...from Bill Cara today

Comments & Outlook

"...The final hour of trading in New York yesterday was a clear sign that traders are tense. The unprecedented $USD rally is causing international trade in goods and services as well as securities and commodity markets to freeze.

The problem is lack of confidence by traders who know the system is broke and that governments have been trapped into banker bail-out decisions rather than actions to address the problem source. Yesterday, for instance, the People’s Bank of China started on its own trillion dollar banking bail-out with $140 billion slated for the Agriculture Bank. Countries like Argentina moved to take control of the people’s pensions from the private sector before these funds have been squandered and the people revolt against government.

In a nutshell, the banking system has collapsed under the weight of its own stupidities during the past decade. Fearful of the bankers’ actions in squeezing undermargined accounts, independent traders are selling global holdings and moving to the best safe-haven they know, which is the $USD and the repayment of loans. The Japanese equity market is collapsing as the Carry Trade winds down. Money there is flowing out of equities into Yen and the repayment of loans.

Yesterday alone the $USD (1.56% to 84.37) and the Yen (+1.23% to 99.68) trounced all other currencies. The Euro ($XEU -2.01% to 130.77), Pound ($XBP -2.53% to 167.30) and Cdn Loonie ($CDW -1.55% to 82.57) all plunged. To relieve the stress, the Federal Reserve Bank will likely have to cut its rate by 50 basis points today rather than wait until next week.

The core of the problem is that the bankers who caused these problems and the regulators who permitted them to build to the point of collapse are the same people who are advising the international finance ministers. The latter have caved in and are stripping the peoples’ treasuries in order to prop up the failed banking system. The intelligent move would be for governments to freeze currencies and work together to construct a whole new structure for global finance and regulation.

Sadly, the bankers are in control. As a consequence, nothing good will come of the present situation. Trading and commerce as we know it will stop. Governments have to realize that no amount of money is going to stave a crisis because it is power that the bankers are demanding. The people are in the process of throwing their hands in the air and giving up. Rally one day, crushing losses the next – it’s all too much.

The $USD cannot continue to rally here or else the parts of the global financial system that are working will shut down. Traders will stop taking risk, and will repay their loans. The underground economy will take over and governments will seize up under the loss of tax receipts. Labor strikes and violence will ensue.

This is not a good way to end a commentary that wishes you a good day. However, enjoy your day; just try to keep your wits about you..."