måndag 13 februari 2012

The Ring of Fire

These examples tend to confirm that banking crises are followed by a deleveraging of the private sector ccompanied by a substitution and escalation of government debt, which in turn slows economic growth and (PIMCO’s thesis) lowers returns on investment and financialassets.

The most vulnerable countries in 2010 are shown in PIMCO’s chart “The Ring of Fire.” These red zone countries are ones with the potential for public debt to exceed 90% of GDP within a few years’ time, which would slow GDP by 1% or more. The yellow and green areas are considered to be the most conservative and potentially most solvent, with the potential for higher growth.

Now and as you can see a country as Sweden comes out as quite a bright light in any way you measure it and sure way better off than these economies unfortunate enough to have gotten themselves in dire straits and thus find themselves in the so called ring of fire.

This however is something Swedish banks have been working against for the last couple of years. As the turmoil and economic disaster primarily Swedbank and SE Banken created in the Baltic countries a few years back now is off the radar of world economic events and as larger economies (first the Baltic countries, then Island then Greece and then in order to see who is next just look up - "The Ring Of Fire") one after the other are entering in to what almost can be described as an economic free fall situation.

In the Baltics however these Swedish banks managed to reduce GDB growth in the region some 40% as they completely and by using completely insane lending standards totally wrecked these economies. Then had the Baltic countries as they should have devalued their currencies well then that would have been good buy for good for these Swedish bank.

Instead Swedish finance minister Borg came to the rescue by securing loans to the Baltic and in the same time as a prerequisite for issuing these loans had as an ultimatum - no devaluation. That then and as Swedish tax payers I reality step in as a guarantee then the outcome was that the Baltic tax payers had to take the hit as wages were reduced to an absolute minimum, and firefighters, teachers, police men and hospital workers where laid of on a grand scale.

Michael Hudson on Latvia economy
(listen closely to what professor Hudson has to say about European central banks actually acting as central banks)

Now these Swedish banks are at it again. Can you believe it, in the midst of a ww bursting real estate bubble and in the midst of what possibly is the worst financial crisis the world ever has seen lending and real estate prices in Sweden have increased like crazy since 2008.

Trots finanskris, svajig konjunktur och allmän ekonomisk oro så fortsätter bolånefesten. Under de tre senaste åren har utlåningen till bostäder ökat med 32 procent, utan att vare sig BNP-tillväxt eller löner har hängt med i samma takt.

New rules are being discussed by politicians in order to try to dampen this lending and bonus feast frenzy that's ongoing and just got started.

Sweden might introduce a tax on banks if home loan margins rise further while banks are benefiting from low interest rates. Financial markets minister Peter Norman told journalists on Thursday: "I would not rule that out", when asked about a levy on banks to rein in margins on home loans. Norman said while the government remained opposed to a financial transactions tax, there were other ways to ensure lower bank margins. "It is possible one can look at other types of taxes." Banks have faced increasing criticism that they are piling all their extra costs onto customers.http://www.guardian.co.uk/business/feedarticle/10084766

If you study the details somewhat more thoroughly you can note that average debt in Sweden after the deregulation now has increased well over 100% and that one third today of all Swedish households has debt well over seven times their earning capability. Thus in order to maintai purchasing power in a situation where interest rates would increase some 2% then these housholds income need to increase 14% in order not to lose purchasing power.

In most cases these households do not annualize and thus most of what they earn is used to pay interest only. Now this one third segment of the households in fact are what then can be argued constitutes the house market. This as these are the young building a family and thus entering in to the market and buying their new home selling their old.

The rest of the market e.g. middle-aged house owners do not really constitute the market as they have no intention to neither sell nor buy as they have settled down in their house since many years. For them the market valuations in most cases are only a complete paper construct that only to a very little extent influence their day to day situation.

Contrast this then to someone really in need to buy a house to the growing family and where you have to enter the market no matter at what cost. These are the families that may have borrowed well over 75% of what the house cost.

If you’re in that situation only a very fractional interest increase will risk to completely destroying your economy making it virtually impossible to work out the longer term economics of owning your own house. By then the housing bubble burst as the one third of what really constitutes the house market will become utterly destroyed. That’s now what clearly is about to happen in Sweden.

This is not the first time Swedish banks destroys the economy in their own country. Last time it happened was in the late 80ties when a domestic financial crisis was created resulting in e.g. interest rates well above 600% as the Swedish central bank tried to defend the Swedish krona against foreign hedge fund speculators. Most prominent of these where and as always is the case George Soros. What made this possible was a deregulation of the financial markets thus making it practically impossible to defend your financial sovereignty as banks where give the tools to utterly destroy the basic foundation for a real, functional economy by excessive lending without limit.

Again the SE bank in the process technically was bankrupt but for some obscure reason saved as the government took all the banks bad loans and put them in a new bank (Securum) they created for the sole purpose of quarantine these toxic financial waste from the banks that created them and the real economy. The tax payers slept in and guaranteed the bad loans and thus saved the banks. It's like the sole purpose of these banks is to try with all means possibly to push a country in to this ring of fire. And by doing so and of course they get well paid and hefty bonuses
along the way.

Sadly and in this process since the late 80ties Sweden has transformed so that much of what earlier used to be publicly owned now has been transferred to private interest e.g. like parts of the electric grid, healthcare (where e.g. Aleris owned by the Wallenberg family that also owns the SE Bank has became a significant player) schools, rail and subways etc.

Politically the person who made all of this possible was the former Swedish social democratic finance minister Kell Olof Feldt who actually was the man behind the deregulation of the Swedish Financial market allowing for banks to lend without limit and ultimately unleash the hedge funds speculators against our welfare system.

Working with Feldt at the finance ministry was also Erik Åsbrink.

Erik Åsbrink joins Goldman Sachs as International Advisor

Here, an analysis about the consequenses of the deregulation of the financial markets:

The Great Financial crisis in Sweden and Finland
There should be no doubt that the financial opening-up of Finland, Norway and Sweden was the mainimpulse that initiated a sequence of events that brought these economiesinto deep depression.

In this context what now is being discussed by implementing new taxation on banks excessive lending margins would maybe dampen the frenzy so some extent. But surely it wouldn’t solve the real cause until again the financial markets become re regulated, a concrete wall built between savers and speculators money and when it by law is stated tax payers money should never be allowed to bailout banks.

That last item is what really would make risk aversion trickle down in the financial system and thus end the banks to systematically wreck our economies and in doing maintaining a system whereby wealth from the many is transferred to the few.

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