The Resourceful Bear Blog

Edward Hugh writes in Seeking Alpha that the Bank of Japan cut its benchmark interest rate today to 0.3 percent and also decided to begin paying interest on reserves commercial lenders hold at the bank to provide liquidity to the financial system and trimmed the Lombard rate - the cost it charges for loans made directly to member banks - to 0.5 percent from 0.75 percent.

Prime Minister Taro Aso decided yestreday to postpone the national election that polls suggest could have seen him and his ruling LDP party being pushed out of power. He also announced an "economic revival" package, worth an estimated $275 billion, of which $50 billion would come from new spending (and the quantity of new money needed would undoubtedly have been higher if the BoJ had not "conveniently" cut interest rates today. The details we have so far on the package suggest it is set to give large tax breaks to home mortgage holders, extend tax cuts for capital gains, lower highway tolls and give loans to small businesses.

Commentary
Bank of Japan 0.5% yen carry trade financed traders started to go short the emerging markets, EEM, and the Japanese shares, EWJ, on May 19th, 2008, when the Bank of Japan met to discuss policy. Peak currencies occurred in late July 2008, when the BoJ 0.5% financed yen carry traders aggressively sold the EUR/JPY short; this stimulated a rise in the Yen, FXY, and a fall in the price of Japanese shares. A lending crises arose on September 11, 2008, that is 9-11-2008, when the bank found they could not issue stock to raise capital, this resulted in a breakdown of lending, that is a stoppage in lending, as is seen in the fall of HYG.

The ongoing Yahoo Finance Chart of EURJPY compared to EWJ, EEM and HYG ... EURJPY compared to EWJ, EEM and HYG

Economic expansion collapses as credit dries up
Ben Holland, Laura Cochrane and Balazs Penz in Bloomberg article Panic Strikes East Europe Borrowers as Banks Cut Franc Loans report that Imre Apostagi says the hospital upgrade he's overseeing has stalled because his employer in Budapest Hungary can't get a foreign currency loan.

The company borrows in foreign currencies to avoid domestic interest rates as much as double those linked to dollars, euros and Swiss francs. Now banks are curtailing the loans as investors pull money out of eastern Europe's developing markets and local currencies plunge.

``There's no money out there,'' said Apostagi, a project manager who asked that the medical-equipment seller he works for not be identified to avoid alarming international backers. ``We won't collapse, but everything's slowing to a crawl. The whole world is scared and everyone's going a bit mad.''

Foreign-denominated loans helped fuel eastern European economies including Poland, Romania and Ukraine, funding home purchases and entrepreneurship after the region emerged from communism. The elimination of such lending is magnifying the global credit crunch and threatening to stall the expansion of some of Europe's fastest-growing economies.

``What has been a factor of strength in recent years has now become a social weakness,'' said Tom Fallon, emerging-markets head in Paris at La Francaise des Placements, which manages $11 billion.

German and Austrian banks curtail emerging europe lending
Now banks including Munich-based Bayerische Landesbank and Austria's Raiffeisen International Bank Holding AG are curbing foreign-currency loans in Hungary. In Poland, where 80 percent of mortgages are denominated in Swiss francs, Bank Millennium SA, Getin Bank SA and PKO Bank Polski SA have either boosted fees or stopped lending in the currency.

The east has been the fastest-growing part of Europe, with Romania's economy expanding 9.3 percent in the year through June, Ukraine 6.5 percent and Poland 5.8 percent. The combined economy of the countries sharing the euro grew 1.4 percent in the period.

Governments are seeking to ease the pain as recession concerns sweep across eastern Europe's emerging markets.

Former soviet union countries seek emergency assistance funding from IMF to stay liquid
Ukraine, facing financial meltdown as the hryvnia drops and prices for exports such as steel tumble, on Oct. 26 agreed to a $16.5 billion loan from the IMF.

Hungary on Oct. 28 secured $26 billion in loans from the IMF, the EU and the World Bank. The government forecast a 1 percent economic contraction next year, the first since 1993.

Governments are forced by the IMF to raise interest rates as their currencies are sold short by Bank of Japan 0.5% financed currency traders
The Hungarian central bank raised its benchmark interest rate by 3 percentage points to 11.5 percent on October 22, 2008 to defend the forint.

The same day, Prime Minister Ferenc Gyurcsany said the government was seeking an accord with banks to ``prevent the burdens of debtors from reaching the sky.'' It's considering granting borrowers extended payment periods or the ability to convert foreign-exchange debts into forint.

``Panicked customers are calling to say they're afraid the interest on their mortgages will go up or that they won't be able to secure mortgages,'' said Nikolett Gurubi, director of lending at Otthon Centrum Belvaros, the downtown Budapest branch of a real estate agency.

Project manager Apostagi, 58, said he hopes the crisis will be over in a few months, blaming U.S. banks for creating such distrust between lenders. For now, ``it looks like our signed contracts were for naught,'' he said.

Romanian central bank Governor Mugur Isarescu sounded the alarm in June, saying the growth of foreign-currency loans was ``excessively high and risky,'' especially because Romanians with their communist past aren't used to the discipline of debt.

``It's not that we're bad,'' Isarescu said. ``It's that, culturally, we need to prepare for the moment of repayment.''

At the other end of the spectrum, Turkish consumers have proved more cautious after living through their own currency crises in 2001 and 1994. The government, the IMF's biggest customer in recent years, is resisting new loans from the fund, arguing that its economy can weather the credit crunch and a 22 percent slump in the lira since the start of September.

The unwinding yen carry trade is "The Aramageddon Trade" for the devastation it produces.
Sebastian Becker in DB Research article The Yen Strikes Back For Now - The Unwinding Of JPY Funded Carry Trades writes about the great unwind in the Yen Carry Trade stating: "Carry trade activities built up over the past few years are now being suddenly unwound, thereby giving rear cover to the yen. Although global carry trade activities are difficult to track and the total size is even more demanding to estimate, empirical evidence suggests that JPY funded carry trades have been clearly cut back since the onset of the credit crisis. For instance, Japanese balance-of-payments data indicates that net loan outflows from Japan to the rest of the world have softened since mid-2007. Moreover, non-commercial JPY future positions have been abruptly reversed from net short to net long since July 2007, according to the US Commodity Futures Trading Commission. Furthermore, the amount and percentage share of foreign banks’ borrowing in Japanese money call markets has decreased considerably for more than a year now. Another indicator for carry trades – the amount of foreign assets held by Japanese households – speaks the same language. While the stock of foreign assets skyrocketed over the past few years to a peak of JPY 38 tr in October 2007, it has shrunk since then to below JPY 30 tr (to roughly USD 300 bn) in September 2008. However, it is not clear to what extent this reduction is due to yen appreciation and how much it is driven by net foreign asset selling. Last but not least, another gauge for carry trades is the net foreign claims of BIS reporting Japanese banks to offshore centres where many hedge funds are reported to have their offices. According to this gauge, yen carry trades could have been as large as more than USD 400 bn in Q2 2008 (see chart). Overall, empirical evidence points to an unwinding of yen carry trades.

To sum up, given heightened global risk aversion, the plunge in global asset prices and a reduced interest-rate disadvantage between major economies and Japan, the JPY may trade sideways or even appreciate further over the short to medium term against the USD and EUR even after its recent rally. Although the BoJ trimmed its benchmark rate to 0.3% from an already low 0.5%, the JPY’s interest rate disadvantage should nevertheless shrink further as other major central banks have still more room for monetary easing over the next couple of months."

Amicus provides the monthly chart of the EUR/JPY; it's the chart of the century, as it shows the Armageddon Trade unwinding ... Monthly EURJPY

Yahoo Finance chart shows the end of the age of prosperity and the beginning of the dark era of economic collapse and financial ruin
The Yahoo Finance chart of EWO GUR HYG SPY and FXY shows the rise and fall of carry trade debt facilitated growth that came under the laissez faire, neoliberal, Milton Friedman, capitalism which was based on a floating rate currency exchange, interest rate differential investing, and free trade system ... ewo, gur, hyg, spy, fxy

A World Wide Run On Currencies Is Underway
The Milton Friedman floating currency exhange system has collapsed, that is high yielding currencies have collapsed in value, sending central bank and bond market place interest rates soaring.

Tasneem Brogger and Helga Kristin Einarsdottir of Bloomberg report that Iceland's central bank has raised its key interest rate to 18% from 12% after the island reached a loan agreement with the International Monetary Fund. Iceland will receive about $2.1 billion from the Washington-based fund, according to a deal struck on October 24, 2008.

The rise comes less than two weeks after Iceland cut rates from 15.5%.

"I don't think 6 percentage points will make the krona any more attractive," said Henrik Gullberg, a strategist at Deutsche Bank AG in London ... "Basically what we're seeing is a complete liquidation of everything in emerging markets" ... and Iceland, even in the emerging-market universe, is very vulnerable" ... "Six percent isn't worth a lot if the currency drops another 15 percent".

Iceland and Hungary have had the worst loss in currency value amongst world currencies -- both their currencies went through the floor loosing over 30%. The Brazilian Real has cratered. Many countries have been in the throes of currency runs. A currency run is for all purposes the same thing as a bank run, however these runs are on nations and currencies not just individual banks.

Now Iceland's and Hungary's central banks are being forced by the International Monetary Fund, IMF, to raise their rates dramatically. Hungary just went to 11.5%. Brazilian bond interest rates are soaring.

Russia's credit default swap rates are above 1200 which is higher than Iceland's was just before its collapse. The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.

As currenices are imploding and interest rates are exploding higher, countries are falling like dominoes, beginning first with those that formerly had the highest yielding currencies, levels of borrowings, and levels of natural resource extraction and production.

The currency run on Iceland, liquidated its economy, which was based upon securitization and international savings. Hungary, Romania, other eastern union countries, and Russia will see their factories liquidated, that is, closed as lending ceases.

Liquidity comes at a cost: Iceland and Hungary are now owned by the International Monetary Fund. The people of Iceland have now for all pracitcal purposes been rented out to the IMF. Vulture Banking is the way of the IMF: it "assists" only the most desperate of countries, and on the most onerous and crippling of terms.

Soon those in Iceland and Hungary will see prices beyond Weimar: when one's economic infrastructure is liquidated, hyperinflation can be the only outcome.

Watcher on SurvivalBoards relates: "Icelands currency is now 'non convertible'. That means it technically has no value whatsoever and can not be used to purchase any needed imports. The Icelandic Central Bank has raised interest rates to 18% (Think about what that means for mortgages and credit cards for a moment) and has negotiated a large loan from the IMF in the hope that the Icelandic currency can become convertible again.

At the moment Iceland has to pay for all imports with it's limited reserves of foreign currency which are fast running out and is in urgent negotiations with Nordic countries and with Russia for emergency loans.

According to Bloomsberg news service, supermarkets in Iceland normally are resupplied each week, no supplies have arrived in the last two weeks and managers are quoted as saying that they don't know when the next deliveries of supplies are expected".

Austria, Sweden and Spain have heavy exposure to emerging market debt, and thus their currencies are likely to implode soon, sending their stocks awesomely lower, threatening to blow apart the European Union.
The Yahoo Finance chart of DEM, EMB, and PCY shows that emerging market debt traded variably today.
Emerging market junk bonds, DEM, 16%
Emerging market bonds, EMB, -4%
Emerging markets sovereign Debt, PCY 2%

Ambrose Evans Pretchard as quoted by Naked Capitalism relates that
EWP, Spain is in bad shape due to exposure in latin america.
EWD, Sweden is in very bad shape exposure in the baltics.
EWO, Austria central bank is in very, very bad shape due to exposure to central europe -- Hungary, Ukraine, and Serbia as well as the fact that it's debt exposure is equal to 85% of GDP.

Ambrose reports: "The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect. They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles. Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). (devastated without hope of recovery would be a better word, Richard) The Germans have lost $22bn".

The US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc. The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

The Yahoo Finance chart of EWD, EWP and EWO shows the toll taken on Austria's and Sweden's stock markets due to the exposure to balkan and central european debt.

Austria is a "walking dead country", in a very short period of time it will be an Iceland.

Yves adds commentary: "Recall 40 nations (EU and Asian) met in Beijing over the weekend, endorsing Nicolas Sarkozy's call for a revamping of international banking regulations and more coordinated, tougher supervision. None of this directly addresses the looming currency crisis, but the markets sold off badly Friday, and if there is any stabilization or reversion on Monday, the backing away from the abyss plus the hope that the next phase of meetings, scheduled for November 15 in Washington DC, might ameliorate the situation, may put the currency crisis in abeyance for a couple of weeks".

Gold is the safehaven currency
Gold is rising as the world's currency and means of preserving wealth as is seen in the ratio of gold relative to local currencies and local stock markets.

Gold relative to the Brazilian Real and the Brazilian stock market ... Chart of GLD:BZF ... and ... Chart of GLD:EWZ

Gold relative to the Indian Rupe and the Indian stock market ... Chart of GLD:ICN ... and ... Chart of GLD:INP

The investment application
Given that the attempt to restart lending has failed, and there is a run on currencies world wide, if one has wealth, it is best to put it far, far away from the current financial system, safe and sound in a guarded vault, like BullionVault and GoldMoney, with an account personally at streetTracks Gold Trust, and in physical possession of gold coins.

The spiritual application: the currency crisis suggests that now is a spiritual time for "new seriousness" and "soberness",
Tom Bergin and Sinead Cruise of Reutuers report: "The credit crisis could propel some people in firmly secular societies such as Britain toward religion, said Lord Richard Harries, a member of Britain's upper house of parliament and a former Anglican bishop. "Perhaps after the last decades of conspicuous consumption and hollow celebrity culture we are entering what we might call an era of the new seriousness," he said in a talk on BBC radio."

"I have a renewed sense of soberness". I am aware that the investment facilities of TARP, and the lending facilities of CPFF are not going to work. And that currencies are imploding, and interest rates soaring, and nations toppling. As told by the Lord, in Luke 21:36: I watch and pray always that I might be accounted worthy to escape all these things that will come to pass, and to stand before the Son of Man.

Financial market report for Friday, October 24, 2008

Introduction
Currency traders sold the yen carry trade, EUR/JPY, FXE:FXY, short, causing a massive a massive disinvestment from eastern european, GUR, emerging markets, EEM, the BRICS, EEB, and world shares, EFA. Chart of GUR, EEM, EEB, and EFA ... GUR, EEM, EEB and EFA 5 day ... GUR, EEM, EEB and EFA 12 month ... FXE:FXY

Ye Xie and Agnes Lovasz of Bloomberg report that the yen climbed to a 13-year high against the dollar as a worldwide drop in stocks encouraged investors to dump higher-yielding assets and pay back low-cost loans in Japan.

Amicus provides the monthly chart of the EUR/JPY; it's the chart of the century as it shows the Armageddon Trade unwinding ... Monthly EURJPY

Stocks fell sharply for the day and the week:
South Korea, EWY, -11%, -26%; Martin Fackler of The New York Time in article 'Trouble Without Borders' reports that rating agencies have raised conerns about the health of South Koreas Banks which have relied heavily on foreign borrowing. These are now scrambling to find dollars to repay manufacturing foreign currency loans. Woori Bank, one of Soth Korea's largest lenders, suddenly found itself unable to borrow dollars after last month's collapse of Lehman. Dealers in the bank's trading room made frantic calls to big foreign banks seeking fresh loans only to be told bluntly "no". Worse, Foreign banks refused to roll over many existing loans, forcing Woori to repay them as they came due, also in dollars. Woori has stayed liquid thanks to dollar loans from the government, which has pumped tens of billions into banks.

Former Soviet Union, GUR, -11%, -20%

BRICS, EEB, -10%, -20%
Brazil, EWZ, -9%, -20%
Russia, RSX, -12%, -20%
India, INP, -9%, -15%
China, FXI, -10%, -20%

Emerging Markets, EEM, -10%, -19%

World Shares, EFA, -5%, -11%

US Shares, VTI, -5%, -7%

Coal Producers, KOL -9%, -20%
Steel, SLX, -8%, -19%
Metal Manufacturing, XME, -7%, -13%
World Shipping SEA, -7%, -13%
Energy Sevices, OIH, -7%, -7%

Financial and real estate values fell on exposure to sythetic CDOs and settlement of Lehman Brothers credit default swaps
The Yahoo Finance ongoing five day chart of the debt suretors compared to the financial sector and the banks ABK, RDN, MBI, IYF, and KBE suggests that the marketplace is cutting value based on exposure to Synthetic CDOs and settlement of Lehman Brothers credit default swaps ... ABK, RDN, MBI, IYF, and KBE

The Yahoo Finance ongoing five day chart of the real estate investments DRW, IYR, and RWR suggests the same conclusion as with the suretors and the financial sector and the banks ... DRW, IYR and RWR

Real Estate, IYR, -7%, -17%
Financial, XLF -6%, -12%

International Real Estate, DRW, -7%, -15%
World Financial DRF, -3%, -14%

The unwinding yen carry trade sent commodities lower
The unwinding yen carry trade sent oil, USO, 4% lower on the day and 11% lower for the week.

Currency losses for the week were significant; these induced a loss of value in emerging market debt
Currency traders going short world currencies, DBV, such as Hungary's Forint and long the yen, FXY, and the US Dollar, UUP, $USD, propelled emerging market debt, EMB, PCY, and interntional government inflation protected bonds, WIP, lower. Chart of EMB, PCT and WIP ... EMB, PCY, and WIP

Doug Noland and Stockcharts.com relate world currencies, DBV, fell 12% this week;
New Zealand Dollar, BNZ, -20%,
South Africand Rand, SZR, -14%
British Pound, FXB, -8%
Mexican Peso, FXM, -6%
Caandian Dollar,FXC, -6%
Australian Dollr, FXA, -9%
Indian Rupe, ICN, -5%
Euro, FXE, -6%
Brazilian Real, BZF, -15%
Swiss Franc -3%
South Korean Won -6%,
Norwegian Krone -6%
Polish Zloty -12%
Turkish Lira -12%
Chilean Peso -8.0%
Hungarian Forint -8%,
Iceland Krona -6%.

Interest rate differential investing took a reversal beginning with the May 19, 2008, Bank of Japan meeting; at that time investors started to buy yen and repay their 0.5% carry trade loans as is seen in the six month ongoing Yahoo Finance chart of BZF compared to FXB, FXA, ICN and BNZ which illustrates the great unwind of high yielding currencies. The six month ongoing Yahoo Finance chart of TLT, UUP, and FXY, illustrates the so called "flight to safety" and the demand for US Dollars and Yen.

The euro, FXE, closed down at 125.89; its chart objective is 115.

There has been a run on Hungary's currency: Martin Fackler of The New York Time in article 'Trouble Without Borders' reports the Hungarian forint has lost 31% of its value relative to the US Dollar in the last three months.

Emerging Market bonds and inflation protected bond values fell sharply both today this week and in the last three months
EMB -3%, -10%, -28%
PCY -4%, -20%, -38%
WIP -2%, -6%, -22%

Gold has become significantly more expensive in terms of country currencies
Those who have failed to invest in gold, have been pauperized by their currencies falling in value relative to gold; in other words, their currencies have signifcantly fallen lower relative to gold: it now takes significantly more local currencies to buy true wealth.

The chart of the gold ETF, GLD shows a close up to $72 ... GLD

Gold, $GOLD, closed up at $730 ... $GOLD

Demand for US Treasuries was strong this week
US Treasuries, TLT, although turning lower for the day, stands at its second highest ever weekly close at 96.73 ... Weekly TLT

The interest rate on the 10 Year US Government Note, $TNX, closed up at 37 ... $TNX

The US Dollar closed strongly up at $86.42
The US Dollar, $USD, traded up 1.5% on the day; and 5% for the week to close at $86.42 ... $USD

The dollar bullish ETF, UUP, closed at 26.88 ... UUP

Jesse in article Charts in the Babson Style for the Week Ending 24 October 2008 provides the chart of DX Dollar ... DX Dollar

Lending eased somewhat for corporate high grade debt and worsened some for junk bond debt
The value of corporate debt, LQD, increased as the value of US Treasuries increased this week; but other forms of corporate debt lost value as is seen in the 5 day ongoing Yahoo Finance chart of TLT compared to LQD, HYG, JNK and CVY

Municipal bond debt increased in value with US Treasuries this week
The MSN Finance chart of municipal bond debt for the period of September 11, 2008 to October 24, 2008 for the debt ETFs MUB, CMF, and the mutual bond funds OROHX, ORMIX and FDMMX shows municipal bond debt increased in value with US Treasuries this week

Dollar roars back as debts are called in
Ambrose Evans Pretchard in article Dollar roars back as global debts are called in relates: "For six years the world has been borrowing dollars to bet on property, oil, metals, emerging markets, and every bubble in every corner of the globe. This has been the dollar “carry trade”, conducted on a huge scale with high leverage. Now the process has reversed abruptly as debt deflation - or “deleveraging” - engulfs world markets. The dollars must be repaid. Hedge funds are 75pc dollar-based, regardless of where they come from. Many are now having to repatriate their dollars as margin calls, client withdrawls, and the need to slash risk forces them to cut leverage. The hedge fund industry had assets of $1.9 trillion at the peak of the bubble."

Elaine Meinel Supkis writes: "The swelling of 'world wealth' coincides with this long period of free lending. Most of the money created this way was not in yen but in dollars. So the US lost control of who produces dollars. Since dollars are debt, the cranking out of epic amounts of debts meant this debased US dollars. Since this was done via Japan, this also killed the yen. So we saw, for about 6 years, the dollar and the yen BOTH in free fall vis a vis most currencies on earth".

And that inflation didn't matter. Well, we just got washed over by a tsunami of hyperinflation which has now receded. We are now in the other half of this destruction of all that Japanese/US 0% lending lunacy: equity and asset value destruction. Both the US and Japan desperately want to reinflate all the original items this flood of funny money inflated. Namely, stocks, housing, corporations, etc.

These items are 'wealth producers' because one can dump cheap debts on top of them! Commodities translate directly into inescapable inflation. But when artwork, diamonds, gold jewelry, vacation villas, yachts and custom cars rise in value as everyone eagerly bids higher and higher thanks to tons of free money, this gives the illusion of wealth. Paying more to fuel the yachts, custom cars, etc. feels like losing wealth.

Elaine Meinel Supkis writes: "This is why everything is now unwinding: the US can't take on more debt. And the debt we ARE taking on is not for buying anything. It is all vanishing down this massive Bottomless Pit where the Derivatives Beast eats every penny and belches. Nothing is being bought or created. This is creative destruction with a vengeance. Indeed, this is very much akin to the ancient Chinese practice of burning worthless paper money to bribe Celestial Guardians at the Gates of Death."

And Ms Supkis continues: "The Derivatives Beast doesn't want more Japan carry trade loans. He wants real money. And this means getting the major governments of the world to feed him real meat and potatoes: future taxes, the wealth of empires.

I say that once there is a total worldwide financial system breakdown, and currencies other than gold are totally burned out; then the mark, that is the charagma, of Revelation 13:17 will be introduced by the Seignior: "And that no man might buy or sell, save he that had the mark, or the authority of the beast, or the currency of his name."

Former soviet nations and South Africa currencies suffered huged losses: bankruptcy of eastern european countries is very possible
Laura Cochrane of Bloomberg reports: "The Polish zloty, Hungarian forint and South African rand headed for their biggest weekly declines as the global economic slump fuels concern of a worsening credit crisis in emerging markets.

The zloty fell 2.7 percent against the dollar today, taking its weekly decline to more than 16 percent, the steepest since Bloomberg began tracking the data in 1993. The forint extended its weekly loss to a record 14 percent while the rand fell almost 17 percent in its biggest five-day decline since 1975."

Martin Crutsinger and Mike Eckel of the Associated Press report that the IMF will provide Ukraine with $16.5 billion in loans and announced that emergency assistance had cleared a key hurdle.

Niall Green in GlobalResearch.ca article Eastern European Economies Face Bankruptcy

Rakesh Saxena writes in Seeking Alpha: How Will Hungary Shape Eastern European CDS Prices this Week?

Mark Scott writes on October 23 that Eastern European country Belarus has asked the International Monetary Fund, IMF, for a reported $2 billion loan to prop up the country’s dwindling capital reserves. The former Soviet satellite already has secured $2 billion in financing from Russia and the country’s finance minister, Alexei Kudrin, says he might ask Western states for additional help.

Current account deficits and high levels of external debt raise the risks of a hard [economic] landing. High dependence on foreign capital amplifies external vulnerability."

With an average current account deficit of 9% of GDP, Central and Eastern Europe definitely will feel the financial squeeze. Morgan Stanley reckons countries in the region hold approximately $1.65 trillion in foreign debt. And in Baltic states like Estonia and Latvia, which already are in recession, foreign currency-denominated debt stands at 30% and 24% respectively of total GDP.

Bulgaria and Hungary, face mounting financial problems as foreign currency loans represent more than half of the countries' entire loan book. Hungary's current account deficit in the second quarter of the year stood at roughly 6%. Bulgaria's was a staggering 24%.

Brad Setser of the Council on Foreign Relations, CFR, relates: "Some emerging market central banks have noticed that they - unlike the Bank of Japan, Bank of England, Swiss National Bank and the European Central Bank - don't have access to unlimited dollar credit through reciprocal swap lines with the Federal Reserve. "Analysts say the unlimited dollar currency swaps set up between the Federal Reserve and central banks have helped bring stability to currencies through alleviating institutions desire to purchase dollars in the spot market to satisfy overnight funding requirements. 'In contrast, the lack of currency swaps put into place between the Federal Reserve and emerging market central banks has likely helped to exacerbate the pick up in emerging market currency volatility' says Derek Halpenny, at the Bank of Tokyo Mitsubishi UFJ"

We now live in a multi-polar world: the days of US Dollar hegemony are over
Richard Russell of Dow Theory Letters relates that No nation can run an empire on borrowed money: "For months I've insisted that no nation can run an empire and fight two wars on borrowed money. Sooner or later something has to give - the nation's credit standing or its currency. Now the dreaded subject is beginning to emerge. The demise of the US's world standing".

"Today, in The Wall Street Journal of all places, we see a featured piece on the op-ed page entitled, 'The Dangers of a Diminished America'. A diminished America? How can that be? It be. The US has been getting away with it all by owning the unique advantage of printing the very money that its huge debt is denominated in. Yes, I'm talking about the reserve status of the US dollar. This is the Achilles Heel of the US. The US dollar will possess its reserve status as long as our creditors continue to accept Federal Reserve Notes, paper with nothing behind it accept the 'full faith and credit' of the United States."

European states likely to be unable to raise money despite the need to do so
David Oakley of the Financial Times reports that "Some European governments are struggling to raise money in the bond markets because of the vast financial pledges that they have made to bail out their battered banking sectors.

"Spain failed to launch a bond last week, while Belgium and Finland were having difficulty attracting investors for debt offerings after governments set aside billions to recapitalise their banks and guarantee their debt.

"Governments face problems raising money, as investors demand higher yields because of the extra credit risk resulting from the bank guarantees and the huge pipeline of sovereign debt expected over the next year, which is hanging over the market.

"The eurozone countries will have to issue an extra $263.3 billion in debt in the next year to pay for bank recapitalisations and guarantees, according to Bank of America."

Argentine bonds, stocks sink as takeover fuels default concerns
James Attwood and Drew Benson, Bloomberg report: "Argentina's bonds and stocks plunged for a second day as a planned government takeover of $29 billion of pension funds heightened concern the South American country is headed for its second default this decade.

"The benchmark Merval stock index tumbled 15.8% on speculation President Cristina Fernandez de Kirchner plans to use the funds to meet financing needs that have swelled as prices on the country's commodity exports tumbled. Argentina hasn't had access to international debt markets since its 2001 default and demand for its local bonds has dried up in the past year on concern the government is underreporting inflation.

"'It's the final of many nails in the coffin from an institutional investor perspective,' said Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London. Argentina is 'disappearing into irrelevance', he said.

"The yield on the government's 8.28% bonds due in 2033 surged 6.25 percentage points to 30.94%, according to JPMorgan Chase & Co. The bonds yielded 12.16% a month ago. The benchmark Merval stock index sank to a four-year low, extending its decline this week to 27%.

"Fernandez, 55, announced her plan to take over 10 private pension funds during a speech in Buenos Aires yesterday, saying the proposal would help protect retirees from the global financial crisis. The last time Argentina sought to tap workers' savings was in 2001, just before it halted payments on $95 billion of bonds. Fernandez denied in the speech that her plan is a bid to 'grab the cash'."

Summary
When the communist union broke up, it was about the time that "free trade", how I hate that term, picked up as factories were closed in the US and production transferred to China, Vietnam, Central and South America. The US started running huge spending and trade defecits, while the former soviet states borrowed to build factories from Japanese families.

In other words, the communist nations, and the BRICS, Brazil, Russia, India and China, got industrialized by paying high interest and good profits to Japanese middle and working class workers, as well as those using carry trades.

In the heyday of interest differential investing, money flowed from 0.5% interest Japan to 5.5% Australia, Hungay, Poland and Romania.

Now as risk is perceived, liquidity evaporates; and the Japanese and those funded with the yen carry trade, and other carry trades, are selling thier developing nation stocks and emerging market bonds for whatever they can get, which is practiclly nothing, and there is no lending so factories are shutting down, as commercial paper is not being cut to fund payrolls, make purchases and roll over debt. Economies are imploding.

The only thing that will be worth anything is gold.

Powerful political elite and investment bankers, ie the Goldmanites, those of Goldman Sachs, are rising to rule mankind through bloodless political and economic coups as well as through innovaive framework agreements.

Soon there will be a global monetary authority, and unified regulation of banking globally, and a Seignior, that is a top dog investment banker to govern mankind.

Investment application
While the US Dollar is strong, and brokerage accounts and money markets insured, there seems to me, to be a risk of investment loss due to an economic seizure that could take place in either the lending market place or the stock market.

If one has wealth, it is best to put it far, far away from the current financial system, safe and sound in a guarded vault, like BullionVault and GoldMoney, with an account personally at streetTracks Gold Trust, and in physical possession of gold coins.

Since the failure of the TAF, TSLF, PDCF rally on May 19, 2008, which came on the day of a Bank of Japan meeting, yen carry traders began to short sell the yen carry trade, that is the EUR/JPY, better termed the euro carry trade, the wind energy and solar energy stocks began to fall in value as is seen in the ongoing Yahoo Finance chart of FAN, and TAN compared to the yen, FXY, the euro, FXE and oil, USO. Note how the loss of share value increased on July 25, 2008 when Peak Currencies occurred as the EUR/JPY went into Elliott Wave 3 Decline and as oil sold off on July 14, 2008 ... FAN, TAN, FXY, FXE and USO