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Financial Collapse Digest 10/5/10 October 5, 2010

Posted by scmla in Article.

NOTE: SCMLA doesn’t normally cover financial issues … unless it looks like it’s going to be used as a prelude to martial law! Below are excerpts from a few articles we think you should take a look at.

— Kim M.

Bernanke Tells the Truth: The United States is on the Brink of Financial Disaster
October 5, 2010

Yesterday, Federal Reserve Chairman Ben Bernanke delivered a speech before the the Annual Meeting of the Rhode Island Public Expenditure Council in Providence, Rhode Island. In the speech, he warned about the current state of the government finances. His conclusion, the situation is dire and “unsustainable”.

It is remarkable that mainstream media has given this speech no coverage. I repeat, the central banker of the United States says in his own words:

Let me return to the issue of longer-term fiscal sustainability. As I have discussed, projections by the CBO and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, “If something cannot go on forever, it will stop.”9 One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.

This is as close as you are ever going to see a central banker admit that his country’s financial situation is so dire that it could breakup at any time ….

Gold hits record above $1,340 as dollar slides
Frank Tang, Jan Harvey
October 5, 2010

NEW YORK/LONDON (Reuters) – Gold jumped nearly 2 percent on Tuesday, its biggest one-day rise since May, resuming its march to record highs as the dollar tumbled and currency market volatility ignited safe-haven buying.

Silver surged 3 percent to a 30-year high and platinum group metals also rallied with the entire commodities complex, after the Bank of Japan said it would to pump more funds into the country’s struggling economy and keep interest rates virtually at zero.

Moves by countries around the world toward easier money indicate “not only the amount of liquidity that has been put into the system will remain, but there is a high likelihood of significant level of liquidity being added into the system,” said Frank McGhee, head precious metals trader at Integrated Brokerage Services.

McGhee said expected monetary easing in the United States will result in major devaluation on the dollar, which benefits gold ….

Call for new global currencies deal
Alan Beattie, Tom Braithwaite
Financial Times
October 5, 2010

The world’s leading countries should agree a new currency pact to help rebalance the global economy, a leading association of financial institutions has urged.

The Institute of International Finance, which represents more than 420 of the world’s leading banks and finance houses, warned on Monday that a lack of such co-ordinated rebalancing could lead to more protectionism. Charles Dallara, IIF managing director, said: “A core group of the world’s leading economies need to come together and hammer out an understanding.”

Last week, Guido Mantega, Brazil’s finance minister, warned of the dangers of a “currency war” as countries unilaterally intervened to prevent the appreciation of their currencies. The US has been pressing China to allow its exchange rate to rise faster, while several countries including Japan, South Korea, Brazil and Switzerland, have been intervening to hold their currencies down.

Mr Dallara, who as a US official worked on the 1985 Plaza Accord which co-ordinated international action to strengthen the yen against the dollar, called for a more sophisticated updated version of such an agreement. This should include stronger commitments to medium-term fiscal stringency in the US and structural reform in Europe. “Exchange rate understandings are of little use on their own,” he said ….


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