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When the entire world sees gloom and doom, America jumps to the challenge and the challenge this time around is turning the American economy around for the global economy to follow suite.
We have followed all economic indicators here at the Zambian Chronicle to the “t” from the time we believed the recession was setting in to when it was officially announced. We are glad to say our team of financial experts and consultants was the first to give the correct predictions that every one is now singing about.
In January last year working with David Frazier’s on his Global Economic Briefing we wrote, “US Recession Could Affect Our Global Enterprise, The Zambian Enterprise Included …” The very next month (in February) the Bush Administration followed it with a rebuttal in “Bush Sees No Recession Yet”.
Then as early as July last year we caught former US President George Bush asserting our premise off camera in the article “Wall Street Got Inebriated (Drunk) – George Bush says ….”.
What is amazing is how the Bush Administration kept on insisting that the fundamentals of the US economy were strong, but in private the President himself agreed with our notion of gross creed and manipulation in the financial markets.
Then finally the whole thing bottomed out soon after we wrote, “America’s Economic Woes: What Went Wrong and What Lesson(s) Did We Learn?” In that memo we wrote that looking at the indicators from our stand point the US Congress would have no option but to pass the initial stimulus package and a week later they did.
We followed that with another published article taken, “How The USA Financial Crisis Affects International Markets”. All the more being very accurate in all our predictions. While others would like to discount these predictions as sheer luck, we firmly stand behind our work because we know we went to school for this kind of stuff.
Having said that and having analyzed all the econometrical variables involved in the stimulus package as well as understanding the credit crisis, we can easily say that the US will dig itself out of the global recession faster than any other G8 country and here is why.
The first order of business will be to get Timothy Geithner confirmed as Treasury Secretary despite all the shenanigans he has been involved in and or tax evasion crap. The reason this will happen is because having worked at the Treasury Department during the Clinton Administration, the IMF and lastly as President of the Federal Reserve Board – NY, Geithner knows the secret about TARP – Toxic Asset Recovery Program.
This is because the secret to the US recession and recovery lies within TARP (Toxic Asset Recovery Program). If these are mismanaged from the onset, the US might be in deep trouble.
But the sooner they are identified under MBSs (Mortgage Backed Securities) which according the latest figures currently stand at almost $7 trillion, the better. Now the Federal Reserve Board has the power to cure this without using the stimulus package even.
They currently have this kind of money on their books but the problem is how government can lay hands on to it because the Federal Reserve Board is independent of any tax payer’s money which is only accessible through the Department of Treasury.
So, can the IRS borrow from the Federal Reserve Board to cure this? The answer is yes, through government and savings bonds but they would have to pay back to the Federal Reserve Board just like any other borrower.
Therein lies the dichotomy and that’s why most advisors try to talk about the stimulus package because the IRS can easily control that while using the Federal Reserve Funds is usually left out of the equation.
What is required is bold leadership to assail the Federal Reserve Board and pushing them to help. The truth is the US government on its own is broke that’s why deficits are projected to upwards of 2015 but the Federal Reserve Board has a surplus of over $7 trillion dollars.
The bureaucracy is toxic to the system, in case of China for instance their sister entity similar to the Federal Reserve Board is strictly controlled by the government and they have less money on hand approximately $3 trillion.
But the Chinese government can easily lay their hands on this money while in case of the US; they can’t since the Federal Reserve Board is independent and not controlled by the government. A little bit complicated but that’s the best way I can lay it bare …
So, what’s going to happen is that as soon as he is confirmed he would start pushing the Federal Reserve Board on creating a new entity similar to banking operations and or just a new Federal Bank that would be capitalized with these Toxic Asset Recovery Program (TARP) and some stimulus money whose job would be to separate the bad loans away from the current holding banks.
This will be crucial for releasing new funds as these assets are bought up by the new “bank”, removed from “provisions for bad debt” columns to sold or transferred assets injecting more money in the credit system with new reserves for new borrowing/lending.
That is what will reinvigorate the banking system, and then the remaining $780 billion or so will likely be spent on consumerism to spur spending and by August, the US economy will be ahead of the curve of other industrialized economies.
What the Obama Administration needs to be weary off is spending more of the tax payers’ money for more stimuli. More stimuli after the TARP has been launched would lead to deflation and or stagflation similar to what happened to Japan.
Deflation is worse than inflation because its effects on the economy take longer to be both identified and once they are take took long to be gotten rid of. More like having a bad drug that takes too long to be gotten rid of in a human body.
Stagflation on the other hand make the economy stagnant and in an inflationary state for a long time. No one seem to see the benefits of a vibrant economy during stagflation, as government works to tighten monetary policy, it reverses economic strides it made in the first place.
Since the major bulk of work is in moving the MBS (Mortgage Backed Securities) off the book into the TARP (Toxic Asset Recovery Program) we can safely say that once they have been moved the US recovery will be half way home.
Credit will soon start to be available again lifting the credit crunch, cash flows will emanate and provisions for bad debt will be minimized, treasury bills will take an upswing as Fed rates start going back up and the rest will be history.
Europe will take a little longer because their median debt to income ratios are much higher than in the United States but they would eventually follow …
Live Long & Prosper; that’s this week’s memo from us at the Zambian Chronicle … thanks a trillion.
Brainwave R Mumba, Sr.
CEO & President – Zambian Chronicle
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