Money Talks

A few weeks ago I wrote about the state of US democracy , about the way US democracy allows failed Republican Vice Presidential candidate, Sarah Palin, as Governor of Alaska, to appoint herself Senator for the State in the event that its existing Senator was sent to gaol. In fact, a look at the US politcal system seems to show a greater number of its political representatives being sent to the Big House compared to Britain. That has little to do with a greater degree of deference by the police to politicians in Britain as the fiasco over Tory MP Damian Green demonstates, but a greater degree of corruption in a system where money talks even more than it does in the hardly democratic British Parliamentary system.

See Also:

US Democracy and

Obama and Political Change


Now, it looks like one of Ms. Palin's associates, the Democratic Governor of Illinois - Barack Obama's State - is likely to join that long line. He is accused of selling the Senator's seat to the highest bidder. As was said on US CNBC, however, today, the asking price was less than the price to buy a seat on the Chicago Mercantile Exchange - also based in Chicago, Illinois - which probably says something about where real power lies in the US. Its no wonder that Chicago's Cook County - you know where the Blues Brothers had to pay the Rent to the Sherriff's Office - has earned itself the name Crook County.

In another example of money talking, however, it has in recent days been saying soemthing else, though perhaps giving out a contradictory message. IN the US yesterday the price of very short term US Government Bonds fell to a yield below zero. In other words, investors were paying the Government to keep their money safe for them! That is an indication of the amount of risk aversion current in financial markets despite the unprecedented level of liquidity and state backed guarantees that have been given. In Britain too, the extent of the Government's fiscal stimulus package, and its borrowing have brought about a reduction in Britain's creditworthiness. The cost of insuring against the British Government defaulting on its debts went up. It is now higher than the cost of insuring against McDonalds defaulting.

Yet, contradicting this picture the Libor and Euribor rates - the rates charged by banks to lend to each other on a very short term basis - has been steadily falling, reflecting that the Credit Crunch is slowly thawing. As I wrote at the weekend, the fact that the US had some truly appaling economic data out last week - jobless claims up by over half a million, the worst since 1974, for one - whilst the DOW, NASDAQ and S&P ended the day up over 2%, and that was despite the longest run of up days for months, seemed to possibly signal that the market was climbing the wall of worry that traders speak of when the bottom has been reached. US markets have been up quite strongly every day this week other than yesterday too, and European and Asian markets have been following suit. In Japan too, the other day, despite very bad figures on Exports and output the market managed to move upwards.

These conflicting messages that Money is sending seem to suggest that although three is understandably a considerable amount of fear around reflected in higher risk premiums, there is a sense that all the bad news has now been priced in and that the various State aid packages are beginning to have some effect. As one analyst put it on CNBC today, although figures put out by businesses in the next quarter are likely to be bad, it is likely that investors will say, "Well its no worse than we expected" so prices will not fall, and might even rise. And by the time the second quarters figures are being pre-announced the Credit Crunch should be near its end, and the stimulus packages will be promoting new growth. That is no doubt why markets are beginning to rally, which in itself will recapitalise the Balance Sheets of fianncial companies, and why the price of Oil and Gold is rising ahead of an expected spurt of inflation, certainly by 2010, and possibly as early as late 2009.