The Buying up of America: The Next Stage

In the 1980’s everyone was concerned when Japan started to buy up a lot of American Companies, there was the all too familiar “Japanese Bashing” taking place. Then came the Chinese and whole industries began to be “off shored” to China. That was stage one. 

Now Stage two has begun, and this stage will have much more far reaching serious impacts upon the western world than has ever been previously experienced. Westerners have for three decades now been purchasing more from overseas than what we produce at home, this began in the 1980’s and quickly accelerated in the boom years of the 1990’s and on in to the new millennium.  

As their reserves of excess dollars began to pile up (they currently hold over $2.8 Trillion in dollar reserves), Asian nations were at first happy to use those dollars to purchase US Government Treasury Bonds, and the dollars they used to purchase them were cycled back into the American economy through federal government expenditures, but then the Asian nations who wanted to diversify their investments but were prevented from buying up too much of America with their dollar hoards due to the possible political fallout in the U.S. were convinced by our crooked Wall Street Guru’s to purchase Mortgage Backed Securities (investments backed by mortgages written in the United States, more commonly known as Collateralized Debt Obligation, or CDO’s) This allowed more dollars to be cycled back into the U.S. and the Mortgage and Property boom to continue in the first half of this decade.  

But now as is all too apparent the bottom has dropped out of the mortgage and property business. Greedy Mortgage underwriters having tapped out the market of those with good credit, began targeting those with less than good credit and then those with bad credit.  The ultimate deal by the Greed Merchants was the NINJA loan (No Income, No Job, no Assets required to get a mortgage). They also hoodwinked those with good credit to buy a house way beyond their normal means by signing up for mortgages with 2/28 teaser rates, mortgages that offered a very low interest rate for the first 2 years, but then afterwards the interest rate reset to a regular rate for the remaining 28 years of the loan. And as interest rates began to rise, and the two years teaser rates came to the end of their low rate period, people began to default in record numbers, the full impact of the 2/28 resests has not been felt yet. The bulk of the 2/28 teaser loans reset in March of 2008. The impact of these record default rates is that the value of the billions of dollars of mortgage backed securities that the Asian nations had bought with their excess of American dollars has collapsed. Western banks had also bought billions of dollars of Mortgage Backed Securities and when the value of those securities began to plummet so did the banks asset values, as the Mortgage backed securities were counted as an asset at a specific value. This specific value of assets allowed the banks to lend money (create money) in a ratio directly related to the original value of the mortgage backed securities. With that value now destroyed the banks suddenly became technically insolvent.  

Since the Mortgage Backed security market was so huge, many European banks also bought these securities, and when the bubble burst many of them also became technically insolvent. The full impact of the meltdown in the Mortgage backed security market has never been publicized. Western governments, their treasuries and their Central Banks refuse to make public the extent of the problem, knowing if the full impact was made public, the resulting panic would destroy the financial markets, as credit markets would dry up as lenders used their cash to shore up their own balance sheets. Over the last month the central banks of theU.S, Japan & Europe in a coordinated action have been quietly injecting “cash” into western banks at record rates to keep them afloat. However this “cash” is actually created by the governments issuing more treasury bonds to the central banks in exchange for the central banks creating more money, in other words more debt! In essence what they are doing is issuing more debt knowing full well that while this may solve the short term problem, it will add to the long term debt overhang problem, thereby setting the world up for a complete global financial meltdown but one they hope gets pushed further into the future, and not on “their watch”. 

However the events of the last two months show that day of reckoning is approaching faster than they would ever hope as one of the Western countries, England to be exact almost saw its Banking and Financial systems collapse when one of its banks that was affected by the Mortgage backed Securities meltdown began to quckly collapse when it could not borrow enough cash to shore up its balance sheets as the mortgage backed securities it had as assets plummeted in value, as news got out of the banks deteriorating condition there was a run on the bank its depositers to try and get all their money out. The British government had to step in and guarantee the deposits of all depositors to their full value to prevent the bank from collapsing and causing more widespread panic and a domino affect of other banks collapsing, in effect nationalizing the bank! However the British Government admitted that if the entire banking industry did begin to collapse they would not have been able to “create” money fast enough to prevent the whole financial system from collapsing. 

What is beginning to be seen in the world financial markets is that debt is being created at such a velocity that central banks and governments cannot cope with its negative consequences such as the mortgage Backed securities meltdown. The Bank of England’s Governor, Mervyn King even admitted that they did not even know how the financial markets functioned anymore!  

But what is ironic is these same governments actions created the excess of money (debt) in the first place and that is what has been driving this stampede to financial oblivion. Money (debt) creation by western governments has become an alternative avenue to increase government expenditures instead of having to take the political risky step of raising taxes.  This money (debt) creation has although, become a hidden tax, as it creates increasing amounts of debt that future tax paying generatins will have to repay.

The World Financial markets are in the initial stages of what is known as Hyperinflation.  Now normally hyperinflation is typified by an accelerating velocity of price increases on goods and services in an economy because of an over excess of money (debt) creation, as prices skyrocket, central banks print money (debt) ever faster to keep up with price inflation, until the velocity of money creation goes vertical, and the economy eventually collapses. However the hyperinflation that we are seeing the beginnings of now is actually being hidden as the excess money creation that creates Hyperinflation is being funneled to banks to shore up their balance sheets to replace the plummeting value of their now worthless mortgage backed securities.   

In this type of hyperinflation the day of reckoning will come suddenly and will catch your average man on the street by complete surprise. Your everyday common working man will not know anything is wrong until the domino affect begins in earnest, where the debt creation and overhang is so large that western governments will not be able to react fast enough and create enough money (more debt) fast enough to shore up the global financial system as the book value of financial institutions debt based assets collapse.  Once that happens the global financial house of cards will collapse and it will be the largest financial collapse in history. As it will takes years if not decades for the Gordian knot of interconnected debt and false valuations to be unwound. It will be a continuing cycle of devaluations across the globe, and in a short space of time economies that were wracked by hyperinflation will then be in a continuing cycle of deflation. The outcome will be a period of massive global instabiliy as western governments who once acted as the world’s policeman will not have the tax generating revenue to support a large militiary to project power around the globe in order to keep the peace. No country will be immune from this collapse, the instability will be so great that there will be an unstoppable outcry for a  a strong centralized world governmental and financial entity that to force equity across all countries. 

This next stage of the buying up of America which is a precursor to this meltdown is the buying up of the western banks and financial institutions by the Asian and now Middle Eastern Countries.

The Asian countries were seriously burned by the Mortgage Backed Security meltdown, but they still do not want to stop selling their goods to the U.S. in exchange for IOU’s, because they do not want their internal economic growth to end. Asian nations are in a rush to create a self sustaining middle class, as a large middle class will give them a large sustainable and growing tax base with which to fund large militaries and propel them to world power status . So they are now turning to the last place they can find to invest their hoards of dollar IOU’s ; western banks and financial institutions.  The Middle Eastern Arab nations flush with dollars from the rapid increase in the price of oil over the last few years due to a dramtic drop in the amount of oil being discovered globally, and what is left increasingly being nationalized by countries who control it, are joining in this buying frenzy of western banks and financial institutions.  

This buying spree by the Asian and Middle Eastern countries will not prevent a global financial meltdown, as when they purchase the banks and financial institutions they are also buying into the financial status quos.  However the impact upon western countries will be very large and permanent. As it will wed the western countries into a symbiotic relationship with these investor countries. As the Asian and Middle Eastern countries gradually become the major shareholders in the western run global financial markets they will increasingly drive if not dictate the political decisions of the western world.  

Again this will not prevent the eventual global financial reckoning day, but it will take the reigns of control of global politics out of the hands of western nations.  We are ever more quickly approaching that day when greed forces the world into the establishment of an Anti-Christ kingdom under the guise of bringing peace and financial stability to a debt ravaged, economically collapsed world. Many thought it would be through war, and it is through war but not the kind of war anyone ever expected. 

But as always:

When you see these things come to pass, you will know that your redemption is drawing nigh. 

God Bless John Baker

Sovereign funds snap up bank stakes

By Peter Thal Larsen in London

Published: September 25 2007 19:13 | Last updated: September 25 2007 19:55

Sovereign wealth funds have invested an estimated $35bn in the shares of banks, securities houses and asset managers since the beginning of 2006 in a sign of the growing clout that state-backed investment vehicles are wielding in the financial sector.

Morgan Stanley analysts estimate that sovereign wealth funds such as Temasek, the Singapore state investment company, have made investments of about $26bn in the past six months alone.

These investments cover companies such as Barclays, Blackstone, Carlyle, Deutsche Bank, London Stock Exchange, Nasdaq and HSBC (see chart below).

The most recent flurry of activity accounts for less than 1 per cent of the $2,800bn (thats $2.8 TRILLION) in assets that sovereign wealth funds are estimated to control.

But the flow of cash from state-backed agencies, especially those based in Asia or the Middle East, is prompting concern among politicians in Europe and the US, who worry it may give foreign governments influence over the financial sector.

Though exact figures are hard to find, a disproportionate amount of investment by sovereign wealth funds seems to be aimed at the financial sector.

Temasek, for example, has 38 per cent of its portfolio in financial stocks, as it believes the growth of these companies will be linked to the emerging middle class in Asia.

According to Morgan Stanley, sovereign wealth funds have favoured institutions with exposure to emerging markets, the securities business or the private equity and hedge fund industries.

“The crescendo of investing could provide a degree of valuation support to parts of an underperforming sector,” the analysts argue, though they point out the funds have so far shown little interest in smaller western banks or insurance companies.

Though much of the recent investment has come from funds in Asia and the Middle East, other countries are also becoming active. The Norwegian government’s pension fund recently decided to increase the share of equities in its $328bn portfolio to 60 per cent from 40 per cent.

Many funds have been careful to limit their influence. When China’s state investment fund took a $3bn stake in Blackstone it bought non-voting shares and did not have a seat on the board. But Temasek and China Development Bank have the right to appoint directors to the board of Barclays under their deal.

http://www.ft.com/cms/s/0/54ccecb2-6b91-11dc-863b-0000779fd2ac.html