Economy goes down as usual

The downfall of the World Economy continues as usual. During last two days the shares of World's Banks have fallen drastically. Almost a half of the Exchange value of Banking industry on both sides of Atlantic has disappeared during last twelwe monts. The headlines of Taloussanomat tells of very negative expectations among Exchange Traders:

"The markets have punishded banking shares heavier than in last ten years. The lousy exchange rate tells of fears of Economic Doomsday on the both sides of Atlantic.

In last two days European and American banking shares have been beated down exceptionally heavily. Investors have thrown shares on sale as fast as possible.. [...]

European banking shares have lost more than half of their value in one year. DJ Stoxx 600 Banks index has fallen 51,4 percent in 12 months. The European banking index has fallen almost 46,6 percent in the same time."

The situation is alltogether so dark that FED director Ben Bernanke has had to say it loud that it doesn't look good at all:

"Bernanke: USA has a dark future"

"According to Ben Bernanke There are 'remarkable risks' in US Economy towards somewhat weaker growth. On other hand the risks of higher inflation have also risen."

The bad situation of the American housing lenders that crumble in the core of the crisis is also reflecting to Finland since Finnish banks have also invested on Fannie Mae and Freddie Mac loans: Link.

The worst direct threat for Finnish economy is the looming crash of Swedish housing markets:

"Proffessor Hans Lind thinks that the prices in Swedish housing market may crash down heavily. He says that e.g. the prices of residence-right flats may drop 30-40 percent. Finnish real estate experts though don't believe such drop could happen in Finland. [...]

..question in Sweden is no more if the prices of housing are going to come down, but rather we should think that how low they are going to drop."

The expectation that the Swedish housing price crash would not infect Finland is an illusion. There's no reason to hide your head in bushes. In last fall it was estimated that there's approximately a -30 -70 percent bubble in Finnish Real Estate prices, depending on location and type size of flat. I'd say that when the housing prices drop down in Sweden, the crash will spread to Finland too.

The threat of Iran - America's impossible challenge?

Link:

"The threat of Iran weakens Dollar

French news agency AFP told that Iran has tested a new Shehab-3 missile that could reach Israel. [...]

– The news of Iran's missile test have weakened the Dollar. [...] It's hard to find out Iran's aims concerning their nuclear programme, and it is a remarkable geopolitical risk, says Masahito Sato"


One reason for speeding inflation of Euro, among the rising price of oil and costs, is the ECB's decision to try to keep Euro-Dollar exchange rate approximately in current level. While dollar sinks ECB has had to print more money in order to prevent the rise of the gap in Euro-Dollar exchange rate. If Dollar would become too cheap in Euros, it would seriously slow down European economy. This has caused the acceleration in rising inflation of Euro when value of the European currency has allowed to be reduce with dollar.

One of the main guilties for weak dollar (among US's sucking monetary policy) is the fact that Iran is selling oil and gas also in other currencies, not only in Dollars. The Multi-Currency Oil and Gas Exchange was opened in last Spring. After that the downfall of USD has speed up.

Last fall a rumour was spread that OPEC would have make up a secret deal that oil producers will slowly dump Dollars. This might be true due to the fact that in year 2006 the dollar reserves of OPEC countries reduced 14 percent, as much the value of Dollar in Euros reduced during the same year which is not a coincidence.

The real reason for why USA invaded Iraq was that Saddam gave up the Dollar in 2001. Luckily for US the UN had put sanctions and restricted Iraqi oil exportation, so the value of Dollar did not suffer too much until US managed to invade Iraq and got control over her oil resources. It helped the economic pressure on Dollar a bit, but US has got stuck in Iraq which takes a lot of money and ties up US political and military resources.

For long time the value of American currency hasn't based on the condition of her economy, as normally should, but on the fact that Dollar is the reserve currency of the oil trade. The value of Dollar is based on oil, and the value of oil backs up the Dollar. Unless US finds more oil resources (among Iraq) to rob, the current economic way leads the country to a total economic crush. The other option is to force Iran to give up the selling of oil in other currencies than Dollars.

A military option for current oil crisis is much harder for US to accomplish, because unlike the invasion of Iraq, Iran is not a piece of cake. Iran has a well trained and equipped large army and it has prepared for war much better than Iraq was before the first Gulf War. Iran is also technologically more advanced, and her weapons are more modern than in Iraq. Still a solely military victory in Iran would not be a problem for USA, since they could bomb the country back to Stone Age. However there are a few matters to solve:

- At first US is stuck in Iraq. Almost entire free capacity of US Forces is stuck in Iraqi crisis and can not leave the country because it would lead Iraq to flee in chaos. US would need another half million men more to invade Iran. After the reductions in manpower of US Army since the end of Cold War US has no manpower for invasion. Just bombing Iran to Stone Age without invasion and taking control over Iran's oil resources would ruin US economy, because if Iran's oil does not flow to markets, the price of oil would rise permanently above 400$ per barrel, which would ruin the entire World's economy.

- Secondly; In order to grow the numbers of US ground forces with the needed half million men, America would have to call the conscription again, which would be politically impossible and so expensive that if would ruin US economy.

- Third; US should be able to beat and occupy Iran in less than three months in order to survive economically. During the war the price of oil would rise temporarily above 400$ per baller, and US government would have to control and limit the price and availability of gasoline in home market with their oil reserves, which are enough only for three months. A longer war would crush the US economy. Iran is a three times bigger country than Iraq and her beating and invading would take much longer than only three months.

- Fourth; Starting war with Iran would make the entire Middle East to flee in war, which would spread in Iraq, Syria, Israel, Lebanon and entire Gulf region. It would stop the oil trade in the Gulf area and rise the price of oil in astronomical numbers. The World has no means or reserves to keep the price of oil down during that kind of crisis. The World's economy would collapse and cause so much more wars, huge hunger and civil crises that you could almost call it the World War III.

USA, the soon to be ex-Superpower is in a situation where it can't afford to attack Iran, but on other hand it could not afford not to attack. the question is:

1. Does Americans have the ability to accept the unavoidable loosing of their political and economic World leadership and let their economy to recess without the war and thus save the rest of the World from disaster?

or:

2. Do the Yankees want to greedily keep up in their power and try to save their empire by attacking Iran and thus play a game where chance of Victory is minimal and the World would flee into a great war and economic disaster?

There's something to ponder