President Barack Obama said more stringent financial regulations are needed globally to protect consumers, ensuring economic stability and prevent future crises.
When leaders of the Group of 20 nations meet next week in Pittsburgh, Obama said in his weekly address on radio and the Internet that international cooperation has “stopped our economic tailspin.”
“We know we still have a lot to do, in conjunction with nations around the world, to strengthen the rules governing financial markets and ensure that we never again find ourselves in the precarious situation we found ourselves in just one year ago,” Obama said.
The administration has proposed an overhaul of U.S. financial regulation, including monitoring of systemic risk that major financial institutions pose to the economy. Obama proposes, along with some reluctant G20 members, new ways for the world’s governments to dismantle independent countries’ existing regulatory frameworks and replace it with a more coordinated one in a bid to protect and oversee companies and consumers.
German Chancellor Angela Merkel, however, expressed her skepticism about leading central banks to fight against the economic crisis, suggesting that they may be storing up more trouble for years to come by printing excess liquidity, or by “quantitative easing” as the Federal Reserve touts it.
“I view with great skepticism the powers that the Fed has, for example, and how, in the European area, the Bank of England has developed its own little lines,” she said, adding that the ECB “also bowed somewhat to international pressure” with its decision to buy bonds.
“We must together return to an independent central bank policy and to a policy of good sense,” Merkel said. “Otherwise, in 10 years we will again be standing at exactly this point.”
These statements comes from Merkel because Germany is intimately familiar with the matter of hyper inflationary policies because her country suffered the consequences of this fatalistic approach in the Weimar Republic during the 1920s. The hyperinflation episode in the Weimar Republic in the 1920s was not the first hyperinflation, nor was it the only one in early 1920s Europe, nor the most extreme inflation in history (the Hungarian pengö and Zimbabwean dollar have both been more inflated). However, as the most prominent case following the emergence of economics as a science, it drew interest in a way that previous instances had not. Many of the dramatic and unusual economic behaviors now associated with hyperinflation were first documented systematically in Germany: order-of-magnitude increases in prices and interest rates, redenomination of the currency, consumer flight from cash to hard assets, and the rapid expansion of industries that produced those assets.
The fact that Fed Chairman Ben Benanke is “comfortable” with the massive budget deficit and Bush administrations Obama contradicts what millions of other citizens of the United States, China, Germany and other responsible fiscal nations express concern with the actions of Ben Bernanke and the Fed because of the large potential for hyperinflation. Indeed, Chancellor Angela Merkel knows the history of hyperinflation of her own country after the First World War that gave birth to Hitler’s Nazi socialism. Bernanke speaks with a forked tongue when he bails banks and industries agenda trillion dollars, but then talk about deficit reduction. Apparently Ben Bernanke is equally at home with the death marching that the Fed is doing to destroy the U.S. dollar and what the Obama administration is doing to push through its “must have” health care reforms and cost of the automobile industry, among others.
Translated Speech Of Chancellor Merkel On June 2, 2009:
Ladies and gentlemen, I believe the most complicated phase with regard to the future of the social-market economy will begin when we’ve overcome the crisis. Will we manage to return to the path of virtue – not having done so has actually been the worst thing about crises past – with regard to, among other things, public debts? When will we reach this point? …
But the independence of the European Central Bank must be preserved and the things that other central banks are now doing must be retracted. I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line. The European Central Bank has also bowed somewhat to international pressure with the purchase of covered bonds. We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.
The fact that that won’t happen without mechanisms, without rules and without social engagement … is why it’s so important to build an international financial-market regime. And for us as members of the European Union it’s important to hold to the discipline of our own treaties. That will yet require from us the most rigorous political work. If [a country] tries once more to buy short-term growth by skirting these rules, then it will be politically almost impossible for the others to demand that their citizens follow the rules. So the resolution of this international financial and economic crisis will also be a practical test for international cooperation. I will continue to keep calling for this.
At the moment, we all have so many daily problems to solve that the long-term perspective can get lost. But that must not happen, because we would then fall into in a deep crisis of the entire political system. I don’t want that to happen because I’m a friend of democracy and have experienced it wonderfully through German reunification. That’s why I will fight to ensure that we draw the right lessons [from the current crisis].
Are we seeing an End to Globalism?
U.S. and European governments have always protected their domestic industries and other countries like New Zealand and Argentina, have noticed and followed suit. It is no longer happily accepted, for example, that the obligations to bondholders outweigh international obligations of a government to its own people. Governments are also not so sure these days about the wisdom of privatizing all state-owned company in sight. They are also beginning to question the wisdom of allowing capital to flow in and out of their country at any rate to the desires of the market and the foreign ownership of local industries unimportant.
In short, in what is supposed to be a “borderless world,” it is becoming impossible for people to ignore how the local economic conditions really matter. In response, some participants in the global economy began and are beginning to realize and to exercise some of their local power as German has recently spoke out about, and what some Asian countries have done in the late 1990s such as Malaysia during the Asian Financial Crisis.
It’s one of the first rules in the book of mainstream economic wisdom: a country’s economy is the thermometer which “reads” its stock market’s temperature. If financial conditions are heating up, stocks rise; if they are cooling down, stocks fall. Were it so simple — millionaires wouldn’t make up a measly .15% of the global population.
Obviously, there’s a major flaw with this logic; namely, it isn’t true. Time and again, stock prices smolder to near boiling even as economic growth chills to the bone. (The opposite also holds: Stock prices cool down even as the economy is on fire.)
Take, for instance, Germany’s main stock index, the DAX 30. On August 13, Europe’s number one economy reported a .3% rise in gross domestic product (GDP) — Germany’s first quarter of growth since January 2008. Soon after, the DAX began to rally and finished the day at a fresh, ten-month high.
In no time at all, every financial media outlet from Wall Street to la-la land had their story: “Germany’s DAX rose nearly 1% on the GDP data. The big picture will be one of ongoing gradual recovery through 2010.” (LA Times)
One problem: the DAX’s bullish flame has been burning since the index landed at a two-year low on March 9, 2009. YET — the economic data over those six months has been about as “hot” as the Arctic Circle. Here, the following news stories from the time say plenty:
- March 24, Wall Street Journal: “There’s a slew of evidence that Germany is in an economic freefall: A 19% drop in industrial output, a 23% decline in exports, a 35% drop in new manufacturing orders, and on. The numbers we’re seeing are just mind-boggling.”
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- April 30, New York Times reveals a 17% year-over-year decline in Germany’s exports and writes, “With 47% of its GDP generated by exports, Germany would suffer a severe contraction in its economy.”
- May 16, Wall Street Journal: “In the fourth-quarter 2009, Germany’s GDP plunged 3.5%; its worst performance in nearly four decades.”
- May 17: Tens of thousands of German workers march through downtown Berlin to express their anxiety over the alarming increase in unemployment: at 7.7%.
- June 29 Associated Press: Germany’s GDP has now fallen by nearly 7% in the past four quarters with widespread expectations for a 5.5% to 6% contraction by the years end.
- July 3 WSJ: “Germany’s own recession is the deepest of any major economy in the world, apart from Japan.”
- September 8 speech by Germany’s Chancellor Angela Merkel: “We are in the worst economic crisis that the Federal Republic of Germany has experienced in 60 years.”
You get the picture: During the DAX’s entire six-month long winning streak, Germany’s economic figures have been bleaker than bleak. The mainstream correlation was broken in its box along with any pre-emptive opportunity to position for the uptrend.
That, however, was NOT the case for EWI’s European Financial Forecast. Here, the following archive of our analysis shows the extent to which objective analysis of the market’s internal measures keeps traders ahead of the biggest moves:
March 2009 European Financial Forecast(release date: February 25)
“We favor the fourth-wave contracting triangle interpretation for the DAX. The DAX broke through a solid support shelf at 4014 this week so selling pressure could intensify before we see a notable rally.” The end of the wave v decline should come near 3440.
March 6 European Short Term Update (ESTU):
“The DAX situation is similar to the entire region. We believe that the market is closing in on a low; perhaps it’s a week away from finding a decent bottom.”
On March 9, the index did indeed “find” its bottom at 3588.
March 13 ESTU:
“We must entertain the possibility that the low earlier this week may hold for a time, weeks or months, and the risk-reward equation is not as heavily favorable for the bears.”
So, where will Germany’s DAX be headed next? Find out at the unbeatable price of $0.00. No, that’s not a typo; it’s how much it will cost you to read objective insight, view original price charts, and recieve trend-breaking, and making details about Germany’s DAX for a full seven days. These are just few of the benefits of EWI’s first-ever FreeWeek featuring European Short Term Update, and its Asian-Pacific counterpart.