- The week of May 2 7, 2010 will go down in history
as one of uncertainty and change. When I asked then UN Secretary General
Boutros Boutros-Ghali in 1995 what he meant by change, he told me there
were several forms of change but what he was talking about was CONSTANT
CHANGE. Now that all of the barriers between nation-states have fallen
with the exception of the regulatory laws which are about to fall, we will
be subjected to constant change as there will be no barriers or borders
between countries to prohibit global change and global chaos. Chaos always
breeds opportunity to those who create it to take more power, to make money,
and to change the world into their image.
- In order to have global change you need to have global
uncertainty. Last week saw a number of things occurring on an integrated
world: the Senate Banking Committee appears to be getting closer to a
bi-partisan agreement on regulation; the 1000 point drop in the market;
the British elections; and the debt crisis in the European Union led by
the debt of Greece.
- The Senate Banking Committee has been hammering out a
bill which the Democrats would like finish up by the end of this week.
The Republicans want to take their time. As I have written before, this
bill will open up to the central bank of the United States, the Federal
Reserve, via the Treasury Department, all of the financial assets they
do not have access to: credit unions, state chartered thrifts, the real
estate market, and the insurance industry. Furthermore in a globalized
world, you need to have interaction with a global regulatory agency-the
Financial Stability Board. The U.S. is already a major player and has
been since 1999 when it was the Financial Stability Forum. The May 7 edition
of the Financial Times stated,
- US senators advocating stricter limits on banks and tougher
regulation of markets
- used yesterday's volatility to demand more sweeping reforms
as the financial
- Regulatory bill edged towards a vote. Judd Gregg, the
Republican senator from
- New Hampshire predicted that the bill was now certain
- The bottom line is that once America succumbs to a new
set of rules, other countries will have to follow-like the European Union
for instance. In fact, the weekend edition of the Financial Times hinted
that "European leaders committed themselves to a stricter collective
effort at fiscal discipline and called for rapid approval of draft laws
aimed at tightening financial market regulation."
- Everyone is putting forth their theories for the mysterious
drop in the market on May 6 which took one hour for the stock market to
have the biggest intraday decline since 1987 and which briefly wiped out
$1,000bn. As my friend, Doug Wakefield, pointed out in his newsletter,
the New York Stock Exchange has rules for when circuit breakers need to
be put in place. Interestingly enough, after 2:30 p.m. there is no halt
in trading. Guess what, all this excitement took place after 2:30 p.m.
Is this a coincidence? No. Different newspapers and writers have different
opinions. One of the headlines from the Financial Times read, "US
shares tumble amid fears over debt", while The Washington Post had
headlines, "Chaos on Wall Street", and the New York Times put
it this way, "The Trades of a Lifetime in 20 minutes." Author
Julie Creswell wrote,
- Someone on Wall Street just made a killing. That was
the subject of so
- much chatter among professional investors once the smoke
cleared from the sudden panic and recovery on Thursday that briefly knocked
some stocks down to a penny
- or two a share. One thing however is certain: By luck,
savvy, lightning speed or
- all three, there was money-gobs of it-to be made from
the bargains that came and went in an instant.
- The Dow for the week lost 5.7%, the S&P fell 6.4%
and the Nasdaq fell 7.5%. The market, we are told, continued to drop on
Friday due to uncertainty about all the things that occurred during the
week. I personally don't believe that anything happens on Wall Street
or in Washington by happenstance. For those who are naive, perhaps.
- In another venue, the British elections ended up in a
hung parliament for the first time since 1974. Interestingly enough, Britain
is not part of the European Union. Some of the turmoil, however, the London
Stock Exchange which is situated in the heart of The City which is a major
financial center worldwide, trades the euro. Britain had three major
candidates vying to set up a new government. There are those who say their
electoral process is antiquated and needs to be overhauled. However, the
bottom line is that it is the Queen's government. Interestingly enough,
Britain has no written constitution-so why would they want to join the
EU? It is the queen who is head of the state and the Prime Ministers are
"her Prime Ministers." Once Conservative Party leader David
Cameron and Liberal Democratic leader Nick Clegg come to some kind of agreement
between them which would provide the majority needed in Parliament, the
queen will invite Cameron to meet with her and she will give him, depending
on how she sees things, the task to form a government or to see if he can
form a government. In the end, the queen will determine the outcome if
Cameron cannot hold a government together and call in some other party
leader to see if they can form a government or call for another election.
All of this creates uncertainty and adds to the global picture of uncertainty.
- Now we come to the European Union. In 1998, at a Bank
for International Settlements meeting in Basle, I asked Jean-Claude Trichet,
then central bank minister for the Bank of France about how the EU would
change the individual country central banks. He told me that the new European
Central Bank-ECB would be like the Federal Reserve, for all of the EU countries.
The only duty of the country central banks would be to monitor interest
rate policies set by the ECB. Well, in today's world, that makes the individual
countries of the EU more like the individual states of the United States.
- As we see the unfolding of the credit crisis in Greece,
the various EU member-states and the IMF are preparing a $145B bailout
of Greece. Another possibility is direct borrowing by the European Commission,
the EU's executive arm which would be guaranteed by European nations.
The IMF gave final approval on Sunday of its three year 30-billion euro
portion of the loan package. The truth of the matter, whether it is Greece,
Portugal, France, Italy or the United States, we are all operating on a
debt-based system perpetrated by the central banks of the world. If you
were to picture the debt of the world, think of a small ball, based on
the continual borrowing of countries, states, municipalities, and townships,
that debt has grown to the size of a basketball. No one is paying down
principal; they are only servicing the interest on the debt.
- As we consider debt-ridden states here in the United
States, is it far-fetched that California or Michigan or Ohio would get
a loan from the IMF? No. What is happening in Greece and the EU is setting
precedence for the future. Is it possible that the 2008 Credit Crisis
in the U.S. will be the 2010 Credit Crisis in Europe? Is it possible that
this gives everyone who bought Euros and sold dollars an opportunity to
take their gains without looking like they are looting the world? Yes.
When all is said and done, the U.S. Congress will have passed major regulatory
laws giving the Federal Reserve greater power and opportunity over the
financial assets of America, the queen will ask David Cameron to form a
government, and Greece will be in great financial pain. The markets?
If the EU finance ministers cannot come to an agreement, there will be
great pain in the global markets for all those who believed the world was
back to normal. The normal we knew before 2008 is gone. The above is
the new normal with central banks controlling the world-and you and me.