It's Christmas. Forget all the doom and gloom?

About a week ago I posted an article called ‘Could the Dow drop to 6,000?". Really Scary Predictions. I don't even want to read the article now. Frankly I'm sick of all the doom and gloom predictions. I just really and truly can't take any more of it.

In the past few weeks I have read dozens of articles about how we are facing imminent collapse of the dollar, the fall of the American economy, the ultimate crash of the stock markets, another huge wave of foreclosures, and how a depression is unavoidable. And now there is the Bernard Madoff Ponzi scheme! There isn't one day that the media doesn't load up on negative stories. To tell you the truth, after I get done perusing all of them, I just feel like crying!

Enough is enough!

I admit that I have been guilty of piling on the doom train as well. I was angry, and I was amazed at the level of anger that could be seen in reader comments as well.

But hey. Christmas is just days away and here’s my new look for the Holiday season...

If you really want to read how bad things are, I can't help you today. I'm now going to detail for you several events that I’ve noticed recently that are in fact positive:

Resiliency in the stock market:

Have you noticed lately that, with few exceptions, the market seems to sell off on bad news in the morning, but then turn around by afternoon and rocket higher? This resiliency is a good sign, and very different from what we had previously been seeing. Yes, I know this tends to happen when the market is oversold, and yes I know there are seasonal biases at work, but I'd still rather see green numbers than red on my portfolio spreadsheet! And even if we are only witnessing bull traps in an ongoing bear market, one can still make money in the short term by trading them.

Increasing demand for distressed real estate:

Despite a tightening of mortgage standards, I am beginning to see an increased demand by both owner occupants and investors for buying foreclosures and other distressed properties. I personally know someone who purchased two more properties to add to her rental portfolio. The real estate market needs to be purged of the huge inventory of distressed homes before fair market, non- distressed re-sales will improve. We are now seeing the first steps toward that ultimate goal. Granted, it could take several more years, but at least there is a light at the end of the tunnel. Let's hope that light isn't from an oncoming train!

Declining oil and gasoline prices:

When it comes to making predictions about oil prices, I have seen everything from a plunge to $10 a barrel, to a jump back up to $100 a barrel or more. Right now, oil is at four-year lows below $40 a barrel. Who knows what will happen?

But I do know that lower gasoline prices translate into more money in Joeb and Betty’s wallets, and that means additional revenues to spend on other goods and services. Who knows, there might even be a few bucks left over to save! Remember saving? What a concept.

In addition, we should begin to see a tempering of some of the higher supermarket prices that were formerly blamed on high energy costs. Lower gas prices also means that auto and airline travel should increase in 2009 as well, and that will be good for hotel and entertainment stocks. Perhaps even the casino stocks, which have been seriously annihilated, will show some signs of life.

Excesses being rung out of the economic system:

We can all agree that recessions are terrible events. People lose their jobs, values on stocks and homes decline considerably, and fear grips the land. Just witness the recent panic flight into treasury notes with zero percent interest being paid! And yet a recession does serve to rid the economic systems of bubbles and excesses.

We know that stocks were a bit too expensive last year. Oil near $150 a barrel this summer was absolutely a bubble waiting to burst. Certainly real estate was an overblown bubble in 2006. Several readers have rightfully noted that home prices need to return to former levels near three times area incomes to become affordable again. That is clearly on its way to happening now in many areas of the country.

Is there a silver lining to the dark cloud of recession? I think Yes! Assuming you still have a job and some money to spend, it's in the bargains one can find on retail goods and services. During the recession of the early 1990s, I can still remember how I furnished my first house with furniture that the stores were practically giving away. Just the other day, I saw a fellow with a sign on his back, advertising 40-60% for a store that’s closing over 150 stores nationwide.

Retailer's loss is the consumer's gain during a recession:

Recessions will come and recessions will go. But above all else, if you have your health and your loved ones around you this holiday season, that's the greatest wealth that one can have. So let's all take a break from the gloomy despair for at least this next week coming, and try to enjoy the things that we already have, and the people in our lives who mean the most.

I want to wish you all a very happy holiday season.

Merry Christmas my friends!

Nationalize all banks and permanently solve the Global Banking Crises!

Extract of interview by Jayke Umarezz as appeared in various publications. Please also read comments and related articles at the end of this extract.

In an exclusive interview by Jayke Umarezz, Dr A S Johan revealed his views as to how he believed the current global banking crises could be successfully and permanently solved….so that the global economy may allowed to prosper again.

Dr Johan made it clear that, in his opinion, the world’s current problems can be clearly defined as problems caused by banking industry excesses.

“As long as banking is privately owned and run as a business for the benefit of its shareholding investors, as it has to be, we will continue to have this problem of excesses over and over again” he said.

He went on to say “Banking like healthcare, water, energy etc. is an essential service industry that people need to survive in order to be productive and contribute to a country’s economy. They have an overriding social purpose that cannot be achieved through a private, for profit structure.

Don’t be mistaken, as an entrepreneur myself, I am in support of capitalism. I believe capitalism is the only system that encourages productivity and savings. However, I also believe that banking and other essential industries like healthcare, water, energy etc. just cannot properly and honestly serve society in a privatized form.

If banks are run as privately owned businesses, they cannot avoid taking on greater and greater levels of risks and eventually reach the excess we now know about. Because, in order to survive, banks must produce returns, expand and attract investment capital. The current banking crises is a direct result of competition among banks.

In all fairness, we cannot blame bank management for doing what they had to do to stay competitive. In our misguided belief that competition in a social service like banking is good and more is better, we have once again shot ourselves in the foot….and in the process almost wiped out the savings and wealth of millions.

Bailouts through equity injection and purchase of toxic assets only serves to support the excesses of management and the greed of shareholders….at the expense of innocent depositors.

I believe that In order to restore confidence once again and this time to keep it permanent, each country really needs just one credible national bank whose customer deposits are fully guaranteed by the Government.

I propose that all existing banks registered in a particular country be merged into one large Government owned bank. Pre-merger, all current shareholders of these banks will be bought out at net asset value per share by crediting them for the sales proceeds with deposits in the new nationalized bank. Such a state owned bank may expand its operations to other countries if it wants to but the host Government will make it known that only deposits received and registered at their home country will be guaranteed and not deposits taken in at a foreign subsidiary or branch. The Government of that foreign country may guarantee the deposits of its residents with this foreign bank if it so wishes.

Directors of these new nationalized banks will be appointed by Government and held accountable for their decisions just as other Government appointed heads of departments are. Management and staff will effectively become Government employees with salaries and benefits similar to other equivalent Government employees.

I do not see any issue of service efficiency. If other Government employees like the police, immigration etc. can provide reasonably efficient services, I don’t see why banking staff cannot.

The new nationalized bank’s checking (current), savings and deposit accounts will be 100% guaranteed by Government as to principal and contracted interest. These new state owned banks will also offer basic home mortgage and business loans to its domestic customers on a properly collateralized basis, in line with each Government’s policy.

State owned banks will therefore exist only to provide basic deposit and loan services and will not engage in investment management services, securities brokerage, private equity, venture capital etc. Their cash surpluses will be invested exclusively in National / Federal Government Bonds and profits if any paid to their respective Governments as dividends.

Non deposit taking services like investment management services, securities brokerage, private equity, venture capital etc. will be offered by licensed and regulated investment and brokerage firms who cannot call themselves banks.

Businesses, corporations and investors who need these services and can afford the costs and risks associated with dealing with these firms, may do so freely. However, they will be told, in no uncertain terms, that their accounts with these firms are not guaranteed by the Government.

It may however be a good idea to establish a credible clearing house funded by mandatory, dynamic contributions from all such investment management services, securities brokerage, private equity and venture capital firms.

National banks who wish to expand their banking services beyond their national borders will only be allowed to deploy their foreign country registered deposits (which will not in any case be guaranteed by their home country Government) to finance loans in that country.

If they try to fund such loans through inter - bank deposits they will find other banks reluctant to extend large lines of credit for long periods in view of the non guaranteed status of such inter – bank facilities.

Each country’s national bank will only enjoy a rating equivalent to their Government’s credibility and the amount of their guaranteed deposits. This will discourage banks from expanding overseas simply for the sake of expansion.

In fact the relationship by one country’s Government postal service with other country’s postal service regarding the international delivery of mail through the offsetting of stamp sale receipts could be a good example of how the future of international banking relationships could evolve.

The recommendations I’ve made here with regard to banking will apply to other essential services like water, power, healthcare etc. as well. So let’s get back to honestly and fairly providing the basic services that every citizen needs and can all rely on.

No doubt there may be many out there who could have issue with my proposal. If so, please let me know your views and together we can try and create a safer place for our savings”. END

Following is a response and a related article from L.M. Arndt of San Rafael California:-

Dr. Johan, I am ecstatic! I just found and read your essay, "Nationalize all banks and permanently solve the Global Banking Crises!"

I totally agree with your conclusions, which I'm delighted to find dovetail with my own. In the course of articulating a similar argument, I happened upon your comments – a breath of fresh air in an otherwise dismal miasma of foggy thinking. I make no claims to expertise as an economist, but I have lived a few years, and paid at least some attention, and it has become increasingly obvious that the current banking system is fatally flawed – for the reasons you so cogently articulate. You also analyze precisely how a nationalized banking system would function. Your knowledge of the internal workings of banks far outpaces my own, yet we have independently arrived at the same conclusion, that, as you put it, “Banking, like healthcare, water, energy etc. is an essential service industry that people need to survive in order to be productive and contribute to a country’s economy. They have an overriding social purpose that cannot be achieved through a private, for-profit structure."

I respectfully submit the following, all of which I wrote before reading your essay. I would greatly appreciate any comments you may have. Also, if there is any possibility of a face-to-face meeting and conversation, please so advise.

L.M. Arndt, San Rafael California

Why would it not be a good idea for our government, i.e., We The People, to own and operate the banks in our nation? By L.M. Arndt

The banking “industry,” as we know, is not an industry at all and creates nothing of real value. Moreover, it requires, indeed demands, a constant infusion of money in order to cover the interest it charges.

Nevertheless, it provides an essential service, very much like other governmental services such as streets and highways, police protection, food safety, environmental quality, a justice system, and national defense.

Contrary to popular belief, the Federal Reserve, the “central bank” of the United States, is not owned by the U.S. government, nor is it a single “bank” but comprises 12 regional Federal Reserve banks. The system is, at least theoretically, controlled by a governmental agency, its Board of Governors, but actual oversight power is held by the Federal Open Market Committee composed of the president of the Federal Reserve Bank of New York and presidents of 4 other Federal Reserve banks, serving on a rotational basis. The regional Federal Reserve banks issue shares of non-tradable stock to member banks, whose stock may in turn be held by banks in other nations, giving rise to the claim that foreigners own the system. The governmental web site describes the system as “independent within the government.” If the original intent was to create a banking system separate from and uncorrupted by politics, history has amply demonstrated abysmal failure.

Until 1933, collateral to back up the nation’s money supply was the gold stored at Fort Knox, but the real wealth of a nation lies in its land and its people, i.e., the common wealth. Forests can be managed to produce a sustainable yield – or they can be mismanaged, with clear-cutting that causes erosion, silting of streams, and destruction of fish stocks. No tourist ever traveled to California to see Big Tree stumps.

So it is with farmland, streams and rivers, towns and cities. Poor farming practices, polluted streams, deteriorating buildings, all reduce the nation’s common wealth. So it is with the citizenry. Well-educated citizens are able to fulfill higher-level jobs and therefore are of greater value. Healthy citizens have a longer working life and require fewer medical services. Responsible, creative and engaged people make wiser personal and political choices and are of greater benefit to the nation. People who are in dire economic straits, suffering poor health, ignorance and apathy will fill our prisons and overwhelm our welfare systems.

For a nation to increase its “common wealth” requires a sensible, operational basic economic system. That we do not have, nor do most nations in the world. In the current monetary system in the U.S., banks MAKE MONEY by lending and then use the debt as an asset to lend more, on and on, which is what has brought this economic crash, not the first, I might add – and coincidentally has sucked up even more wealth into the pockets of the already very wealthy. Year after year, this system has redistributed wealth upward.

We desperately need a REVERSAL of the entrenched wealth-redistribution system!

So here’s my concept: Suppose that our GOVERNMENT, i.e., We The People, OWNED THE BANKS! Government, using our common wealth as collateral, would issue our currency. Yes, “national banks” would be “NATIONAL” banks, taking deposits, making loans, managing credit cards, etc. All the interest currently being siphoned upward into the pockets of bankers would be used to operate our government. That’s a tremendous amount of money, and I’m wondering if it might not be enough to SERIOUSLY lower taxes or even eliminate taxes entirely!

Under an economic system of truly “national,” i.e., government-run, banks, corporations would continue in business (although limited in size so that NO such entity becomes “too big to fail”). Entrepreneurs could easily get loans to start new businesses. Small companies could get loans for operation of their businesses. Ordinary people would have money to spend or save, credit cards would charge a reasonable rate of interest, and usury would become only an unpleasant memory.

Estimates of the bailout now nears $3 trillion. Rather than throwing it at privately owned banks and lenders, our government could buy controlling interests in smaller banks, those otherwise likely to be bought up by banking behemoths. With ownership of these banks, government could immediately begin to make loans and thereby ease the current credit crunch. We wouldn’t need the likes of CitiCorp with its usurious interest rates, punitive fees and charges, and its inherent arrogance and irresponsibility.

In order to have a truly healthy economic system, one that does not continue to redistribute wealth upward, we’d need to make some other corrections as well:-

• Raise the minimum wage,
• End subsidies to corporations that offshore jobs,
• Ban the practice of avoiding taxes by setting up offshore offices,
• Require that our government fulfill its traditional obligations rather than out-sourcing and privatizing (which the Bush administration has done in many areas, up to and including our military),
• Eliminate the special Social Security tax and put Social Security into the federal budget.
• Impose any necessary taxes on an equitable, progressive basis. (Even Adam Smith wrote that “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”)

It seems to me that a fully nationalized banking system would introduce more freedom and more fairness into our society and that it would result in a truly healthy and sustainable economy.

An economy cannot continue to grow ad infinitum (nor can anything else, including population). If we humans want to continue our lives on Earth, we will have to begin to think about a sustainable future. End

An interesting article related to the subject....click here