Roman Empire" (remember that? always, "Oh, it's the Holy Roman Empire II," every issue) and "ECONOMIC COLLAPSE IMMINENT!!!!!!!!"

 

Fun paper. Not so good for legitimate insight.

 

every issue seemed to have at least one article about how evil Germany is and how they are planning their grand comeback to destroy everyone

[Gregory Pratt]

every issue seemed to have at least one article about how evil Germany is and how they are planning their grand comeback to destroy everyone

 

it's a kooky, anti-Catholic, anti-Germany, anti-American rag. and every issue had like twenty plugs for the owner's "pamphlets" that "explain more."