Two years ago, Citigroup was America's largest bank. Last week, the government moved to guarantee close to $300 billion in troubled assets. But Citigroup is not the only crisis that must be dealt with - there are the three huge automakers: GM, Chrysler and Ford who are also at the Fed's begging bowl.
This is only the beginning. Factor in the terrorist attacks going on right now in Mumbai, demonstrations throughout Thailand, fighting in Afghanistan, earthquakes, floods and all kinds of natural distasters and you can see that the world faces extremely uncertain and worrying times. 2009 will be one of titanic shocks and changes to the world order culminating possibly in the demise of the US dollar.
What could this mean for the everyday person?
I think that you should seriously consider the possibility of a shutdown of the global banking system. I hope this will not happen, but it is best to be aware that it is a distinct possibility.
Let's examine my reasons for this statement:
- despite the US government's massive Citigroup bailout, it is going to be very difficult for the global banking system to survive the shock to confidence for very long
- even if insured depositors do not withdraw their funds from the banks, uninsured institutional investors are likely to run with their money thus threatening to bring the system down
- even if you have your money in a "safe bank" with full FDIC coverage (in the US), or a government guarantee in many other countries, you could still be adversely affected.
Indeed, if everyone decided to pull out their monies at once, how could the governments avoid going bankrupt - or at the very least, how will we escape hyperinflation?
Why is a banking meltdown possible?
Here is a statement made by the Managing Director of the IMF (International Monetary Fund) on October 11th 2008:
"Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown."
You cannot get much clearer than that for a severe warning of how serious this crisis really is.
At some point, governments around the world may have no other choice but to declare a global banking holiday - a shutdown of nearly every bank int he world, regardless of size, country, or financial condition.
What could happen in the banking holiday? In the past, there have been some financial shutdowns that eventually helped resolve the crisis. And there have been others that have made matters much worse. Often, savers are forced to leave their money on deposit, giving up a substantial portion of their interest income for many years. In other cases, the only way they can get their money back sooner is by accepting an immediate loss of principal. But no matter how it is resolved, when banks have made huge mistakes and suffered large losses, it's the multitude of savers that ultimately pay the biggest price. No one else has the money.
Many people are probably thinking:
"If the deposits are insured - why would anyone want to withdraw them?"
The reason is that most bank runs are not caused by the insured depositors - people on the street who invest their hard-earned savings into banks and financial institutions.
No, instead they are caused by the exodus of the large, uninsured institutions who are usually the first to run for cover at the earliest hint of trouble.
During the banking failures in the 1980's and 1990's, the story was similar: we rarely saw a run on the bank by individuals, rather it was the uninsured institutional investors - the banks, pension funds and ohters - that jumped ship long before most people even realised the ship was sinking.
I am telling you here and now, the ship is sinking!!!
All you savers out there, wake up and listen - because a banking holiday would hurt you the most. The first hardship is that you could be denied access to most or all of your money for an indefinite period.
What about the government agency guarantees you might ask?
Well, a large proportion of those guarantees, unfortunately would have to be suspended in order to give banking regulators the time they need to sort out the mess.
It is simply not reasonable to expect that governments will have the resources to immediately meet the demands of thousands of institutionsa nd millions of individuals if they all want their money back at roughly the same time.
They are likely to tell you that your money is still safely guaranteed, but you cannot have it right now.
Imagine how frustrating that would be! So I urge you to take at least six months living money out of the bank or financial institution and have it somewhere on hand. All banks are frightening right now and none of them can be trusted - so at least cover yourself by having six months cash on hand.
The other possibility is that by the time you do regain access to your money, you will suffer losses. The governments may offer you a couple of options. For example:
If you opt into their programme by leaving your funds on deposit at your bank for an extended period of time, earning below-market interest rates. The bank is then allowed to use the extra interest that you are forfeiting to recoup its losses over time - that is income that should have been yours.
You may be given an option to opt out of the government's programme and allowed to withdraw your funds immediately. However, you might have to accept a loss that approximately correponds to the actual losses in the bank's investment and loan portfolio.
Neither opting in nor opting out will be a good option for you.
You either suffer a loss of income or a loss of principal.
To avoid many of these risks, I recommend seriously considering the following:
1. Get some cash on hand
2. Buy some gold and silver one ounce coins
3. Buy some short-term US treasury securities (or treasury securities from your own country)
The reason I suggest treasury bonds is that even in the worst-case banking scenario, the Treasury will do whatever is necessary for you to get your money.
Watch this space for more recommendations as the crisis unfolds.
This blog is about economic trends, market updates, news and forecasts. Up to date information about finance and business.
Friday, November 28, 2008
Monday, November 17, 2008
Solutions to the Crisis
So far, there seems to be little news about the G20 meeting in Washington this weekend. However, it's increasingly evident that governments cannot keep on pumping money into the system with little or no effect. There are always consequences to all actions.
We need to be thinking about new solutions. Once you have protected yourself best you can, then it's time to join in with the global movement for change. This is a time for participation from the masses and for us to start to take control of our lives. In my view, we need to move toward sustainability and community and then design a money system that takes us in that direction.
Let's look at this seriously. Information technologies increasingly allow us to attain very good economic growth without increases in employment. It is quite likely that jobs are not going to be there any more for the majority of the population. What does this mean???
This is potentially very exciting. No longer will you have to stick it out at a job that you do not enjoy, but there is the opportunity for you to be working and exchanging skills that you enjoy doing for services that you need. I would like to make a distinction between jobs and work. A job is what you do for a living. Work is what you do because you enjoy doing it. I expect that jobs will become increasingly obsolete, but there will still be an almost infinite amount of fascinating work to be done.
The way of the future could well be in creating local currencies. How would they work?
For example, in Italy you find people offering piano lessons and requesting lessons in French. Neither would pay in Euros. What's great about local currency is that when people create their own money, they do not build in a scarcity factor. They do not need to get the currency from somewhere else in order to have a means of making an exchange with a neighbour.
With all the redundancies and job losses happening round the world - today Citigroup announced it was cutting another 26,000 jobs, making the total loss so far a massive 75,000. We have to start to find other ways to create what we need. For example, there are lots of people who enjoy gardening, but who cannot make a living from it in the competitive world. If a gardener is unemployed, and I am unemployed, in the normal economy we might both starve. However, with complementary currencies, he could grow my vegetables, which I pay for in local currency earned by providing piano lessons to someone else. By using a local currency you create greater local sustainability.
One of the biggest issues that humanity is facing today is sustainability and the inequalities and breakdown in community. In many towns and cities, people do not even know their close neighbours. These issues can be addressed by creating currency systems that will enhance our communities and our sustainability.
Exciting times ahead!
We need to be thinking about new solutions. Once you have protected yourself best you can, then it's time to join in with the global movement for change. This is a time for participation from the masses and for us to start to take control of our lives. In my view, we need to move toward sustainability and community and then design a money system that takes us in that direction.
Let's look at this seriously. Information technologies increasingly allow us to attain very good economic growth without increases in employment. It is quite likely that jobs are not going to be there any more for the majority of the population. What does this mean???
This is potentially very exciting. No longer will you have to stick it out at a job that you do not enjoy, but there is the opportunity for you to be working and exchanging skills that you enjoy doing for services that you need. I would like to make a distinction between jobs and work. A job is what you do for a living. Work is what you do because you enjoy doing it. I expect that jobs will become increasingly obsolete, but there will still be an almost infinite amount of fascinating work to be done.
The way of the future could well be in creating local currencies. How would they work?
For example, in Italy you find people offering piano lessons and requesting lessons in French. Neither would pay in Euros. What's great about local currency is that when people create their own money, they do not build in a scarcity factor. They do not need to get the currency from somewhere else in order to have a means of making an exchange with a neighbour.
With all the redundancies and job losses happening round the world - today Citigroup announced it was cutting another 26,000 jobs, making the total loss so far a massive 75,000. We have to start to find other ways to create what we need. For example, there are lots of people who enjoy gardening, but who cannot make a living from it in the competitive world. If a gardener is unemployed, and I am unemployed, in the normal economy we might both starve. However, with complementary currencies, he could grow my vegetables, which I pay for in local currency earned by providing piano lessons to someone else. By using a local currency you create greater local sustainability.
One of the biggest issues that humanity is facing today is sustainability and the inequalities and breakdown in community. In many towns and cities, people do not even know their close neighbours. These issues can be addressed by creating currency systems that will enhance our communities and our sustainability.
Exciting times ahead!
Saturday, November 8, 2008
The Good News
The Spirit of Christmas
Whilst its true that the global economic crisis will affect us all in one way or another, there is another aspect to this situation that has a really positive side.
Yes, we are going to have to pull in our belts, cut back on excessive, unnecessary spending, stop taking out debts that we might not be able to repay and generally find ways to make the best use of the resources we already have.
However, where we can still improve is in the reaching out to others within our community on a regular basis. The spirit of Christmas is all about giving - about generosity of spirit. This is the time of year when people around the world do give of their time and energy to help out at the homeless shelter, play music in the rest homes to bring Christmas cheer and in countless different ways consciously attempt to bring light and love into those who most need it.
We are facing a serious economic crisis and as Napoleon Hill said: “In every crisis are the seeds of opportunity.” We now have many opportunities in which to change our world and it starts on our own doorstep. With the energy crisis, we will be forced to work together more, to create sustainable communities where our food is locally grown and not shipped in from hundreds, even thousands of miles away. This can be such a wonderful blessing, to quote Charles Dickens: this period could well be “the best of times and the worst of times.” Many are focused only on the “worst of times” and whilst it is important to be aware of what is happening and of the likely consequences and to take out adequate protection for you and your family, it is vital to see that we are coming into a whole new age.
This Christmas could be the start of something really magical - where we think about the world that we wish to create. Where we are not only doing charitable works over the Christmas period, but where we are literally creating a whole new caring, hospitable and hopeful world for ourselves and our children.
It is a time to celebrate and also to think about the world that we can now create together.
Think of a world where our old people are given free food and utilities, a world where we take care of the earth not by fighting nature with chemicals, but working with it. A world where there is more friendship and more love. We have only one world and it is for all of us. You don’t actually need that much to be happy. Think this Christmas of sharing, cooperation, solidarity and working together for a better world.
Don’t miss Barbara’s latest book coming out in a couple of weeks’ time: “Handbook for Surviving the Global Financial Crisis.” To order your copy or for further information contact:
www.financemoneybusiness.com
bg@financemoneybusiness.com
Whilst its true that the global economic crisis will affect us all in one way or another, there is another aspect to this situation that has a really positive side.
Yes, we are going to have to pull in our belts, cut back on excessive, unnecessary spending, stop taking out debts that we might not be able to repay and generally find ways to make the best use of the resources we already have.
However, where we can still improve is in the reaching out to others within our community on a regular basis. The spirit of Christmas is all about giving - about generosity of spirit. This is the time of year when people around the world do give of their time and energy to help out at the homeless shelter, play music in the rest homes to bring Christmas cheer and in countless different ways consciously attempt to bring light and love into those who most need it.
We are facing a serious economic crisis and as Napoleon Hill said: “In every crisis are the seeds of opportunity.” We now have many opportunities in which to change our world and it starts on our own doorstep. With the energy crisis, we will be forced to work together more, to create sustainable communities where our food is locally grown and not shipped in from hundreds, even thousands of miles away. This can be such a wonderful blessing, to quote Charles Dickens: this period could well be “the best of times and the worst of times.” Many are focused only on the “worst of times” and whilst it is important to be aware of what is happening and of the likely consequences and to take out adequate protection for you and your family, it is vital to see that we are coming into a whole new age.
This Christmas could be the start of something really magical - where we think about the world that we wish to create. Where we are not only doing charitable works over the Christmas period, but where we are literally creating a whole new caring, hospitable and hopeful world for ourselves and our children.
It is a time to celebrate and also to think about the world that we can now create together.
Think of a world where our old people are given free food and utilities, a world where we take care of the earth not by fighting nature with chemicals, but working with it. A world where there is more friendship and more love. We have only one world and it is for all of us. You don’t actually need that much to be happy. Think this Christmas of sharing, cooperation, solidarity and working together for a better world.
Don’t miss Barbara’s latest book coming out in a couple of weeks’ time: “Handbook for Surviving the Global Financial Crisis.” To order your copy or for further information contact:
www.financemoneybusiness.com
bg@financemoneybusiness.com