Citigroup Inc. is shedding approximately 52,000 more employees in the coming quarters as the banking giant struggles to steady itself after suffering massive losses from deteriorating debt. The New York-based bank, which has already reduced its assets by about 20 percent since the first quarter of the year, also plans to trim expenses by 19 percent in 2009 from third-quarter levels, to $50 billion. The plans, posted on the company's Web site, were discussed by CEO Vikram Pandit at the company's town hall meeting in New York Monday with employees. The company said it is shrinking its work force by 20 percent from its 2007 peak of 375,000. The company had already announced in October that it was eliminating about 22,000 jobs from that level. About half of the expected work force reductions will come from business sales; Citigroup already announced that it was selling Citi Global Services and its German retail banking business, accounting for about 18,000 jobs. Citi is planning to sell other businesses, too, but has not announced them yet, a spokesman said. The other half of the work force reductions will come from layoffs and attrition, the spokesman said. The New York-based bank has posted four straight quarterly losses, including a loss of $2.8 billion during the third quarter. – LA Daily News
Dominant Social Theme: Banks get lean and mean.
Free-Market Analysis: One of the problems with a fiat money economy is the distortion that the larger economy undergoes as bubble after bubble builds, is popped, and then reflates. Because for the most part any given economy in a fiat-driven environment never gets a chance to fully undistort, anomalies continue to build over time. That is why unwinding is so important but never is fully implemented. As a result, certain sectors, especially the banking sector, become far larger than they need to. Citicorp is now facing up to the business deleveraging that needs to take place, but chances more will need to be done.
At its peak, Citicorp employed some 375,000 workers and one wonders what all those people did. Of course one needn't wonder much longer because if Citicorp does survive it will be in a much diminished state. Why question Citicorp's survival? Because there will be more financial shocks and more pain before the current round of deflating is over with. And Citicorp isn't exactly on firm financial ground.
Look down any street in mainstream USA and count the number of national, regional and local banks and chances are you may be surprised at how many banks there are. Some of these banks are necessary no doubt and many do a good business, or did in the past, but there is almost no doubt that the United States, like Britain and Europe, is over-banked. Thus, it is likely that the bank deleveraging has only just begun. Regulators understand the problem fairly well by now, which is why in the United States, the predictions of thousands of bank closings are routinely made. That number of bank closings has nothing to do with fundamental business conditions and everything to do with yet another manic expansion courtesy of fiat money.
Central banking is infection that keeps on giving. The problems it introduces into its host are never-ending because the distortion is ongoing. The system is never entirely cleansed and the distortions are never fully recognized until it is too late. It is for this reason that we have taken to stating this crisis is one of fiat money; it is not a credit crisis. The reason that Western leaders and the monetary elite are so determined to "fix" it is because if they don't the whole system will collapse. It is not a normal system, not a sustainable system, not a system that would have evolved absent a good deal of coercion and central planning.
No, there is no system we could conceive of that would take root in a normal environment that would demand that small savers and entrepreneurs hand over their money to fund-managers who place those funds in a variety of equity and fixed income positions that may fluctuate radically. Yet this is the system that has evolved and people hand over their money because they are frightened that inflation will erode the value of the hard-earned portfolios they have assembled.
Of course, people for the most part don't understand that the inflation they fear is generated by the central banking money creation machine. And when they clamor for central banking intervention as a result of an inflationary downturn, if they do so, they are clamoring for more of what ails the system in the first place.
In the next few months or even years, unwinding will likely hit all major sectors of Western economies. The result may be a reshaping of the world economy and, even, a massive centralizing of credit and currencies – just as those who fear global consolidation have predicted. Yet we can't shake the feeling that all of this happening too fast and that those who would like to see a centralized global government have miscalculated the speed at which such an evolution can take place.
It would have been different, perhaps, had the Internet not arrived. But it has educated so many people as to the realities of fiat money and central banking that as the results become evident, the reality strikes home. A centralized system, like any other, will need the support of its participants. But the amount of collateral damage that will need to take place to create such a system will enrage the middle class. They will look for answers, and they are available on the Internet. Already in America, the Libertarian movement that Congressman Ron Paul kick-started is gaining a good deal of traction. The Great Unwinding will continue, but it is at least questionable whether the result will be a much closer global financial and government union.
These are interesting times. Gold and silver are down but it is difficult to see how these precious metals will do anything but rise as the larger economy continues to unravel. In the 1930s and again in the 1970s gold and silver did very well, as did mining stocks in general and other plays on precious metals. We tend to believe that given the level of deleveraging that is necessary, the world may not end up with a more centralized fiat-money system so much as one that has some sort of formal gold and silver component. These cycles take a long time to play out, of course, and the road ahead will not be easy. It will be especially difficult for sectors such as the banking sector that are evidently and obviously over-expanded. The Citigroup layoffs are not the first and will not be the last.