Last week saw the US FED cutting interest rates by an additional quarter point to stave off further financial calamity. It also saw the “creation” of an additional $64 BILLION in magical fiat “paper” liquidity. These will not remedy anything, because the inherent crisis/problem is NOT about liquidity, it is about solvency. If you are solvent, you have the wherewithal to pay your bills and service your debts. More liquidity encourages assuming more debt, not paying down already existing obligations!
It recent years, we have seen the development/evolution of a new type of financial juggernaut – the Sovereign (Trust) Funds. As the debt-financed consumptive addiction shifts the concentrations of wealth from West to East (and the Middle East), twenty-eight nation states have set up investment funds to channel their new wealth into global investments for the future benefit of their native citizenry. The amounts behind these funds now number $3 TRILLION. These are projected to grow to $10 TRILLION by 2012. The 30-year-old Abu Dhabi Investment Authority is the largest—sitting on $1.3 trillion. This equates to $1.5 MILLION of assets for each and every one of its citizens. In the alternative... consider the United States where a national debt approaching $10 TRILLION equates to over $30,000 of debt for each and every one of its citizens! These trusts have the ability to snap up huge bargains as further money crises unfold.
The Swiss were known for neutrality, chocolates, and their world-class banking industry. Last week, the deflating housing bubble once again took its toll; this time on them. After their first write-off of $3.4 BILLION in Sept 2007 for the 3rd quarter, they took an additional $10 BILLION hit in this 4th quarter. Their (UBS) deal with Singapore and some "unnamed Middle Eastern Sovereign fund $ugar daddy" was really an emergency infusion necessitated by a threat of insolvency. Who would have thought the Swiss...? This is the most recent (and largest) of the “money bombs” to threaten the highly vulnerable global banking community. There will be more as this drama unfolds, requiring even larger sums of cash.
I’d be remiss if I didn’t comment on events of this past Sunday, when on the 234th anniversary of the Boston Tea Party, supporters of Presidential candidate Dr. Ron Paul staged their own “money bomb” raising just over $6 MILLION in one 24-hour period. Paul has been a darling of the internet and the famous “meet-ups” at campuses and communities all across the nation. The Paul campaign has been deliberately (and totally) ignored by the mainstream media in this current run for the White House. That invisibility will clearly cease from now on. I was completely wrong when I wrote TH*NK*NG (PHENOMENON) about Barack Obama a year ago on December 31st. The real phenomenon in Election 2008 is not Barack Obama, it is Dr. Ron Paul.
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.