We Didn’t Actually Fix Anything since 2008 – IMF

Actually we made it worse.

In effect, the fix of 2008 was just like putting a bandage on a diabetic wound.  But the patient still keeps eating candies.  It really was just a fix and not a cure.

imf guard

How long can we keep kicking the can of market failure down the road?  Well, LOM’s offshore brokers said that the markets can be irrational and stay that way for an unexpectedly long, long time.  Maybe that’s what our central banks and policy makers are really wishing for.  At least it can buy them some time to figure things out. Yellen and Bernanke merely continued the policies started by Allan Greenspan, using money supply to steer the economy.   Want more growth?  Cut rates.  Want a stronger dollar?  Hike rates.  Depressed?  Take some Prozac.

The problem is that the global markets have entered into an unprecedented era of market dysfunction where the traditional economic tools and formulas are not working anymore.  The market really needs a brilliant economist like John Nash 2.0 to pop up from the shadows with some new theory to solve it all. It needs someone to change the paradigm like the way Einstein revamped newtonian physics. But there seems to be not much time left for that kind of savior.

So what happens if there’s no breakthrough?  No super economist to save the day?

Then we face the consequences.

Like if you keep eating Big Macs straight, your body has to get sick.  What day it happens, you don’t know for sure.  After a month of pigging out on Big Macs?  Or a year? Or five years?  Regardless how long, that point in time will come that you are going to get sick. You’ll throw up, get a fever, get a heart attack or worse, die.  Your body will naturally, by itself, break down and try to do things that will get rid of all the toxic stuff you’ve ingested.

The credit addiction – all that debt that saturates the global economy right now- can be likened to all those Big Macs.  The difference in the analogy, though, is that the economic doctors are prescribing Big Macs as a temporary fix for the sickness which was actually caused by overeating those Big Macs. Thus, we are caught in a vicious cycle of Big Macs.

Take for instance the housing bubble of 2008. Subprime mortgages were bundled up and repackaged inside financial instruments that were sold to a lot of banks and financial institutions.  These financial instruments were used in more deals and even collateralized.   With the power of leveraging, the destructive powers of these toxic financial instruments were further magnified.  When it all imploded, the United States Federal Reserve created money out of thin air and bailed out those big institutions about to default on their credit obligations.  Effectively, the United States, lender of last resort, absorbed all that debt.

The problem now is that the United States government also needs to borrow more money.  The United States’ national debt now stands at $18.8 trillion, equivalent to around 30 percent of total global debt.   The interest on that national debt is piling up at an amazing rate of over $1,000,000 per minute.  For a long time now, the United States has had to borrow money to fund even its own operations, with congress having had to lift the debt ceiling seventy-four times already since 1962.

So what kind of fever, what kind of breakdown awaits?  There are a lot of worst case scenarios but no one really knows how it will really end up because it is all unprecedented.  The variety of market instruments available during our time complicates all analyses and projections.  The interconnectedness of banks and quasi-banks across countries also makes the possible outcome a big convoluted jumble of compounded distress.

The growth of shadow banking also pushes central banks into a dark ocean they know not how deep or wide.  International Monetary Fund Managing Director Christine Lagarde has actually pinpointed shadow banking as the greatest threat to the global economy right now. Maybe this is because one is most afraid of what one does not know.  Shadow banking, or banking in the shadows, has grown in recent years because of quantitative easing and the desire of institutions and investors to avoid the increasingly stringent rules being imposed by financial regulatory bodies.  These shadow banks operate beyond the scope of present regulators such as the exchange commissions and central banks.  And so, they conduct their business, executing complex and innovative deals, basically unregulated.  This is the wildcard in the already muddled equation the world is trying to figure out.

What should we do?  The economy – at the global and national level – finds itself in an impossible bind.  But individuals, operating at a microeconomic level, can still fix their own personal Big Mac overdoses.  By finding additional revenue streams, cutting unnecessary spending, reducing debt, saving little by little, investing wisely, an individual’s finances need not implode.  Fortunately, the tools of basic wisdom and common sense still work at the individual level.

How To Choose Your First Broker In Investing

Unless you’re a business or finance major, you will need the help of a broker to sort your investment, especially in handling stocks. These people will help you with the ins and outs of this business. Also, you should know that there is no way you could do this without owning a brokerage account. We’ll get to the details on how you could acquire that later, for now let’s focus on your getting your first broker.

If this is your first time, choosing your broker would be different from those who have been doing this for a long time now. You would be surprised that dealing with finding a broker is like handling and choosing the right stocks for your investment as well. That said, you must actually find the right match for you. Because if you don’t, I hate to break it to you but there’s a possibility you’ll end up penniless.

The first thing you need to know about picking the right broker is what exactly is their job description and how could they help you. You must know if you will get a regular broker or a broker-reseller. I’ll walk you through their differences.

The regular type of brokers is the ones that handle the whole investment deal with a direct client. The client will be hands-on working with them from the ground up. The other type, which are the broker-resellers are basically the middlemen dealing with a client and huge broker.

My advice is that go for a regular broker because they are more legit. There is a chance you could actually be ripped off when you deal with broker-resellers although of course, I am not saying it to generalize them, but it’s just wise to investment brokergo for a regular broker if you’re just starting here. Should you ever decide to go with a broker-seller, make sure that you know them well and that you double-check every document before making a final decision.

I would advise to also go for brokers that are linked to reputable organizations that are known in this industry. Fidelity and Scottrade are among these and they are members of the Financial Industry Regulatory Authority.

You must also be aware that there are brokers who offer their full service and there are also ones that could give you discounts. Most people take the former even they are really expensive because they literally do all the job. As the investor, you will also gain a lot more than tips and suggestions in how you would deal with your stocks if you for the one who offers full service.

Aside from the obvious fact that you must go with a broker who is trustworthy, these are among the things that you must consider before going with one. And as much as I would want to tell you that you really don’t need their help, unfortunately you do. They are like the people who handle your taxes, which means you don’t have much choice but to trust them or you will have to do it yourself.