Bank of England deputy governor Paul Tucker warned banks they could collapse 'before Christmas'

Bank of England officials were so concerned about the potential for a financial crisis late last year they took the extra­ordinary step of warning the entire banking system could collapse “before Christmas”.

By Harry Wilson

Paul Tucker, the deputy governor of the Bank of England, told an October meeting of the chief executives of Britain’s largest banks that there was a serious chance none of their businesses would survive to the end of the year.

“Gentlemen, you could all be out of business by Christmas,” Mr Tucker said in a stark warning to the bank chiefs, according to three sources present at the meeting.

The revelation of Mr Tucker’s remarkable warning shows the depth of fear among senior officials over the havoc the collapse of the eurozone would wreak on the British financial system.

Mr Tucker is one of the front-runners to replace Sir Mervyn King as Governor of the Bank of England.

Minutes published by the Bank’s Financial Policy Committee in September and December made clear the depth of its concerns, but the explicit warning given to the chief executives shows that officials feared a crisis even greater than that in the wake of the collapse of Lehman Brothers in September 2008. The meeting led directly to the creation of working groups at banks to gauge the potential for a full-scale collapse of the financial system.

One executive present said his institution had been so concerned by Mr Tucker’s warning that it had re-evaluated its entire risk positions.

However, another executive present said he had been disappointed with the Bank of England’s response and said that, despite the dire warning, it actually did “very little” to help deal with the situation.

Last month, Mr Tucker denied he had any knowledge of Barclays’ attempt to manipulate Libor after the bank released a memo of a conversation between him and former chief executive Bob Diamond.

Nigel Farage - They Will Collapse The System & Enslave People

Today MEP (Member European Parliament) Nigel Farage spoke with King World News about what he described as the possibility of, “a really dramatic banking collapse.”  Farage also warned that central planners want to enslave and imprison people inside of a ‘New Order,’ and he described the situation as “horrifying.”

Farage also discussed gold, but first, here is what he had to say about the ongoing financial crisis:  “Governments don’t have the courage to tell the people that we cannot afford to go on living the way that we are.  We’ve really failed very badly in having honest politics, so we have this gross and very grave debt problem.”

“Now everyone has decided, the Bank of England, the Fed, and the European Central Bank, who are utterly brilliant people that have led us to the mess we are in, they’ve all decided that the solution is quantitative easing.  The solution is to go on printing and creating false money in an attempt to buy our way out of the (ongoing) crisis.

My take on that, my historical perspective is that all we are really doing is actually compounding the problem....

“It means that at some point in the future, it may be three years, it may be five years, but at some point in time we are going to get (massive) inflation.  If you devalue money, if you increase the money supply, that is what happens (massive inflation).  We know history has told us this again and again.

It isn’t the euro that scares me anymore.  What scares me is the sheer level of indebtedness, and the fact that so many of our banks in the Western world are just in such serious trouble that we could face a situation where even if governments wanted to bail them out, the problem may become bigger than them.

So I do not discount, at some point, a really dramatic banking collapse.”

Farage had this to say about discussions in Europe where they are looking to cap the interest rates on the debt of both Italy and Spain:  “On a financial level it’s comical because it’s the same money that swirls around the system, which we know in the end doesn’t work.

But the sinister aspect of it is that the intention of men like (Italian Prime Minister) Mario Monti, and my old friend Mr. van Rompuy, is they actually want to enslave and imprison the peoples of these countries inside their ‘New European Order.’ 

And it’s horrifying because ultimately what it means is that people are going to reject and rebel against this.  They will rebel against it with violence, and they will rebel against it with political extremism.” 

Farage had this to say regarding gold: “Short-term, over the next few weeks, I have no idea what the gold price will do.  We are at a period here of incredibly high risk.  We face huge problems with the West’s indebtedness and a very fragile banking system.

I can only repeat that any sensible investor will have a decent percentage of their portfolio invested in gold.  And if things really do go as badly as I think they could, then the gold price could well shock people in terms of how high it goes.”

Nouriel Roubini: Five factors that could derail the global economy

By Edward Krudy, Reuters

NEW YORK – Economist Nouriel Roubini is standing by his prediction for a global “perfect storm” next year as economies the world over slow down or shudder to a complete halt, geopolitical risk grows and the eurozone’s debt crisis accelerates.

Roubini, the New York University professor dubbed “Dr. Doom” for predicting the 2008 financial crisis, highlighted five factors that could derail the global economy.

Those factors are:

•A worsening of the debt crisis in Europe
•Tax increases and spending cuts in United Sates that may push the world’s biggest economy into recession
•A hard landing for China’s economy
•Further slowing in emerging markets
•A military confrontation with Iran

“Next year is the time when the can becomes too big to kick it down (the road)…then we have a global perfect storm,” Roubini said in a television interview with Reuters.

Roubini’s gloomy 2013 outlook isn’t new, but it’s getting more purchase as slowing economies and Europe’s debt crisis drive turbulence in financial markets.

After what he expects will be a flat year for U.S. stocks in 2012, Roubini said the equity market could face a sharp correction next year, with little the Federal Reserve can do to stop it.

“There might be a weak rally because people are being cheered by more quantitative easing by (Chairman Ben) Bernanke and the Fed, but if the economy is weakening, that is going to put downward pressure on earnings growth,” said Roubini.

Roubini said the Federal Reserve may be pushed toward unconventional policy options as the simulative effect of successive waves of quantitative easing – effectively printing money to buy government bonds – diminishes over time.

Unconventional policy could include “targeting the 10-year Treasury at 1 percent, doing credit easing rather than quantitative easing, targeting nominal GDP, price-level targeting and lots of stuff that is more esoteric,” said Roubini. “Eventually if everything goes wrong, they can even buy equities.”

World Bank Urges Developing Countries to Brace for Long Term Volatility

The World Bank is urging developing countries to brace for the possibility of more economic turmoil in Europe. In its Global Economic Prospects Report, the bank advises emerging market economies to strengthen fiscal positions and develop medium-term strategies to protect their economies.

Emerging market economies may have weathered the 2008 financial crisis better than more advanced countries, but the World Bank warns -- it could happen again.

Senior bank economist Andrew Burns says anything is possible right now in Europe.

"Although we don't see it as a baseline scenario, it certainly is possible that the situation in high-income Europe deteriorates significantly. And if it did, that would have very serious impacts for developing countries," Burns said.

With borrowing costs still rising in Spain and Italy, and an upcoming Greek referendum that could forever alter the Eurozone -- Burns predicts a bumpy ride.

But even with the most recent bailout in Spain - economist Peter Morici says the problems facing Greece and Spain are very different.

"Spain's problem is one of a banking crisis. Greece's problem is one of a government crisis," Morici said.

Either way, Morici says the crisis has the potential to plunge the world into another recession, reducing global trade and exports dramatically.

The World Bank says developing nations need to focus on enhancing domestic productivity and boosting infrastructure development -- while reducing debt.

"What we suggest is that countries take the time now to try and replenish some of those cushions, some of those buffers they used in 2008 - 2009 so successfully to recover from that crisis. Try and rebuild those now by bringing policy to a more neutral stance, reducing fiscal deficits so that they have the ammunition to respond if a crisis, a second crisis, announces itself," Burns said.

Despite an over-abundance of caution, Burns is optimistic about a full-fledged global recovery - one led by emerging economies in Central Asia, the Middle East and Sub-Saharan Africa.

Americans’ wealth plummeted 40 percent from 2007 to 2010, Federal Reserve says

By Ylan Q. Mui

The recent recession wiped out nearly two decades of Americans’ wealth, according to government data released Monday, with middle-class families bearing the brunt of the decline.

The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were back in 1992.

The data represent one of the most detailed looks to date of how the economic downturn altered the landscape of family finance. Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross.

Those findings underscore the depth of the wounds of the financial crisis and how far many families remain from healing. If the recession set Americans back 20 years, economists say, the road forward is sure to be a long one. And so far, the country has only seen a halting recovery.

“It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics. “We were in free fall.”

The recession caused the greatest upheaval among the middle class. Only roughly half of middle-class Americans remained on the same economic rung during the downturn, the Fed found. Their median net worth — the value of assets such as homes, automobiles and stocks minus any debt — suffered the biggest drops. By contrast, the wealthiest families’ median net worth rose slightly.

Americans have tried to rebalance the family budget but have found it difficult to reverse the damage.
The survey showed that fewer families are carrying credit card balances, and those who do have less debt. The median balance dropped 16 percent, from $3,100 in 2007 to $2,600 in 2010. The Fed also found that the percentage of Americans who have no debt rose to a quarter of families.

But that progress was undermined by other factors, leaving the median level of family debt unchanged. The report said more families reported taking out education loans. Nearly 11 percent said they were at least 60 days late paying a bill, up from 7 percent in 2007. And the percentage of families saddled with debts greater than 40 percent of their income stayed the same.

Not only were Americans still facing significant debts, but they were making less money. Median income fell nearly 8 percent to $45,800 in 2010. The median value of stock-market-based retirement accounts declined 7 percent to $44,000.

But it was the implosion of the housing market that inflicted much of the pain. The value of Americans’ stake in their homes fell by 42 percent between 2007 and 2010 to $55,000, according to the Fed.

The poorest families suffered the biggest loss of wealth from the drop in real estate prices. But middle-class Americans rely on housing for a larger part of their net worth. For some, it accounts for just more than half of their assets. That means every step downward is felt more acutely.

Rakesh Kochhar, associate director of research at the Pew Hispanic Center, calls this phenomenon the “reverse wealth effect.” As consumers watched the value of their homes rise during the boom, they felt more confident spending money, even if they did not actually cash in on the gains. Now, the moribund housing market has made many Americans wary of spending, even if their losses are just on paper.

According to the Fed survey, that paper wealth — or what is officially called unrealized capital gains — shrunk 11 percentage points to about a quarter of American’s assets.

The findings track research Kochhar released last year that showed a dramatic drop in household wealth during the recession, particularly among minorities. That study found record-high disparities between whites’ wealth and that of blacks and Hispanics.

“It was turning the clock back quite a bit,” Kochhar said.

The Fed’s survey is conducted every three years. Although there have been some signs that the recovery has picked up — housing prices have begun to stabilize and unemployment has fallen — Fed economists said those improvements largely do not change the survey results.

“Recovery from the so-called Great Recession has also been particularly slow,” the report said.

Leaders plotting EU superstate: 'Fiscal union' looms... with the Germans in charge

By James Chapman, Political Editor

European leaders are edging closer to a federal union in response to the financial crisis engulfing the Continent.

In crisis talks yesterday, Britain and the US joined forces to urge Germany to create a central Brussels body that could assume sovereignty over individual countries’ budgets and fiscal policies.
There is growing frustration in London and Washington at Germany’s reluctance to take steps towards a single economic government and put its vast resources behind the struggling countries in the eurozone.

Their fears were aired yesterday in a conference call between finance ministers from the G7 group of leading nations.

Four EU leaders have been asked to draft proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of this month.

Senior Tory MPs are to press David Cameron to hold a referendum on Britain’s future in Europe if the moves go ahead.

They insist the Government must seek a mandate from voters to demand that key powers are repatriated from Brussels to Westminster in exchange for agreeing to treaty changes that would allow eurozone countries to pool sovereignty.

They fear a core eurozone, led by Germany, would be in a powerful position to push whatever policies it wanted affecting the rest of the 27-member EU.

The Prime Minister and Chancellor George Osborne have long argued that a single currency can only work if the eurozone creates an effective fiscal union.

They believe that for any single currency to work, richer areas must pay to support poorer ones.
Britain would stand outside any such arrangement, and Mr Cameron refused to sign a treaty taking more tentative steps towards a fiscal union last year.

But senior Conservatives say such a move would so fundamentally alter the balance of power and daily running of the EU that a referendum would have to be offered to determine whether British voters wanted to remain in Europe’s ‘slow lane’.

Up to ten chairmen of Commons select committees are understood to be preparing to call for a popular vote on Britain’s future place in the EU if a fiscal union goes ahead.

Some believe Britain should leave the EU in such circumstances, while others argue that a demand for a looser relationship with Brussels would be given greater force if endorsed in a referendum.

Conservative MP Bernard Jenkin, chairman of the public administration select committee, said: ‘Clearly the European Union becoming a federation which expressly does not include the UK is a dramatic change in the terms of our relationship with our EU partners.

‘The Government needs to lay its demands on the table so British law and British taxpayers’ money are both protected by a sovereign UK Parliament.

‘Any new arrangements should be subject to a referendum.’

The Coalition has changed the law to ensure that no more powers can be passed from Westminster to Brussels without a referendum. But it is far from clear that one would be triggered if the eurozone countries decide to pool sovereignty.

German Chancellor Angela Merkel confirmed this week that measures to create a closer union for countries in the euro were being considered.

‘The world wants to know how we see the political union in complement to the currency union,’ she said.

‘That requires an answer in the foreseeable future and Germany will be a very constructive partner.’

Berlin does not expect to take final decisions on strengthening economic policy coordination until March 2013, with only a ‘roadmap’ being agreed at the Brussels summit this month.

Global slump alert as world money contracts

Growth of the world money supply has dropped to the lowest level since the financial crisis of 2008-2009, heralding a severe economic slowdown later this year unless authorites rapidly take action.

By Ambrose Evans-Pritchard

The latest data show that the real M1 money supply – cash and overnight deposits – for China, the eurozone, Britain and the US has been contracting since the early Spring. Any further falls risk a full-blown global recession.

Clear signs of trouble are emerging in the US, until now the last bastion of strength. The New York Institute of Supply Management said its ISM business index – a proxy for business demand – flashed a "screeching halt" in May, crashing to 49.9 from 61.2 in April, where anything below 50 denotes contraction. Unemployment is rising again after grim jobs data for April and May, indicating that the economy may have fallen below stall speed.

Central bank governors and finance ministers from the G7 bloc are to hold an emergency teleconference call on Tuesday to grapple with Europe's escalating crisis. There is mounting anger in North America and Asia over the failure of the Europeans to use their vast resources to contain the brushfire in Spain.

The world money data collected by Simon Ward at Henderson Global Investors show that real M1 for the G7 economies and leading E7 emerging powers peaked at 5.1pc in November and has since plunged to 1.6pc in April. The data explain why commodity prices are falling hard, with Brent crude down to a 16-month low of under $97 a barrel.

China's money data are falling at the fastest pace since records began. The gauge – six-month real M1 – gives advance warning of economic output half a year ahead. "Europe needs to start quantitative easing [QE] immediately and China must ease policy," said Mr Ward.

The Americans may act first. Goldman Sachs expects Federal Reserve chair Ben Bernanke to open the door for QE in testimony on Thursday.

Stock markets rallied in Madrid and Milan led by bank shares on rumours of an EU plan to recapitalise banks directly with funds from the EU bail-out machinery.

Olli Rehn, the EU economics chief, said use of the European Stability Mechanism to bail out lenders was a "serious possibility", adding that it was imperative to "break the link between banks and sovereigns".

However, there is no sign yet that Germany will be willing to drop its veto on such action, viewed by Berlin as the start of debt mutualisation. Chancellor Angela Merkel crushed talk of an instant "banking union" after meeting commission president Jose Barroso, saying their could be no quick fix. She called instead for EU banking supervision as a "mid-term goal".

Her spokesman said any options that "resemble eurobonds" are for the distant future. "It's up to national governments to decide whether they want to avail themselves of aid. That also applies to Spain," he said.

Use of the ESM for bank bail-outs would meet fierce resistance in the German, Dutch and Finnish parliaments. A senior EU official said even Germany's Social Democrats are cooling on eurobonds. "They looked at the polling data and shivered. The German people are not willing to send money into a bottomless pit," he said.