Thursday, December 4, 2008 16:35 | Filled in Finance


Speach by Tun Dr Mahathir Bin Mohamad
at the Institute For Policy And International Studies
Tehran, Iran, at 10.00 am, 30 November 2008

The financial crisis is yet another threat facing the Islamic ummah. Whether we can avoid being dragged down by this crisis or we can minimize the effect will depend much on us. It will also depend on whether the ummah choose to act together or whether each Islamic nation will act individually.

In facing any challenge we need to know as much as possible the nature of the challenge and how it will affect us. But more importantly we need to know the causes of the financial crisis itself, and what made it possible.

The systems that we see collapsing i.e. the monetary and banking systems have been in place for centuries. Why is it that the collapse is happening now and not before, not when the systems were introduced or shortly after? And why has it happened to the richest and the most powerful countries of the world?

The problem with systems and ideas devised by Man is that they always undergo change over time. New ideas would be added to them. The new ideas may not be good for the original system or idea.

Thus money began with coins of metal of definite values. But this was replaced with paper money backed by gold. Then gold backing was dispensed with. The value of paper money is vaguely related to the strength of a country’s Government or its economy. Finally it was to be determined by the willingness of the market to accept the paper currency notes.

At this stage the currency became open to manipulation by market players. Currency traders find they could easily change the value of a currency in terms of exchange rates by massive selling and buying.

Besides making huge profits from currency trading, it was found that the countries whose currency has been devalued would experience political, economic and social turmoil. They and their people can become very poor.

The Western powers saw in this an opportunity to hegemonise and control the developing countries. The IMF and the World Bank were used for this purpose. By applying conditions to loans by the IMF/ World Bank, the countries in distress can be forced to surrender political and economic control to the Western powers. The impoverisation of these countries also enabled the Western banks and capitalists to buy up all the businesses of the debtor countries at very cheap prices as they all have been made bankrupt or nearly bankrupt by the devaluation of their currencies.

Currency trading is therefore a political weapon to bring all the countries of the world under the control of the Western powers. How far-reaching the control can be is being seen now. The foreign funds which had come in to buy shares and banks during the 1997 – 98 financial crisis in the East are now pulling out, taking their capital with them in order to escape the impending crises. They have done this, this time, in expectation of the world financial crisis affecting the economies of these countries adversely. The withdrawal of their capital will in fact cause the financial crisis to affect these countries sooner and more severely.

Currency trading is made possible because of fiat money i.e. money that is not linked to gold or other precious metals.

We all use paper money now. Our paper money is also not linked to gold. But we do not indulge in currency trading although we still have to buy foreign currency to pay for imports. To a certain extend the market determines the exchange rate of our money. This causes a certain degree of instability but not sufficient to impoverish us.

Still it is best if the exchange rates remained stable. That is why Malaysia decided that Government should fix the exchange rate of the Malaysian Ringgit. All the great experts predicted a collapse of the Malaysian economy because we did not abide by international rules or wisdom. But as you know we recovered faster than the other countries after fixing the exchange rate.

Islamic countries should study the possibility of fixing the exchange rates of their currencies as a measure to protect themselves during the current financial crisis.

However the fact remains that the monetary system of the world today is open to all kinds of manipulation. The world needs to have a new monetary system that would be less easily manipulated.

Perhaps the ummah might push for a return to the gold standard. Another solution could be the use of the gold dinar purely for trade payments. In any case the Islamic ummah can reduce the attacks against them by not using the American Dollars for trade payments, especially for oil.

The U.S. Dollar is not backed by reserves as are other currencies. Apart from that the Unites States is bankrupt as it has a debt of 14 trillion dollars and it can never repay this debt. This huge borrowing by the United States is because for many years it has trade and current account deficits which forces it to borrow 1 ½ billion dollars a day to sustain itself.

The only reason why the U.S. Dollar has any value at all is because it is used in trade payments. If the gold dinar or other currencies are used for trading then there would be no demand for U.S. Dollars. It would then become worthless and that would have consequences over the United States’ foreign policy.

This is something that the Muslim ummah can make use of in protecting themselves from the current financial crisis.

The other major cause of the present crisis is the banking system. For most people a bank is a convenient institution for depositing safely their money and withdrawing it when needed. We do not question how banks function. We assume that the money the banks lend us comes from the capital and the deposits with the banks.

The present banking system was created some 300 years ago by the Rothschild’s. In that system money is actually made out of thin air, out of nothing. No gold or other assets were necessary. Yet the money borrowed from them has accepted values. Each time money is lent it creates money for the banks.

In most countries central banks owned by Government produce coins and print money. The money in circulation is therefore under Government control. But money can also take the form of cheques and how much money issued as cheques is not controlled by the Government.

The United States Federal Reserve Bank is not owned by the Government. It is owned by twelve privately owned state reserve banks. Yet the Federal Reserve Bank can actually print and issue currency notes, without any backing. Certainly it can lend money to the Government in the form of cheques.

Other banks can borrow from the Federal Reserve Bank when short. But these banks can lend much more than the amount of capital and the deposits from its clients. In the American system the banks can lend 90% of the deposits by its clients. But such is the system in use that the banks can actually lend 10 times the amount that it holds in the form of deposits.

Whereas ordinary businesses can only sell what they have in stock, banks can apparently deal in ten times the money held by them.

The profits made by ordinary business is hardly ever more than 10% of the total value of the stock sold. But since banks earn a fix interest, and the interest comes from 10 times the money it actually holds, the earnings of the banks are far higher than from ordinary business.

Since banks can lend more than the money it has, the tendency is to increase the lending as much as possible.

The current crisis began with the sub-prime loans, i.e. loans at high interest to risky borrowers. The total amount of loans to such borrowers runs into hundreds of billions of dollars.

Housing loans usually require payment over 30 years. Banks calculate their earning from interest and principle over this period, without taking into account bad debts.

To avoid risks these loans were bundled up together with the good loans and insured with insurance companies such as AIG. The banks may also allow for a second mortgage to hedge against possible default.

Additionally the houses against which the loans were taken would belong to the bank until the total debt has been paid in 30 years time.

It seems that the banks would be making good profits even if the loans carry high risks. So would the insurance companies and the mortgage companies.

But when the risky loans defaulted by the millions resulting in debts of hundreds of billions which cannot be repaid, the banks were faced with huge numbers of non-performing loans. At the same time the collateralised houses cannot be sold as banks refused to lend money to buyers and the original banks could not recover any of the money lent through sales of the collaterals.

The insurance companies were also unable to pay the banks because the premium they received was far too small for the losses sustained by the banks.

The mortgage companies also faced the same problem as payments could not be paid by the borrowers.

The result is the spectacular collapse of the banks because most of the loans were not from deposit money but the ten times more than the deposits which banks were allowed to lend.

When banks lend much more than the money they have they were actually creating money out of nothing. If the loans are repaid then they would stand to gain far more than if they had limited themselves to their subscribed capital and deposits. However if the borrowers defaulted then their losses could exceed their capital and the deposits they had received. They would become bankrupt.

The sub-prime fiasco is due to the failure of the huge loans to high risk borrowers, to yield the interest and the principle expected. The banks concerned have lost far more than whatever capital assets or even deposits they had taken. Obviously they would not be able to return the deposits they had taken. They have by definition become bankrupt. When banks go bankrupt a whole lot of other businesses which depend on the banks for their operating capital will also go bankrupt. Hence, the bankruptcies of the three huge automotive companies of America.

The hedge funds are also affected as they depend on loans from the banks to leverage their investments.

Why did this crisis happen to the United States and not the other countries? Firstly, it is because the privately owned banks actually issue large amounts of money in America. It should be noted that the money issued need not be in the form of printed currency notes. Cheques can be made out in any amount and effectively the cheques are money. The lending and borrowing are no longer constrained by the amount of currency notes in circulation.

The second factor is the faith in the market regulating the value of money. Wall Street and the rich capitalists had persuaded the Government that it should not interfere with the market i.e. with banking and finance and the way money is used to make more money.

The market is about making money, making profits regardless of the consequence. When the banks created money out of thin air, when they lend this money to people quite incapable of repaying their loans, when the amounts exceed the capacities of the banks to recover in cash after the loans go bad, when the deals become so big as to be far bigger than money in circulation and total trade in goods and services, the Government did nothing. The Government did not even require accounts to be submitted for tax purposes. Though banks are required to submit accounts and pay taxes, this was easily avoided by having offshore subsidiaries in tax havens where they can borrow huge sums from legitimate banks and do anything they like with the money without having to show accounts to any Government agency.

The hedge funds took advantage of the lack of Government supervision to borrow as much as twenty times the amount invested in them. Using these loans the hedge funds made huge investments mainly in the money market, guaranteeing return to investors of 30% or more. This was believed to be possible because the returns would be from twenty times the amount invested in the hedge funds. So huge are the hedge funds that Central Banks cannot hope to protect national currencies by buying the currencies dumped into the market by hedge funds.

What can the Muslim ummah do to face the worldwide financial crisis? The first thing would be to continue with Government regulations of the banks and the financial institutions. The free market system should not be adopted, at least not in full. Instead, all financial transaction must be made transparent and subjected to proper regulation. The regulation should be judicious as over-regulation can stifle business, and affect economic growth.

The idea of a globalised, borderless world has been promoted by the rich countries especially the United States. Conceived by the rich, we can be sure that it was meant to benefit them.

Globalisation is something that cannot be avoided as the ease of communication and travel make isolation of countries impossible. Whether we like it or not whatever happens in other parts of the world will effect us. This involves not only finance and the economy but also political and social ideas.

There is more than one way to globalise. Muslims must study the manner and the effect of globalisation in order to devise a system of globalisation which will not destroy the Muslims and their religion.

In banking and finance, the principal causes of the current financial crises, there is no need to follow all practices coming out of the West.

The ummah can have their own banking and financial system. Already we have Islamic banking and Islamic insurance. They have not been abused the way the Western banking systems and insurance have been abused. It is necessary that the Muslim institutions such as these be scrutinied carefully in order to prevent them from causing the same problems.

Muslims must be active in proposing new systems, rules and regulations for banking and finance. We should even propose to go back to gold whether it is in the form of gold dinar or any coin or bullion.

To save our currency and economy from being affected by western banking practices and the U.S. Dollar, a new trading currency should be proposed to replace the U.S. Dollar. Such a trading currency should be tied to gold and used only in international trade.

This will help stabilise the value of national currencies as gold has intrinsic value in all countries. The local currencies can still be used but the value must be pegged to the international trading currency. There will be fluctuation as gold prices do fluctuate. But this would be minimal, much less than paper money.

Truly the Muslim ummah are in the best position to initiate and sustain the monetary and financial systems of the world. This is because they are in possession of more money than they can find use for. They are even in a position to insist that their oil be paid in the local currency or in any currency designated by them. Whatever currency they choose will become strong simply because there will be a demand for it just as today the U.S. Dollar has a value because there is a demand for it in the settlement of trade.

What is needed from the ummah is the will to insist on their wishes to be considered. I do not see all the Muslim counties in the world acting together. But it would be enough if a few would coordinate their efforts, would act together and agree to promote the interest of the ummah.

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USD Interest Rate Cut

Tuesday, December 2, 2008 7:09 | Filled in Forex News

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USD Interest Rate Cut

The NBER revealed that the US economy has been in a recession since December 2007, leading to the collapse of major US stock bourses. The Dow Jones sank by 7.7%, and both the Nasdaq and S&P 500 plunging by nearly 9%. The selling accelerated following comments from both Fed Chairman Bernanke and US Treasury Secretary Paulson.

In the Forex market, JPY was the biggest gainer at the start of the week. JPY against GBP plunged to 138.60 and EURUSD was at 117.30. The USD also edged higher against the majors. GBPUSD was at 1.4879, USDJPY at 93.16 and EURUSD at 1.2612.

With the Non Farm Payrolls on Friday, you can expect further melting of the USD. The Non Farm Payrolls report is expected to be the worst for the year to date. The US economy will remain weak and Fed will have to take necessary actions so as not to deteriorate further. There could be an interest rate cut.

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Non Farm Payrolls

Tuesday, December 2, 2008 2:11 | Filled in Forex News

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Non Farm Payrolls

The Non Farm Payrolls is one of the most anticipated reports on the unemployment status of the United States and the economic condition of the country. The Non Farm Payrolls will roll in at 13.30 GMT on Friday, the 5th. December. Other related reports to the Non Farm Payrolls are:

• The Unemployment Rate which is the registered unemployed. This is expected to increase by 0.3% from 6.5% to 6.8%.
• The Average Hourly Earnings is expected to be unchanged at 0.2%
• The Manufacturing Payrolls which report on the loss of jobs in the manufacturing sector is anticipated to be at - 77K from -90K.

After about a year in recession, the Non Farm Payrolls report for November is expected to be one of the worst Non Farm Payrolls report for this year. The estimated figure is between -300K to -325K compared to -240K for the October Non Farm Payrolls Report.

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GBP Interest Rate

Monday, December 1, 2008 1:50 | Filled in Forex News

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Forex News this Week

For this week the focus will be on the Non Farm Payrolls. However, there are several others Fundamental News that will have a strong impact on GBP and the USD. These are:

BOE Interest Rate Decision

This BOE Interest Rate Decision will be at 12.00 GMT on Thursday, the 4th. December. This monthly meeting of the BOE will decide on the monetary policy of UK and after the meeting the policy decisions are announced. For this month meeting the BOE is expected to reduce the Interest Rate to 2.00%. You can expect this Interest Rate cut give a very strong impact on GBP and GBP related currency pairs.

Fed Chairman

Fed Chairman Bernanke Fisher will be speaking at 16.15 GMT also on Thursday, the 4th. December on Housing and Housing Finance. Watch out the USD and USD related pairs.

Non Farm Payrolls

The Non Farm Payrolls report will be announced at 13.30 GMT on Friday, the 5th. December.

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Euro,Pound,Dollar & Yen

Monday, November 24, 2008 12:02 | Filled in Forex News

Forex News on the Euro, Pound, Dollar & Yen this week

There are several high impact Fundamental Forex News coming out this week. On Monday, we have the Euro Zone Current Accounts Report. This report which summarizes the flow of goods, services, income and transfer payments in and out of the Euro-zone nations to other countries. This Fundamental Forex News, Current Accounts Report will affect the value of the Euro.

Tuesday and Wednesday will be more interesting as we will be facing the German GDP and the United States GDP news on Tuesday and the United Kingdom GDP on Wednesday. All the three GDP reports are reflections of the growth of economic activities of the countries. The market is expected to be Bullish if there is a positive GDP growth and Bearish if the GDP is negative The German GDP, the United Kingdom GDP and the United States GDP definitely will of a bearing to the value or strength of the Euro, Pound and the Dollar.

The release of the Forex News is scheduled as follows:
German GDP @ 07:00 GMT, Tuesday
United States GDP @ 13:30 GMT, Tuesday
United Kingdom GDP @ 09:30 GMT, Wednesday

Other than the above Forex News, on Tuesday, we will also be greeting the BOJ Monthly Report, Canadian Retail Sales News, the United States Consumers Confidence which will have an impact on the Yen, the Canadian Dollar and the Dollar.

Other Forex News scheduled for this week are the Japanese Consumer Price Index, Forex News on Japanese Retail Trade and the BOJ Monetary Policy Meeting. Under the current economic situation traders trading the Yen and the Yen related currency pairs will keep watch on the mentioned Forex News and news on BOJ Monetary Policy Meeting as this news will be an indicator on the future of the interest rate.

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Forex News and Forex Signals

Wednesday, November 19, 2008 6:18 | Filled in Forex News

If you are trading on Forex News, you got to be on the lookout for high impact Forex News related to Interest Rate and Inflation. Forex News in the pipeline are :
Minutes of Meeting of BOE and FOMC at 09:00 GMT and 19:00 GMT respectively.

Two other datas Forex News on CPI and Housing Starts at 13:30 GMT

Trading suggestion for GBPUSD is as follows:

LONG POSITION at: 1.5050
STOP LOSS at: 1.4960
TAKE PROFIT at: 1.5250
OP, TP & SL at your own RISKS

STOP LOSS at: 1.5010
TAKE PROFIT at: 1.4200
OP, TP & SL at your own RISKS

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Weak Pound - Short GBPUSD

Monday, November 17, 2008 7:01 | Filled in Forex Signals

The Pound is weak coupled with a stronger Dollar GBPUSD is still on a downtrend:

STOP LOSS at: 1.4790
TAKE PROFIT at: 1.4500
OP, TP & SL at your own RISKS

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Yen Raises

Saturday, November 15, 2008 13:41 | Filled in Forex News

Nov. 14 (Bloomberg) — The yen rose, heading for weekly gains against the euro and the dollar, as a drop in U.S. retail sales prompted speculation investors will sell higher-yielding assets and pay back low-cost loans in Japan’s currency.

The dollar was poised for a second weekly gain versus an index of the currencies of six major trading partners as investors sought the relative safety of U.S. assets. The yen climbed against the Australian and New Zealand dollars today on bets a Group of 20 nations summit will fail to reach a consensus on resolving the credit crisis, sapping carry trades.

Yen’s Weekly Gains
The yen rose 1.5 percent versus the dollar this week, its biggest gain since Oct. 24, and advanced 2.1 percent against the euro, 3.9 percent versus the Aussie and 7.1 percent versus the New Zealand dollar.

European GDP
GDP in the 15 euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union’s Luxembourg-based statistics office said today. The two quarters of contraction mark the first recession since the single currency was introduced almost a decade ago.

Interest Rate
The BOE is prepared to cut interest rate from 3 percent, Governor Mervyn King said this week.

Leaders of G-20 countries were gathering in Washington to debate proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks after financial institutions worldwide lost $958 billion on securities tied to U.S. mortgages.

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Free Forex Signals : GBPUSD

Wednesday, November 12, 2008 9:12 | Filled in Forex Signals




STOP LOSS at: 1.5490

TAKE PROFIT at: 1.5333

OP, TP & SL at your own RISKS

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Free Forex Signals : GBPUSD

Tuesday, November 11, 2008 5:50 | Filled in Forex Signals

Free Forex Signals


SHORT Position at 1.5660

STOP LOSS above 1.5710

TAKE PROFIT at 1.5586 / 1.5535 / 1.5464

OP, SL & TP at your Own Risks

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USD Unemployment - Non Farm Payrolls

Thursday, November 6, 2008 17:20 | Filled in Forex News

WASHINGTON (AP) — The number of out-of-work Americans continuing to draw unemployment benefits has surged to a 25-year high, while shoppers turned extra frugal, further proof of the damage from sinking economy, credit problems and financial stresses.

The Labor Department reported Thursday that the number of people continuing to draw unemployment benefits jumped by 122,000 to 3.84 million in late October. It was the highest level since late February 1983, when the country was struggling to recover from a long and painful recession.

New filings for jobless benefits last week dipped to 481,000, a still-elevated level that suggests companies are in a cost-cutting mode.

Democrats in Congress are pushing to include an extension of unemployment benefits in a new stimulus package, which could be taken up this month. Benefits typically last 26 weeks.

Congress approved a 13-week extension of benefits in June, and the department said about 773,000 additional people claimed benefits through that program for the week ending Oct. 18, the most recent

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Master Forex Trading Contest

Thursday, November 6, 2008 7:42 | Filled in Forex Brokers

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Tuesday, November 4, 2008 15:39 | Filled in Forex Trading





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