Tuesday, March 22, 2011
Britons are suffering their biggest drop in living standards for 30 years, according to a new report by the Institute for Fiscal Studies (IFS).
The average household's "real" income – what is coming in after inflation is taken into account – will have fallen by 1.6pc over the three years to the end of 2011, the influential think-tank said ahead of Wednesday's Budget.
In contrast, over the previous half a century, real incomes rose an average 1.6pc a year, or 5pc every three-year period.
The study flags up the fragility of the UK's economy as it struggles out of the deepest recession since the 1930s.
The current decline marks the first drop in the average household's income over any three year period since the early 1990s, and represents the most dramatic fall seen since the start of the 1980s, the report said.
The squeeze signals a loss for the average household of £360 a year, said the IFS, a hit totalling £1,080 over the three-year period.
The IFS said the drivers of the fall in living standards were lower employment and people receiving less interest from their savings, as well as tax and benefit changes and stagnating real earnings – pay after the eroding effects of inflation are taken into account......read on
Of course if Britons had kept their savings in physical gold instead of fiat Pounds then their savings would have appreciated at 60%pa, averaged over the last 5 years ~ TOTM:
Days of inflationary rage come to the US:
Police say a San Antonio Taco Bell customer enraged that the seven burritos he ordered had gone up in price fired an air gun at an employee and later fired an assault rifle at officers before barricading himself into a hotel room. (did they refer to it as a Mexican Standoff? - TOTM)
San Antonio police Sgt. Chris Benavides says officers used tear gas Sunday night to force the man from the hotel room after a three-hour standoff. The man is charged with three counts of attempted capital murder. Authorities have not released his name.
Brian Tillerson, a manager at the Taco Bell/KFC restaurant, told the San Antonio Express-News that the man was angry the Beefy Crunch Burrito had gone from 99 cents to $1.49 each.
Police say the man fired on officers during a traffic stop after the restaurant incident.
This is the first example of a domestic shooting incident following the surge in food prices courtesy of just QE Lite and QE 2. Just like in Tunisia, following the self-immolation of a fruit vendor, it will not be the last. And when we finally get QE3, then all bets will be off.
2011 has already been the most memorable year in ages and we haven't even reached April yet. Revolutions have swept the Middle East, an unprecedented earthquake and tsunami have hit Japan, civil war has erupted in Libya, the price of oil has been soaring and the entire globe is teetering on the brink of economic collapse. It seems like almost everything that can be shaken is being shaken. Unfortunately, it does not appear that things are going to settle down any time soon. The Japanese economy has been dealt a critical blow, the European sovereign debt crisis could flare up again at any moment and the U.S. economy could potentially plunge into another recession by the end of the year. The global economy and world financial markets were really struggling to recover even when things were relatively stable. If all of this global instability gets even worse it could literally rip world financial markets apart.
Yes, things really are that bad. The mainstream media has been really busy downplaying the economic impact of the disaster in Japan and the chaos in the Middle East, but the truth is that these events have huge implications for the global economy. Today our world is more interconnected than ever, so economic pain in one area of the planet is going to have a significant effect on other areas of the globe.
The following are 10 economic disasters which could potentially rip world financial markets to shreds....
#1 War In Libya
Do you think that the "international community" would be intervening in Libya if they did not have a lot of oil? If you actually believe that, you might want to review the last few decades of African history. Millions upon millions of Africans have been slaughtered by incredibly repressive regimes and the "international community" did next to nothing about it.
But Libya is different.
Libya is the largest producer of oil in Africa.
Apparently the revolution in Libya was not going the way it was supposed to, so the U.S. and Europe are stepping in.
Moammar Gadhafi is vowing that this will be a "long war", but the truth is that his forces don't stand a chance against NATO.
Initially we were told that NATO would just be setting up a "no fly zone", but there have already been reports of Libyan tank columns being assaulted and there has even been an air strike on Moammar Gadhafi's personal compound in Tripoli.
So since when did a "no fly zone" include an attempt to kill a foreign head of state?
Let there be no mistake - the moment that the first Tomahawk cruise missiles were launched the United States declared war on Libya.
Already the Arab League, India, China and Russia have all objected to how this operation is being carried out and they are alarmed about the reports of civilian casualties.
Tensions around the globe are rising once again, and that is not a good thing for the world economy.
On a side note, does anyone recall anyone in the Obama administration even stopping for a moment to consider whether or not they should consult the U.S. Congress before starting another war?
The U.S. Constitution specifically requires the approval of the Congress before we go to war.
But very few people seem to care too much about what the U.S. Constitution says these days.
In any event, the flow of oil out of Libya is likely to be reduced for an extended period of time now, and that is not going to be good for a deeply struggling global economy.
#2 Revolutions In The Middle East
Protests just seem to keep spreading to more countries in the Middle East. On Friday, five Syrian protesters were killed by government forces in the city of Daraa. Subsequently, over the weekend thousands of protesters reportedly stormed government buildings in that city and set them on fire.
Things in the region just seem to get wilder and wilder.
Even in countries where the revolutions are supposed to be "over" there is still a lot of chaos.
Have you seen what has been going on in Egypt lately?
The truth is that all of North Africa and nearly the entire Middle East is aflame with revolutionary fervor.
About the only place where revolution has not broken out is in Saudi Arabia. Of course it probably helps that the United States and Europe don't really want a revolution in Saudi Arabia and the Saudis have a brutally effective secret police force.
In any event, as long as the chaos in the Middle East continues the price of oil is likely to remain very high, and that is not good news for the world economy.
#3 The Japanese Earthquake And Tsunami
Japan is the third largest economy in the world. When a major disaster happens in that nation it has global implications.
The tsunami that just hit Japan was absolutely unprecedented. Vast stretches of Japan have been more thoroughly destroyed than if they had been bombed by a foreign military power. It really was a nation changing event.
The Japanese economy is going to be crippled for an extended period of time. But it is not just Japan's economy that has been deeply affected by this tragedy.
According to the Wall Street Journal, the recent disaster in Japan has caused supply chain disruptions all over the globe....
A shortage of Japanese-built electronic parts will force GM to close a plant in Zaragoza, Spain, on Monday and cancel shifts at a factory in Eisenach, Germany, on Monday and Tuesday, the company said Friday.
Not only that, GM has also suspended all "nonessential" spending globally as it evaluates the impact of this crisis.
The truth is that there are a whole host of industries that rely on parts from Japan. Supply chains all over the world are going to have to be changed as a result of this crisis. There are going to be some shortages of certain classes of products.
Japan is a nation that imports and exports tremendous quantities of goods. At least for a while both imports and exports will be significantly down, and that is not good news for a world economy that was already having a really hard time recovering from the recent economic downturn.
#4 The Japan Nuclear Crisis
Even if the worst case scenario does not play out, the reality is that the crisis at the Fukushima Dai-ichi nuclear plant is going to have a long lasting impact on the global economy.
Already, nuclear power projects all over the world are being rethought. The nuclear power industry was really starting to gain some momentum in many areas of the globe, but now that has totally changed.
But of much greater concern is the potential effect that all of this radiation will have on the Japanese people. Radiation from the disaster at the Fukushima Dai-ichi nuclear plant is now showing up in food and tap water in Japan as an article on the website of USA Today recently described....
The government halted shipments of spinach from one area and raw milk from another near the nuclear plant after tests found iodine exceeded safety limits. But the contamination spread to spinach in three other prefectures and to more vegetables - canola and chrysanthemum greens. Tokyo's tap water, where iodine turned up Friday, now has cesium.
Hopefully the authorities in Japan will be able to get this situation under control before Tokyo is affected too much. The truth is that Tokyo is one of the most economically important cities on the planet.
But right now there is a lot of uncertainty surrounding Tokyo. For example, one very large German real estate fund says that their holdings in Tokyo are now "impossible to value" and they have suspended all customer withdrawals from the fund.
Once again, let us hope that a worst case scenario does not happen. But if we do get to the point where most of the population had to be evacuated from Tokyo for an extended period of time it would be absolutely devastating for the global economy.
#5 The Price Of Oil
Most people believe that the U.S. dollar is the currency of the world, but really it is oil. Without oil, the global economy that we have constructed simply could not function.
That is why it was so alarming when the price of oil went above $100 a barrel earlier this year for the first time since 2008. Virtually everyone agrees that if the price of oil stays high for an extended period of time it will have a highly negative impact on the world economy.
In particular, the U.S. economy is highly, highly dependent on cheap oil. This country is really spread out and we transport goods and services over vast distances. That is why the following facts are so alarming....
*The average price of a gallon of gasoline in the United States is now 75 cents higher than it was a year ago.
*In San Francisco, California, the average price of a gallon of gasoline is now $3.97.
*According to the Oil Price Information Service, U.S. drivers spent an average of $347 on gasoline during the month of February, which was 30 percent more than a year earlier.
*According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.
#6 Food Inflation
Many people believe that the rapidly rising price of food has been a major factor in sparking the revolutions that we have seen in Africa and the Middle East. When people cannot feed themselves or their families they tend to lose it.
According to the United Nations, the global price of food hit a new all-time high earlier this year, and the UN is expecting the price of food to continue to go up throughout the rest of this year. Food supplies were already tight around the globe and this is certainly not going to help things.
The price of food has also been going up rapidly inside the United States. Last month the price of food in the United States rose at the fastest rate in 36 years.
American families are really starting to feel their budgets stretched. According to the U.S. Labor Department, the cost of living in the United States hit a brand new all-time record high in the month of February.
What this means is that U.S. families are going to have less discretionary income to spend at the stores and that is bad news for the world economy.
#7 The European Sovereign Debt Crisis
Several European governments have had their debt downgraded in the past several months. Portugal, Spain, Greece and Ireland are all in big time trouble. Several other European nations are not far behind them.
Right now Germany seems content to bail the "weak sisters" in Europe out, but if that changes at some point it is going to be an absolute nightmare for world financial markets.
#8 The Dying U.S. Dollar
Right now there is a lot of anxiety about the U.S. dollar. Prior to the tsunami, Japan was one of the primary purchasers of U.S. government debt. In fact, Japan was the second-largest foreign buyer of U.S. Treasuries last year.
But now as Japan rebuilds from this nightmare it is not going to have capital to invest overseas. Someone else is going to have to step in and buy up all of the debt that the Japanese were buying.
Not only that, but big bond funds such as PIMCO have announced that they are stepping away from U.S. Treasuries at least for now.
So if Japan is not buying U.S. Treasuries and bond funds such as PIMCO are not buying U.S. Treasuries, then who is going to be buying them?
The U.S. government needs to borrow trillions of dollars this year alone to roll over existing debt and to finance new debt. All of that borrowing has got to come from somewhere.
#9 A New Oil Spill In The Gulf Of Mexico?
As if everything above was not enough, there are reports of a possible major new oil spill in the Gulf of Mexico. The U.S. Coast Guard is on the scene and is investigating. The following is what a new report in the Wall Street Journal says about it....
The Coast Guard said in a news release that it received a report of a three-mile-long rainbow sheen off the Louisiana coast just before 9:30 a.m. local time on Saturday. Two subsequent sightings were relayed to the Coast Guard, the last of which reported a sheen that extended from about 6 miles south of Grand Isle, La. to 100 miles offshore.
#10 The Derivatives Bubble
Most Americans do not even understand what derivatives are, but the truth is that they are one of the biggest threats to our financial system. Some experts estimate that the worldwide derivatives bubble is somewhere in the neighborhood of a quadrillion dollars. This bubble could burst at any time. Right now we are watching the greatest financial casino in the history of the globe spin around and around and around and everyone is hoping that at some point it doesn't stop. Today, most money on Wall Street is not made by investing in good business ideas. Rather, most money on Wall Street is now made by making shrewd bets. Unfortunately, at some point the casino is going to come crashing down and the game will be over.
Most people simply do not realize how fragile the global economy is at this point.
The financial crash of 2008 was a devastating blow. The next wave of the economic crisis could be even worse.
So what will the rest of 2011 bring?
Well, nobody knows for sure, but a lot of experts are not optimistic.
David Rosenberg, the chief economist at Gluskin Sheff and Associates, is warning that the second half of the year could be very rough for the global economy....
"A sharp slowing in global GDP in the second half of the year cannot be ruled out."
Let us hope that the world economy can hold together and that we can get through the rest of 2011 okay. The last thing we need is a repeat of 2008. The world could use some peace and some time to recover.
But unfortunately, we live in a world that is becoming increasingly unstable. With the way that the world has been lately, perhaps we should all just start to expect the unexpected.
But world financial markets do not respond well to instability and unpredictability. In fact, investors tend to start fleeing to safety at the first signs of danger these days.
Most Americans simply have no idea how vulnerable the world financial system is at this point. Nothing really got "fixed" after 2008. If anything, global financial markets are even more fragile than they were back then.
Central banks and sovereign wealth funds with massive exposure to the dollar, such as the Russians and Chinese, are not going to shout from the roof tops their intentions to diversify into gold and silver bullion as this would lead to a surge in bullion prices and an even greater depreciation of their dollar holdings.
China imported 245.6 metric tons of silver in February. The figure is close to the 260.6 metric tons imported in February 2010 and suggests that the Chinese are more than willing to buy silver at over $30 per ounce. It also suggests that the record Chinese imports of 3,475,394 kilos seen in 2010 (a massive four fold increase from 2009) may be again attained in 2011.
This demand is likely from the private sector rather than official but it is quite possible that there has been official buying in recent months. This may have come from the Chinese State Administration of Foreign Exchange (SAFE) which manages nearly $3 trillion of currency reserves. The Chinese has experienced the collapse of a paper currency and hyperinflation as recently as 1949 and therefore appreciate the value of gold (and silver) as currencies which cannot be debased.
Japan is facing two meltdowns in the wake of its devastating earthquake. The first, and more critical, is the meltdown at the Fukushima I Nuclear Plant, 150 miles north of Tokyo. Surely, this is the greater near-term threat. But long-term, another threat looms, having to do with the Japanese government's response to the former.
As the fourth largest economy in the world, behind the EU, US, and China, any major setback in Japan likely will have widespread repercussions. Japan is also the third largest holder of US Treasuries, behind the United States and China. While it is too early even to assess the Japanese damage accurately - let alone to forecast the full implications - it is possible to see the potential for a meltdown of the US Treasury market and international monetary system.
Current estimates hold that the Japanese disaster has already lowered world economic growth by a full percentage point for the year.
Leaving aside massive international aid, a complete nuclear meltdown, or other escalations, Japan already will have to spend a massive amount of money to cope with the current disaster. This raises the question: from where will such an enormous amount of money come?
Japan could borrow. However, with a debt-to-GDP ratio of some 200 percent, or twice as bad as that of the United States, and with the main credit rating agencies exercising more scrutiny than before the Credit Crunch, raising funds will be difficult at an economic rate of interest. Moreover, Japan will likely be spending a large chunk of its foreign exchange reserves to buy oil to replace its lost nuclear power generating capacity - diminishing its collateral in the eyes of creditors.
Japan could follow the US example and "paper over" its problems. But without the benefits of being the international reserve currency, the Japanese would immediately feel the effects of domestic inflation. The Bank of Japan has already pumped out ¥8 trillion ($98 billion) in the wake of the earthquake, but it is unlikely to try to match the Fed's $600 billion printing spree this quarter.
So, if Japan is limited in its ability to borrow or print money, it may have to sell part of its vast holdings of US Treasuries.
At the end of last month, the US Treasury had outstanding debt worth some $14.19 trillion. This represents 96.8 percent of the total $14.66 trillion value of business generated within the United States for the entire year of 2010. It is just short of the $14.294 trillion debt limit set in 2010 by a profligate Democrat Congress. To put it in perspective, the US government now owes $91,400 for every working American. However, this represents only some 22 percent of Washington's $62 trillion of unfunded obligations, which include Social Security, Medicare, housing, and other guarantees.
Japan is the third largest holder of US Treasuries ($877 billion), behind China ($896 billion) and the Fed ($1.108 trillion). Should Japan start selling Treasuries in large amounts to fund the repair of its economy, it could have a serious effect on US interest rates and the market value of Treasuries the world over. US bonds are widely held by central banks, international banks, and insurance companies, which already are concerned about their funding of loss claims arising from the damage in Japan.
Thus, a Japanese selloff could trigger a liquidity crisis like the one following the collapse of Lehman Bros. and AIG. Large institutions may not be willing or able to bear with US bonds through a steep correction.
Western economies are on thin ice as it is, even without a shock in their presumed "safe" asset.
Stock markets in the EU and US are weakening, destroying large amounts of private wealth and potential consumer confidence.
Further, the EU is facing the reality that the financial rescue programs it organized to save some of its members are not working. China and Japan offered to help. Now Japan may not be able to fulfill its promises. This could reignite further speculative downward pressure on the euro.
It seems that while we are all concerned about the effects of nuclear meltdown on the residents of Japan, we should also be aware that the fallout could spread further in the financial markets than it does in the atmosphere. Just as Californians are stocking up on iodide pills as a precautionary measure, investors should be stocking up on hard assets. After health, it's vital to guard your wealth - especially in emergency times like these.
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John Browne, Senior Market Strategist
Euro Pacific Capital, Inc.
John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc. Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with." A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.In addition to careers in British politics and the military, John has a significant background, spanning some 37 years, in finance and business. After graduating from the Harvard Business School, John joined the New York firm of Morgan Stanley & Co as an investment banker. He has also worked with such firms as Barclays Bank and Citigroup. During his career he has served on the boards of numerous banks and international corporations, with a special interest in venture capital. He is a frequent guest on CNBC's Kudlow & Co. and the former editor of NewsMax Media's Financial Intelligence Report and Moneynews.com. He holds FINRA series 7 & 63 licenses. Copyright © 2008-2011 Euro Pacific Capital, Inc.
From: RussiaToday | Mar 20, 2011
WikiLeaks the dream of an idealist, or a tool to manipulate global politics? Who is the real Julian Assange? He says his dream is a world without secrets. But is that true?
By STEVEN Oberbeck
The Salt Lake Tribune
Sherm Lott keeps a small bag of silver coins hidden away in his Salt Lake City home.
For Lott, who inherited the pre-1965 dimes, quarters and half-dollars from his father, the money represents an insurance policy against the tough economic times and inflation he believes lie just ahead.
“I’m worried about inflation and that the government is broke. I’m worried the dollar is going to lose all its value,” Lott said. “If that happens, we’re all going to be in for some tough times. Having a little silver or gold on hand won’t hurt.”
Utah is in the midst of a gold-and-silver rush of sorts, a scramble ignited by soaring precious metal prices as well as fear the Federal Reserves’ policy of low interest rates and aggressive money supply growth will trigger inflation that in turn will doom the dollar and wipe out savings.
“People are being inspired to sell by the higher prices but at the same time, there is this underlying fear of inflation that speaks of a lack of faith in the Fed,” said Chris Wright, a vice president at Cascade Refining, a West Valley City company that buys and refines scrap gold and silver. “That fear also is helping keep the prices up.”
Such concern led Rep. Brad Galvez, R-West Haven, to successfully sponsor HB317 in the Legislature. The bill, which awaits Gov. Gary Herbert’s signature, would require the state to recognize gold and silver coins issued by the federal government as legal tender.
“This is a step in preparedness,” Galvez said. “It underscores the concern many Utahns have about what is happening to the value of their money. And it will allow us to help protect our economy as the dollar continues to shrink in value.”
Gold and silver (known as the “poor man’s gold” because it is much cheaper) are viewed by many as offering a store of value in uncertain economic times. Such “hard money advocates” believe because gold and silver supplies increase slowly, using such coins or linking paper money to a fixed amount of either precious metal will ensure its continued value and control inflation.
Fifty years ago someone could buy a loaf of bread with a silver dime, argued Larry Hilton, a Highland lawyer who helped draft the Galvez bill. “Today you could still buy a loaf of bread with a single silver dime.”....read on