Or perhaps, one would be asking, “What has that got to do with me?” The ignorant one would say, “Don’t know. Don’t care.”

Here are few questions to think about:

Is U.S. dollar the reserve currency of the world?
Which country has the biggest economy?
Which currency is used the most in global trades?
Which currency is Singapore Dollar, Malaysian Ringgit, Thai Bahts and other currencies peg to?

Well, if you have figured that out, lets move on. After 1971, U.S. dollar is a derivative of debt issued by the U.S. Treasury.

Foreign countries buy U.S. debt as an investment of their surplus U.S. dollars. Nowadays, China is the first holder of U.S. bonds. China owns so many U.S. bonds, there is fear that if they stop buying them, the U.S. economy would collapse. The bonds issue further links the U.S. and China economies so tightly that both fear the consequences of a potential slow down in China’s purchase of those bonds.

If the U.S. dollar continue to lose its purchasing power, what would happen to global trades?
If the U.S. dollar continue to lose its shine, what impact would that have on the Singapore Dollar, the Ringgit, the Pesos and etc?
Do you think the price of gold will go up or down?
How about the price of commodities? Up or down?
How about inflation? High or low?

Well, ponder over these questions. See you in the next session.

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After 1971, the central bankers could create money by merely printing more paper. In today’s digital age bankers do not need paper to create money.

The rules of money have been changed!

Many years ago, price of gold was fixed at $35 dollars per ounce, but no longer after President Nixon’s decision. Once Nixon took the United States off the gold standard, gold’s price started to rise. In May 2009, gold has crossed over $900 an ounce. The US dollar has lost its purchasing power.

The stock market is crashing because cash is flowing out of equities into savings, bonds, gold and silver.

To learn more about financial education from expert such as Robert and Kim Kiyosaki, click here.

Lehman Brothers and Merrill Lynch disappeared.

AIG almost collapsed.

More to come….

Many Americans are looking to this year’s presidential candidates, Barack Obama and John McCain, to save US financial system. But they are politicians! The problem Obama or McCain face: Limited financial education and diminished financial common sense.

Learn more about financial literacy from multi-millionaires like Robert Kiyosaki, T. Harv Eker and lots more at here.

On Sunday, the US Treasury and the Federal Reserve said they would lend money and buy equity if needed to rescue the two pillars of the US housing market, sending shares soaring early on Monday.

But the gains soon fizzled as analysts noted any direct government investment in Fannie Mae and Freddie Mac would further dilute existing shares – the last thing investors want.

Regional banks were also under fire as investors fretted about the possibility of more bank failures after regulators seized the mortgage lender IndyMac Bancorp late on Friday, following withdrawals by panicked clients.

National City Corp, responding to market rumours, said in a statement it was ‘experiencing no usual depositor or credit activity.’ But the Midwestern banking institution’s stock still plunged 14.71 per cent to US$3.77 after the statement.

Shares of other regional banks such as Washington Mutual and M&T Bank Corp also plummeted, with Washington Mutual down 34.8 per cent at US$3.23, and M&T Bank down 15.6 per cent at US$58.82. The S&P financials sub-index fell 5 per cent to 239.22, its lowest level since October 1998.

‘Bottom line is the market is in no mood to give anyone any benefit of the doubt right now,’ said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

Mr Kenny pointed to the long-term impact of Fannie Mae’s and Freddie Mac’s poor performance as the key drivers of investor uncertainty.

‘I mean, it’s nice to know that the government is willing to take unorthodox steps to calm the markets and to infuse confidence on the part of the investors, but this is a long road ahead of us here,’ he said.

The Dow Jones industrial average fell 45.35 points, or 0.41 per cent, to 11,055.19, while the Standard & Poor’s 500 Index lost 11.19 points, or 0.90 per cent, to 1,228.30. The Nasdaq Composite Index slipped 26.21 points, or 1.17 per cent, to 2,212.87.

After the closing bell, General Motors shares rose as much as 5 per cent on news that Chief Executive Rick Wagoner will announce the automaker’s second restructuring package in six weeks, in an attempt to cut costs and shore up investor confidence in the company. GM closed at US$9.38, down 5.4 per cent on the NYSE.

In the regular session, the Dow’s drop was cushioned by the performance of defensive stocks like McDonald’s and Coca-Cola, which tend to weather economic downturns because consumers still buy their products even in tough times.

McDonald’s shares rose 1.3 per cent to US$58.09, while Coca-Cola gained 1.4 per cent to US$50.96 on the New York Stock Exchange.

Apple shares gained 0.8 per cent to US$173.88 on Nasdaq after the company said it sold 1 million units of the new iPhone in its initial weekend, in line with analysts’ estimates.

On the other hand, shares of Fannie Mae fell 5.1 per cent to US$9.73, while those of Freddie Mac slid 8.3 per cent to US$7.11, both in NYSE trading. Both stocks had risen more than 20 per cent in trading before the opening bell.

Among regional banks, Fifth Third Bancorp tumbled 10.6 per cent to US$11.16 on the Nasdaq.

In other news, activist shareholder Carl Icahn blasted Yahoo on Monday for rejecting his joint proposal with Microsoft Corp, saying management was more focused on who would run the Internet company than on the details of the offer.

Shares of Yahoo fell 4.2 per cent to US$22.57 and Microsoft shares dipped 0.4 per cent to US$25.15, both on the Nasdaq.

Trading volume was low on the New York Stock Exchange, with about 1.41 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.07 billion shares traded, below last year’s daily average of 2.17 billion.

Declining stocks outnumbered advancing ones on the NYSE by 3 to 1, while on the Nasdaq, more than two stocks fell for every one that rose. — REUTERS

“I hope I am wrong, but my view is that this crisis will take one to two years to stabilise,” Wee Cho Yaw, a banker for almost 50 years, told a university commencement ceremony, The Straits Times reported.

A bank spokeswoman confirmed the quotes when contacted by AFP.

The default crisis in the US subprime — or higher risk — mortgage sector ballooned into a world credit squeeze as banks tightened lending criteria. The crisis has also battered financial markets.

“What worries me is that no one seems to know the full amount of off-balance sheet securities circulating in the financial markets,” Wee was quoted as saying.

The subprime homeloans were repackaged into securities and sold to investors around the world. The wave of defaults led to billions of dollars in losses on those securities, damaging the balance sheets of major international banks.

“And this is what frightens me most — no one can tell me how much more will be written off…,” The Straits Times quoted Wee as saying.

Wee said regulators will need to ensure closer supervision of financial institutions and the “exotic trades” that have arisen over the past decade, the newspaper reported.

UOB has a regional presence, including subsidiaries in Malaysia, Indonesia, China and Thailand.

Baron Rothschild’s adage was to “Buy when there’s blood in the streets.”
Mine is “buy when CNBC starts telling you to short the market.”

Last Tuesday, CNBC exhorted its viewers to consider shorting stocks. Jim
Cramer followed up a few days later by urging his followers to “sell
everything” except commodities stocks.

My gut says these are classic stock market “tells” that signal a contrarian
buying opportunity, but I could be wrong. And that is the beauty of a
financial panic?and our first lesson.

Lesson #1: Nobody knows where the market bottom is.

It may be hard to believe, but your guess on the stock market bottom is as
good as anyone’s. That anyone includes Ben Bernanke, Hank Paulson, Bill
Gross, George Soros, Warren Buffett, Lloyd Blankfein and even Jim Cramer.

In six months, the media will dig up some lucky market analyst who made a
“remarkably prescient” call and turn them into a hero, a la Elaine
Garzarelli, the analyst credited with predicting the Crash of 1987.

Lesson #2: Do not sell into a panic.

Anyone who sold their stocks on Black Monday, Oct. 19, 1987, came to almost
immediately regret it. I know I did. I was a junior banker in London and
watched the meltdown on our lone department Quotron.

My brain said, “Hang on, hang on.” My wallet said, “Run for your life.”
With one phone call, I sold every Fidelity stock fund I had and promptly
lost a quarter of my net worth.

The temptation to panic is primal. Be a man, not a monkey.

Lesson #3: Look forward, not backward.

Does anybody remember how negative sentiment was in October 2002? The S&P
500 was down almost 50% from its record of 2000. The Nasdaq Composite Index
was off 75%. I had just returned from 10 years in Europe to run the UBS
tech banking group.

What struck me when I first visited Silicon Valley was how negative
everyone was. That was because my colleagues and clients saw the world
through the distorted prism of the Internet boom. They couldn’t see the
tech market getting better in the future, because the tech market couldn’t
be any better than it had just been.

The market looks forward, but people like to look backward. A Cisco Systems
shareholder that owned the stock at $77 has trouble forgetting that $77
price when the stock falls to $15. In time, it doubled to $30.

Is Citigroup at today’s closing price of $16.76 so different? Wall Street
in 2008 is Silicon Valley in 2002. It will get better in time.

Lesson #4: It’s investing, not gambling.

Why do we obsess over our ability to pick the bottom or top of a stock
price or the market? Statistically, it is a total crap shoot.

As Bernard Baruch said, “Don’t try to buy at the bottom and sell at the
top. It can’t be done except by liars.”

Financial panics bring out the worst in these tendencies. All this weekend,
I was chewing over whether or not it was the right time to buy the XLF, the
financial sector ETF that is trading at nearly half its record high.

I haven’t pulled the trigger yet, but I know that picking a bottom is a
mugs game. Admittedly, an awfully tempting one. Better to use common sense.
Set price and allocation targets, space out investments over time.

Since the beginning of this year, I have made fund purchases on about 20
different dates with an average cost base equivalent to an S&P 500 level of
1346. On that money, I am down about 5%. There are mutual funds that charge
that much for an up-front load. Investing like this won’t make you rich,
but you won’t gamble yourself into the poorhouse either.

Lesson #5: It’s only money.

There is no point in fighting the tape or your emotions as the market is
gripped by panic. Next time the Dow industrials are down 300 and heading
down further, do what you make your children do: take a time out. Turn off
CNBC, your computer and BlackBerry and leave the office. (Wall Street
professionals, unfortunately, this doesn’t apply to you­. You will get
fired.)

I am a believer in the equity markets and have most of my net worth tied up
in the stock market. So every panic over the past two decades has cost me,
albeit temporarily, big chunks of my net worth.

Does it hurt? Of course. Do I lose sleep over it? Occasionally. But I
always keep in mind that it is only money.

I think of my dad, who would inspect my weary face after my exhausting
banker trips to Japan, India, and Hong Kong. As he put it: “There’s no
point in being the richest man in the cemetery.”

After flirting with bear market status for several sessions, the Dow closed 20 per cent below its October peak as it was no longer able to withstand the avalanche of warnings about banking losses, surging inflation fears and weakening consumer confidence.

Merrill Lynch struck a negative chord early in the session when it downgraded General Motors (GM), saying the automaker will need US$15 billion to shore up liquidity. Merrill added that bankruptcy is ‘not impossible’ for GM if the auto market continues to slump, sending GM’s shares down more than 15 per cent.

Adding to the gloom, US Treasury Secretary Henry Paulson said high oil prices, further home price declines and capital markets turmoil will prolong the American economy’s slowdown.

Nervousness abounded a day before the key monthly jobs report after data released on Wednesday showed US private employers slashed 79,000 jobs in June. The ADP data raised expectations for an even more disappointing payrolls report. Starbucks had announced about 12,000 jobs will be slashed soon.

Investors sold shares of big-cap technology companies such as Intel Corp and industrial conglomerates like Caterpillar on concerns about economic growth and rising oil prices.

‘This market is not for the faint-hearted right now,’ said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.

‘I really don’t see us getting out of this quagmire, this dark zone anytime soon – I don’t believe we’ll see a whole lot of positive rhetoric surrounding earnings coming up, given record oil prices and the concern about the global economy slowing.’

The Dow Jones industrial average tumbled 166.75 points, or 1.46 per cent, to 11,215.51.

The Standard & Poor’s 500 Index lost 23.39 points, or 1.82 per cent, to close at 1,261.52, while the Nasdaq Composite Index slid 53.51 points, or 2.32 percent, to end at 2,251.46.

The S&P 500 is down 19.4 per cent from its October closing peak, while the Nasdaq entered a bear market in February.

Coal mining company shares, including Consol Energy, were hammered throughout the session as the price of coal fell. The Dow Jones coal index plummeted 13.9 per cent, led by a plunge of 14.6 per cent in the shares of Consol Energy.

Economic bellwether Caterpillar was the biggest drag on the Dow, as its shares dropped 5 per cent to US$70.42. Shares of GM fell 15.1 per cent to US$9.98. Intel Corp’s stock lost 3 per cent to US$20.93.

There were some bright spots, however. Deutsche Bank helped calm some of the concerns about banks when Germany’s biggest lender said it now expects a quarterly profit compared with a loss a year ago and would not need any more capital.

Deutsche Bank’s announcement underpinned gains in the shares of JPMorgan Chase & Co, up 1.7 per cent at US$34.60.

Lehman Brothers’ beaten-down stock rose 6.7 per cent to close at US$22.36 on the NYSE after CNBC reported that the investment bank is issuing stock to employees as a retention effort.

The ADP’s employment report aside, Wednesday’s data brought some brighter news as well, with a boost in demand for aircraft lifting new orders at US factories by an unexpectedly large 0.6 per cent in May.

US crude for August delivery jumped to a record US$144.32 a barrel.

Trading was moderate on the New York Stock Exchange (NYSE), with about 1.52 billion shares changing hands, below last year’s estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.42 billion shares traded, above last year’s daily average of 2.17 billion.

Declining stocks trounced advancing ones by a ratio of about three to one on both the NYSE and the Nasdaq.

ONE of the most striking things about the past couple of months is how quickly the phrases ‘sub-prime crisis’ and ‘credit crunch’ have disappeared from mainstream consciousness, both replaced by ‘inflationary worries’ and ‘oil crisis’ as the stock market’s main bogeymen.

In its ‘Third Quarter Strategy Outlook’ dated June 27 for instance, BCA Research said the outlook will be greatly influenced by how oil prices behave: ‘The sustained advance in oil is choking off growth in the G-7 universe and could send equities to new lows. A reprieve in the oil crisis is needed for global equities to regain traction but there is no guarantee that such a reprieve will come anytime soon.’

As a result, the research outfit recommended going defensive and that ‘portfolio managers should further reduce their equity weightings below benchmark’.

There was virtually no discussion as to whether there could be more sub-prime shocks to come or whether the financial system has really recovered from the huge losses caused by a still-collapsing US housing market.

Similarly, most other outlook reports and stock market updates have assumed that the Bear Stearns bailout and the Fed’s actions in March/April have been sufficient to ensure that the sub-prime crisis is a thing of the past.

Readers would do well to ask themselves this question: how likely is it that a credit bubble that was about six years in the making (when the US Federal Reserve started an aggressive rate cutting campaign after the Internet bubble burst) can be so quickly and gently deflated in the space of two to three months?

Although most of the headlines over the past few weeks have focused on oil’s relentless climb and the inflationary-cum-growth implications, it is the complacency surrounding the sub-prime crisis that could well be the main problem equities will face over the next few months.

In fact, Wall Street may well be now waking up to this possibility – Bloomberg on Friday reported that it was sharp drops in financial stocks AIG and Merrill Lynch that dragged the S&P 500 to its five-year low and that the reason for the selling was mounting realisation that there are more sub-prime losses to come.

Bloomberg also reported that Lehman Brothers analyst Roger Freeman increased his second-quarter loss estimate for Merrill on expectations that sub-prime-related writedowns will be more than twice as big as previously projected.

The concerns over oil, inflation and growth are of course justified. BCA’s ‘Emerging Markets Strategy’ dated June 27 said these economies will witness a period of slower growth in the months ahead as inflationary pressures rise.

Although a major slump is unlikely, BCA said near-term risks are high and recommended investors ‘stay on the sidelines’.

Interestingly, US newspaper Barron’s June 23 issue reports (in the ‘Up & Down Wall St’ column) that fund manager Dewey Kessler from SDK Capital believes that the sub-prime crisis is now moving into its second phase, a phase that will see emerging markets transformed into ‘submerging markets’.

The process is said to have only just begun, starting with China, which although it is 50 per cent off its all-time highs, has still a long way to go.

However, it is possible that this support came via window-dressing activities ahead of the end of the first half and if so, the start of the second half could see this support withdrawn.

Moreover, US financial stocks are now being sold off as the realisation grows that the sub-prime credit crunch has not yet run its course.

All told, it looks like the worst is still not over yet. Forecasts earlier this year that the second half will be better than the first may well have to be revised.