Ireland reveals full horror of banking crisis
Andrew Bushe and Roland Jackson
September 30, 2010 - 11:09PM
Ireland revealed the full horror of its financial crisis on Thursday, saying massive debts run up by Anglo Irish Bank had threatened to sink the country.
The Central Bank warned that the state rescue of Anglo Irish could cost as much as 34.3 billion euros (46.6 billion US dollars) and will help push the public deficit to a record 32 percent of gross domestic product this year.
That would be the largest deficit for a eurozone member since the European single currency was created in 1999 and comes amid mounting investor concern about soaring levels of eurozone state debt.
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Finance Minister Brian Lenihan laid bare the full extent of state bailouts for the troubled banking sector -- the Anglo rescue bill alone equals the annual taxation revenues -- and insisted Ireland was coming to terms with the "nightmare."
"Anglo Irish developed to a size where its balance sheet, its annual turnover, was half the national wealth and it became in itself a systemic threat to the financial viability of the state," Lenihan said.
"That particular nightmare the government has had to live with, the Irish people have had to live with, and I've had to live with since September 2008. We're now bringing closure to that."
The news emerged the day after protesters drove a cement mixer into the gates of the Irish parliament as part of Europe-wide demonstrations over austerity cuts that are aimed at getting the public finances back under control.
Anglo Irish was one of the banks that fuelled Ireland's property boom but the banking sector was ravaged by the global financial crisis and a deep recession.
Leading banks became grossly over-extended in lending to the property market, especially to developers of commercial buildings.
Lenihan blasted the bankers. "The Irish people are entitled to be angry with the bankers that lent recklessly over a considerable period of time in the earlier part of this decade."
He said it was "clear" some banks went to great lengths to conceal losses.
Lenihan said the collapse of Anglo Irish would have pushed Ireland into insolvency, in remarks redolent of the recent crises in Greece and non-eurozone country Iceland, both of which needed outside help.
He added that he will deliver a four-year budget plan in November to show how the government will fix the public purse.
European Union competition chief Joaquin Almunia welcomed the "clarity" regarding the state aid provided to the Irish banks.
Jean-Claude Juncker, the prime minister of Luxembourg who heads the eurogroup of finance ministers, said he believed Ireland can resolve the crisis without help from the European Union.
The Central Bank said the Anglo Irish bailout has cost about 29.3 billion euros and it could need an extra 5.0 billion euros under a worst-case scenario.
Another bank in difficulty, Allied Irish Banks, would need to raise an extra 3.0 billion euros by year-end. That move will mean that AIB will become majority state-owned.
A further 2.7 billion euros of state cash will be ploughed into the nationalised Irish Nationwide Building Society.
The government also announced that there will be no bond auctions for the rest of the year and that it was fully funded until June 2011.
Ireland is struggling to maintain investor confidence in its ability to control its huge public debt and deficit, amid similar fears over Italy, Greece, Portugal and Spain.
Lenihan said it was an "urgent" priority to strengthen the banks and boost investor confidence in the former Celtic Tiger nation, with Ireland "fully committed" to reducing its deficit below 3.0 percent of GDP by 2014.
European governments and the International Monetary Fund have set up a trillion-dollar war chest to help any eurozone state in fiscal trouble following the financial rescue of Greece in May.
Ireland was the first eurozone member nation to plunge into recession in 2008. It returned to growth in the first quarter but then shrank by a huge 1.2 percent in the second quarter, stoking fears it could slip back into recession.
U.S. on Verge of ‘Trade, Currency War’ With China, Forbes Says
September 27, 2010, 7:22 PM EDT
By Jacob Greber
Sept. 28 (Bloomberg) -- The U.S. is on the verge of a trade and currency war with China, Steve Forbes told the Forbes Global CEO conference in Sydney today.
To contact the reporter on this story: Jacob Greber in Sydney at jgreber@bloomberg.net
To contact the editor responsible for this story: Angus Whitley at awhitley1@bloomberg.net _________________ 'Come and see the violence inherent in the system.
Help, help, I'm being repressed!'
“The more you tighten your grip, the more Star Systems will slip through your fingers.”
This Is Starting To Get Very Real: Agricultural Commodity Prices Have Exploded And Now The Price Of Food Is Beginning To Rise Substantially In The United States And All Over The World
Do you believe that you will always be able to run out to Wal-Mart or to the local supermarket and buy massive amounts of inexpensive food? If so, you might want to think again. During 2010, agricultural commodity prices have absolutely exploded. Nearly every single important agricultural commodity has seen a double digit percentage price increase. In fact, the S&P GSCI Agriculture Index recently surged to a fresh two year high. Now food producers and retailers are starting to pass those commodity price increases on to consumers. Today when I went to the supermarket I was absolutely startled by some of the price increases that I witnessed. On some of the items that I most commonly purchase, prices were up 20 or 30 percent. So just what in the world is going on here? Well, it turns out that there was a lot of bad weather around the world this year, so many harvests were worse than projected. In addition, the growing population of the world has an increasingly voracious appetite for food. When supply gets tighter as demand continues to go up that means that prices are going to increase.
On a recent article on our sister site entitled "Rampant Inflation In 2011? The Monetary Base Is Exploding, Commodity Prices Are Skyrocketing And The Fed Wants To Print Lots More Money" a reader named Erica left a comment describing the food prices that she is seeing in her area....
Food inflation is real, and it is here. Just yesterday I compared my receipt from a grocery run to prices I have from the same exact store from September 15, 2009. Bacon? Up 52% to $13.69 from $8.99 for 4 lbs. Butter? Up 73% to $9.99 from $5.79 for 4 lbs. Pure vanilla extract up 14% to $6.79 from $5.95. Chopped dried onions up a mere 2% but minced garlic (wet) was up 32%.
These price increases are not a coincidence. This is happening all over the United States.
Food inflation is here and it is not going away any time soon.
In fact, food inflation is hitting consumers hard all over the globe this fall....
*According to the United Nations, international wheat prices have soared 60 to 80 percent since July.
*Since the beginning of 2010, the price of bread has gone up 17 percent and the price of meat has gone up 15 percent in European Union countries.
*The inflation rate in Russia rose to 7 percent in September primarily because of rising food costs.
*Turkey’s inflation rate accelerated to 9.2 percent in September, and authorities there are primarily blaming rising food prices for the increase.
*Food riots have already erupted in the poverty-stricken country of Mozambique and the government there is desperately trying to maintain order.
*Food prices have doubled in Afghanistan and authorities are warning that there could be an outbreak of famine unless the nation quickly receives more humanitarian aid.
So is there hope that things are going to get better in the years ahead?
No, not really.
In fact, global demand for food is only going to increase in the years to come.
Global demand for meat and poultry is forecasted to increase 25 percent by 2015.
Overall, it is being projected that global demand for food will more than double over the next 50 years.
So where in the world will all of that extra food come from?
That is a very good question.
Meanwhile, rising food prices threaten to send a new wave of inflation sweeping across the globe.
Mark O’Byrne, the executive director of GoldCore in Dublin, was recently quoted in Bloomberg as saying that the Federal Reserve "continues to be worried about low inflation, but the rising prices seen in agricultural commodities such as wheat would suggest that they may be looking in the rear-view mirror and should be more concerned about inflation, especially in the medium and long term."
As mentioned earlier, wheat prices have soared 60 to 80 percent this year, but wheat is not the only agricultural commodity that is going up big time.
In a recent article entitled "An Inflationary Cocktail In The Making", Richard Benson listed many of the other agricultural commodities that have spiked in price in 2010....
*Coffee: 45%
*Barley: 32%
*Oranges: 35%
*Beef: 23%
*Pork: 68%
*Salmon: 30%
*Sugar: 24%
So are American families seeing large increases in pay to keep up with all of this food inflation?
No, actually incomes are going down.
Median household income in the United States fell from $51,726 in 2008 to $50,221 in 2009.
In fact, of the 52 largest metro areas in the nation, only the city of San Antonio did not see a decline in median household income in 2009.
American families are being squeezed like never before, and the last thing that they need is for the price of food to start moving up substantially.
But it isn't just the price of food that is going up.
Health insurance companies across the United States are announcing that health insurance premiums are going to go up substantially this year because of the new health care law.
American consumers can only be stretched so far.
Eventually something has got to give.
In fact, we are already seeing more Americans beginning to fall into poverty than ever before. Today, one out of every six Americans is now enrolled in at least one anti-poverty program run by the federal government.
Unfortunately, there is every indication that the Federal Reserve wants to make inflation every worse.
It seems like almost every single day now a different official from the Federal Reserve makes public comments about how another round of quantitative easing is going to be necessary in order to stimulate the U.S. economy.
But if the Federal Reserve pumps even more paper money into the financial system isn't that going to put inflationary pressure on the economy?
Of course.
It is time to wake up.
Your dollars are never going to stretch farther than they do today.
The price of food is going to continue to go up.
But perhaps you disagree. Please feel free to leave your opinion in the comments section below.... _________________ 'Come and see the violence inherent in the system.
Help, help, I'm being repressed!'
“The more you tighten your grip, the more Star Systems will slip through your fingers.”
Wall Street 2 is defnitely worth a watch.
Michael Douglas gives the speech which will go down in history.
That may be the reason why so soon thereafter he ended up with cancer as he labells the toxic debts as WMD's or unleashed cancer on the financial system in the film.
Is it a case of art imitating life or life imitating art?
Michael Douglas Picks Toxic Chemo-Radiation (continued)
by MIKE ADAMS (NATURAL NEWS.COM)
Michael Douglas Picks Toxic Chemo-Radiation
One of the most prominent side effects of chemotherapy is, in fact, cancer! The same is true for radiation.
These are both cancer-causing interventions in human biology. Instead of boosting immune function, they compromise it. And while they may temporarily shrink cancer tumors, recent research reveals that they don't eliminate cancer tumor stem cells that can easily re-grow the tumor once the treatments are finished.
That's why so many cancer tumors grow back after chemotherapy and radiation -- the tumor still exists!
Merely shrinking it is not an accurate gauge of any real reduction in the risk of the tumor growing back.
The only sure way to stop a cancer tumor from growing back is to change its environment by altering your exercise, diet and intake of anti-cancer foods, superfoods and medicinal herbs.
By flooding your body's cells with anti-cancer nutrients such as vitamin D, selenium, vitamin C and plant-based nutrients, your risk of growing cancer tumors is greatly decreased (by as much as 77% from vitamin D alone, according to the scientific research).
CHEMO IS THE WRONG CHOICE
Celebrities who choose chemotherapy and radiation are usually the ones quick to die from their cancers.
Patrick Swayze died after receiving chemotherapy for pancreatic cancer; Farrah Fawcett died after chemotherapy for anal cancer ; Peter Jennings died after chemotherapy treatments for lung cancer; Tony Snow died after chemotherapy treatments for colon cancer.
But celebrities who choose a healthier, more holistic treatment plan seem to do much better.
Perhaps most famously, Suzanne Somers overcame her own breast cancer by turning to natural remedies and a holistic lifestyle.
Sadly, Michael Douglas appears to be following in the footsteps of Patrick Swayze rather than Suzanne Somers. This is sad because Douglas is a phenomenal film actor and we'd all like to have him around for a few more decades so he can continue to contribute to his art.
While chemotherapy isn't guaranteed to take his life, it sets in motion an accelerated biological decline caused by the undeniable toxicity of chemo (not to mention the radiation).
Following these treatments, we are likely to see Michael Douglas age more quickly, suffer impaired cognitive function, show worsening skin health and experience increased fatigue. These are all things that may prevent him from pursuing his work, thereby denying us the joy of seeing him appear in more films.
WHAT CANCER DOCS WON'T TELL YOU
While it's true that radiation and chemotherapy can shrink throat cancer tumors, that alone isn't enough to restore a person to true health. Following any such cancer treatments, patient should be strongly encouraged to get more vitamin D, consume anti-cancer nutrients and even take nutritional supplements that can boost their immune function.
Sadly, oncologists are currently telling their patients none of these things. In fact, many cancer doctors insist that their patients avoid taking antioxidants, medicinal mushrooms or any source of antioxidants, claiming they might "interfere" with the chemotherapy.
In this way, oncologists doom their patients to pain, suffering and often death. That's why chemotherapy is often called "physician-assisted suicide." It's a way to kill yourself while enriching the drug companies that manufacture chemotherapy agents.
WHAT IS CHEMOTHERAPY?
Chemotherapy agents are derived from highly toxic mustard gas chemicals used as chemical weapons in World War I.
They are so toxic that pharmacists are getting cancer just from handling them.
The No. 1 side effect of chemotherapy is cancer. But it also causes "chemo brain" (the destruction of brain cells) and damages the liver and kidneys.
In choosing chemotherapy and radiation, Michael Douglas has bet his life on the illusion that conventional medicine is telling the truth about cancer.
But the industry is actually lying to us all.
Cancer is a multi-billion-dollar industry that preys upon the nutritional ignorance of the public while turning human beings into profit machines by promising them "treatments" that only worsen their health.
And sadly, Michael Douglas is the latest victim to be targeted for cancer industry profits.
Gekkos speech when he comes out of the slammer is borrowed definitely from bloggers sites. Its also an indirect admission that almost everybody knows that the system is bust. The financial crash has gone mainstream via Hollywood.
They have kept the 'anti-semitic' parts quiet for a purpose. They dont want people to watch it On another note Douglas was interviewed about the crash and he stated that he lost around 40% of his wealth.
House prices fall record 3.6%
Halifax reveals biggest monthly drop in 27 years as number of houses for sale increases and demand dampens
* Jill Insley
* guardian.co.uk, Thursday 7 October 2010 13.17 BST
* Article history
House prices fell 3.6% in September House prices fell 3.6% in September. Halifax said it was too early to tell if it represented the beginning of a sustained period of decline. Photograph: Matt Cardy/Getty Images
House prices fell 3.6% in September – the biggest drop for a single month since the Halifax started collecting data in 1983.
But although the bank described the sharp fall as an "intake of breath" moment, it is urging homeowners not to panic about an impending house price crash, saying that the quarterly figures are a much better measure of the underlying trend. Although quarterly figures are also dropping, the decline is less severe at -0.9% for the three months to the end of September, down from -0.4% at the end of August.
Martin Ellis, housing economist for the Halifax, said: "Looking at quarterly figures … this rate of decline is significantly slower than the quarterly changes of between -5% and -6% that were seen in the second half of 2008. It is therefore far too early to conclude that September's monthly 3.6% fall is the beginning of a sustained period of declining house prices."
He said the sudden monthly fall had been partly caused by an increase in the number of properties available for sale in recent months. At the same time renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase.
He warned that the low levels of house sales across the market meant there could be further volatility in house price movements, both up and down, underlining the difficulty of getting a clear reading on the current state of the housing market.
"Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market. These will all be constraints on the market, dampening house prices," Ellis said. "On the positive side, we expect interest rates to remain very low for some time, which will underpin the improved affordability position for homeowners."
Bank of England figures show that demand for mortgages has fallen four months in a row, and Ellis said first time buyers in particular are still struggling to obtain mortgages, and are now being deterred by the uncertainty over jobs and the economy.
But he does not believe these figures herald a continual decline in house prices, much less a crash: "It's too early to take such a view. We've seen a downwards movement but what is key is what happens to the economy over the next six to 12 months. Our view is that the economy is going to continue to improve."
Howard Archer, the chief UK economist at IHS Global Insight who normally takes a bearish stance on prospects for the housing market, said that while house prices were now clearly in reverse, the September price drop should not be taken out of context.
"The Halifax data is at face value an absolute shocker," he said. "While a drop in house prices always seemed probable in September after Halifax had reported price rises in August and July that conflicted with other surveys, a plunge of 3.6% month-on-month was off everybody's radar."
He added: "The Halifax data will undoubtedly raise fears of a housing market crash. However, it is important to put the data into perspective. The data highlights how volatile housing market data can be on a month-to-month basis and from survey to survey, so it is best not to attach too much importance to one piece of data. It is clear that the 3.6% plunge in house prices reported by the Halifax in September is partly a correction to the surprising rises reported in August and July which conflicted with other data and surveys."
He said the quarterly drop of 0.9% was very similar to the 1% drop reported by the Nationwide, but the monthly figure was different: the Nationwide reported that house prices edged up by just 0.1% in September after dropping 0.8% in August and 0.5% in July.
"Lower house prices are a good thing for the UK and probably inevitable in the short run," William Griffith for the campaign group PricedOut said. "First time buyers are at record lows and high housing costs are forcing many of them to live in insecure accommodation and delay having families. The government should keep calm; an adjustment downwards is needed, and for many young people will be positively welcomed."
The Halifax data show annual house price inflation slowed to 2.6% in the three months to September from 4.6% in the three months to August and a peak of 6.9% in the three months to May. The Nationwide data show that the year-on-year rise in house prices slowed to 3.1% in September from 3.9% in August and a peak of 10.5% in April.
Yesterday the International Monetary Fund warned there may be a double dip in the UK property market when it said house prices were overvalued and vulnerable to a fall.
Looks like a run on US banks is real close, alot of buzz FB surrounding this _________________ 'Come and see the violence inherent in the system.
Help, help, I'm being repressed!'
“The more you tighten your grip, the more Star Systems will slip through your fingers.”
The Federal Reserve is Responsible for the last 2 Decades of Economic Turmoil
1. Beginning with the Savings & Loan crisis in 1990, each engineered crisis is growing in intensity and carnage. First, there was the Internet bubble crash then the Real Estate bubble meltdown and now we are at the footsteps of an unprecedented acceleration of price increases in food and energy.
In 2007, commodity prices soared when there was actually a slowdown in the global economy. There was no reason for commodity prices to go ballistic at that time, except for federal reserve intervention. The price of oil went from $78 to $147. High gas prices actually burdened the average US consumer with an additional "tax" of five hundred billion dollars.
That 500 billion dollar "hidden tax" was ONE of many reasons, we are IN the current Great (NON) Recession.
(The US Dollar Index is Worthless)
2. On CNBC they often point to the dollar index and state that a weaker dollar is good for the export economy. Currently US Dollar index looks bad - but it actually means nothing because it is being compared to other world wide fiat currencies undergoing massive debasement. Worldwide central banks, seem to be in a currency death dance, racing each other to the bottom in the name of international competitiveness.
Gold and Silver is the Only way to test the Strength of our Currency.
The dollar is weakening against other currencies but when compared against the price of precious metals and raw materials we can see THE THE TRUE VALUE OF A US FEDERAL RESERVE NOTE
(GOLD AND SILVER ARE NOT EXPENSIVE)
3. The truth is Gold and Silver prices are just Getting Started. If you pay attention the public is selling not buying gold (cash4gold commercial)
What happened during the Internet bubble? The average Joe was piling into tech stocks and many individuals were giving up there jobs to day trade full time
And we all know what transpired during the last death throws of the Real estate bubble. People were buying at the peak 3, 4, 5, 10 home and flipping every WHICH way to make AS LITTLE AS 20,000
The common JOE, BUYS into manias...When all your neighbors are hoarding and trading gold, and telling you real estate is a waste of time and money, it may be the time to look at diversifying some your investments out of gold and silver.
WHAT I SEE PERSONALLY IS
10 years of Real Estate Stagnation & Depreciation &
10 years of Gold & Silver Appreciation
4 (JOBS ARE NOT COMING BACK TO THE US)
TO QUOTE Dr. Marc Faber: "COMPANIES would be out of THEIR minds, with health care reforms, government interventions and the uncertainty about future taxes in the US, to even consider expanding in the US.
Corporations are expanding in China, India, Vietnam, Bangladesh, Africa and Brazil. The business world is an international place today, and if you run a corporation, whether you employ 50 or 10,000 PEOPLE, you can choose where you invest your money in terms of capital spending.
Where do you want to expand factories? If I employed people in the US, I would rather think of reducing the 50 employees RATHER THEN HIRING MORE.
source : http://www.youtube.com/watch?v=doSpeRyBHw8 _________________ 'Come and see the violence inherent in the system.
Help, help, I'm being repressed!'
“The more you tighten your grip, the more Star Systems will slip through your fingers.”
FAIR USE NOTICE: This video may contain copyrighted material. Such material is made available for educational purposes only. This constitutes a 'fair use' of any such copyrighted material as provided for in Title 17 U.S.C. section 107 of the US Copyright Law.
Congressman Ron Paul,
_________________ 'Come and see the violence inherent in the system.
Help, help, I'm being repressed!'
“The more you tighten your grip, the more Star Systems will slip through your fingers.”
Reasons for Gold's Rally
NEW YORK (TheStreet) -- Jon Nadler, senior analyst at Kitco.com, says the media is running out of reasons to explain gold's recent rally.
Thu 10/07/10 10:54 AM EST -- Alix Steel
Stocks in this video: SGOL | GLD | AU | IAU
Quantitative Easing, Inflation, Hyperinflation and Global Deflationary Depression
by Bob Chapman
Global Research, October 17, 2010
Today’s great debate basically between the US and Europe is – should the Fed go full bore by implementing a second quantitative easing? In part it is a moot point, because they have been doing just that in the repo market for four months without letting anyone know what they were up too. Their mandate is to reduce inflation and create full employment. Real inflation is 7% and unemployment is 22-3/4%. The Fed for three years has concentrated on bailing out Wall Street, banking, insurance and transnational conglomerates. Little has been done to fulfill their mandated mission. The main recipients of their largess, of course, are the firms that actually own the privately owned Fed.
There are two options left to the Fed. Create a full QE2 by injecting another $2.5 trillion into the economy, as they just did with QE1 with $868 billion in assistance from the Senate and the House, or they can purge the system and have a deflationary depression. That result will be the fate of the Fed eventually if they create QE2 or perhaps QE3. No matter what the Fed does a deflationary collapse, one way or another, is inevitable.
Few pay attention to the fact that the US has been in deflation for 8 years and has been kept afloat by injections of massive amounts of money and credit. Not to be singled out most all nations have been doing the same thing and that is why all currencies have fallen versus gold for the past 9 years. This is how the game has been continued, otherwise we would have all fallen into deflationary depression or a death spiral. This has given us less consumption, zero interest rates and higher unemployment.
Officially inflation is 1.6%, but real inflation is 7% as most of the liquidity injections have been used to beat back the undertow of deflationary depression. That has resulted in a Fed expansion of from $1 trillion to $3 trillion and who knows how much more is being hidden on the books of other foreign central banks. As the Fed has told us it is all a state secret. To their credit the Fed has held off financial collapse, but we ask you how do they believe that they can keep this up indefinitely? The obvious sacrifice is the dollar and that is in progress.
As this increase in money and credit continues at a $2 to $2.5 trillion pace over the next year the vision of hyperinflation looms in the background. The only way to avoid hyperinflation is to allow deflationary depression to proceed. It is going to happen anyway no matter what the Fed does. The chaos of hyperinflation should be avoided at all costs. The owners of the privately owned Fed won’t allow that because they want to hold on to power and control as long as possible. Thus, in all likelihood we will have inflation, then hyperinflation and then deflationary depression. Having been at this for 50 years we now nothing is written in stone. It may not seem sensible to you but it is reality. Our track record for the last 21 years speaks for itself. Correct calls in all sectors 98% of the time.
Wages and salaries and asset prices have been falling with inflation rising, as we have endured a credit crisis for the past three years. The dollar is close to its lowest levels and gold is flirting with $1,360 an ounce. That is a disastrous situation for Americans, except the 2% to 3%, who have had sense enough to invest in gold and silver bullion, coins and shares. That excludes the ETFs, GLD and SLV, which we believe are a disaster waiting to happen.
Thus, there is to be another monetary expansion, which will take inflation up to 14% or more and that will in part cause a flight to quality, which will continue to be boasted by gold, which has replaced the US dollar as the world’s reserve currency. Many question that, but in time people will realize that is what in fact has happened. Monetarily that means that the one-worlder’s dream of a world currency will never be fulfilled. Hyperinflation in the US dollar will spread in varying degrees to all fiat currencies and these elitists will be deprived of issuing any currency that is not backed by gold. The game they have played for so long, the suppression of gold prices, will be lost. That means those who are in control already realize that their war against gold for financial domination has been lost and they will have to concentrate on the survival of what they term, their system.
Inflation is on the way in much higher numbers to be followed by hyperinflation and ultimately deflationary depression.
Presently the US government debt to GDP is about 93% of GDP with an annual debt to GDP of about 10%. QE2 means more of the same along with government debt. Government continues to create debt and the Fed continues to monetize debt. Both are trying to bury the economy, increase demand and to keep deflation at bay. The result they hope is recovery, which in reality is out of their reach. Even with $5 trillion over the next two years the best they can do is to barely stay on the plus side. Over the last two years they have accomplished very little.
Those who have been paying attention have seen the Fed’s targeting of the Treasury market. Not only do they have interest rates at zero, but also they have caused yields on the 2-year bills to fall to 0.36%, but also the 10-year notes are yielding 2.47% and they look like they are headed lower. This makes borrowing very cheap for large corporations and for mortgage rates to be very attractive. This has made treasuries the focal point of Fed policy. The strength or weakness of their program. Most small business and medium sized businesses still cannot get loans and they are the ones that create 70% of the jobs. Thus, it is still Wall Street; banking, insurance and transnational conglomerates that get virtually free money. The intention is that all the elitists survive and the heck with the rest of the country. These same firms are the ones that are still laying off.
The result is that treasuries, in spite of their bogus AAA rating, are the new addition to junk bonds and toxic waste. They are overvalued and the yields ridiculous. We believe in time the Fed will end up with total treasury issuance. That means the US dollar will sink to new unheard of depths, which it is in the process of doing.
Much of the Treasury sales by money managers are sending money into the commodities market and in limited cases in gold and silver and shares. Such switches will put pressure on Treasuries, which will make the Fed’s job more difficult. They will have to create ever more money to control that market. As we move forward the Fed will be forced to create more liquidity by buying more Treasuries than they might have to otherwise. Eventually this will appear to be a bubble, which it in fact it’s becoming as we write, and that is how the Fed will end up with the entire issuance.
The big money center legacy, too big to fail banks, is essentially broke. In fact they have been nationalized via infusions of capital by the Fed plus are being allowed to keep two sets of books. Regulations have been bypassed and they have become a law unto themselves with the help of the federal government, the BIS, The Bank for International Settlements, and the FASB. They borrow funds from the Fed at zero interest rates and then lend it back to the Fed at 2-1/2%, which taxpayers get to pay. This is for a subsidy to try to keep these banks on the edge of solvency. These actions also allow their officers multi-million paychecks that under the circumstances border on the obscene. They hoard funds and have cut lending to small- and medium-sized businesses by 25%, which keeps those funds sterilized. When they monetize these funds it is in the form of loans to the elite corporations and in the purchase of treasuries. This as the Fed buys $1.7 trillion in toxic waste at prices it won’t divulge from these same and other banks. Now they are in the beginning process of selling this toxic waste back to the banks at low prices to allow the losses to be transferred to the taxpayers. This is exactly what is going on. The fed is totally subsidizing these banks, which just happen to own the Fed. We call this an incestuous relationship. We all know what will happen when these banks and the foreign holders all try to exit Treasuries at once – the bubble will break. This time no one will be there to play catcher and yields will climb quickly and furiously.
This scenario brings us to where will all the money go? The first haven has been commodities. That will push prices up and add to price inflation. Those who choose to use ETFs will be jumping from the frying pan into the fire. We all can see that this is in process, especially in gold and silver prices. What is going to surprise you is that this sector change will be relentless in the flight to quality into real things. Yes, there will be wild volatility and corrections, but the upward trajectory will be maintained long beyond what people could have believed. Those owners will have nowhere else to turn. Bonds and the market will be falling along with the dollar and real estate is dead. They will continue to stay long commodities, gold and silver because there is no place else safe to go too. Unfortunately the populace will at this stage be treated to hyperinflation - the process in which people will have lost faith in the dollar and will dump it for goods and services as soon as it is received.
This is why a world meeting is necessary, such as the Smithsonian of the early 1980s, the Plaza Accord of 1985 and the Louvre Accord of 1987. Without such a meeting to realign currencies and to multilaterally default on debt there will be international financial and economic chaos. It would also lead to worldwide hyperinflation, emanating from the US. This would in all likelihood be accompanied by not only a flight to gold, silver and commodities, but also a collapse in treasury markets, particularly in the US Treasury market, which by that time could be totally owned by the Fed. That would push yields up and cause the stock market to fall.
Such events would force the public to use their currencies that they have lost faith in first by buying food and household goods before prices rose higher. Asset prices will collapse. The price of things, such as homes, buildings, cars, trucks, factories, etc. will collapse to 20% to 40% of what they were worth just a month ago. The functioning of the US and world economy would collapse. That is where bartering begins. Using gold and silver coins to complete transactions. You may not think what you are seeing could lead to all this, but it could, unless there is soon an international meeting to settle differences and patch up the existing system. No matter what happens there will be great dislocation and chaos.
Government cannot save us, only international cooperation can. One of the most important events would be a collapse in the Treasury market, accompanied with a stock market collapse. The flip side of that would be skyrocketing prices of commodities, gold and silver. There would be no other options left. Most people were too preoccupied with their lives to notice the advance of such events. America will wake up one morning to Martial law. That will be the only thing left for government to do to try to control the situation. It is not a solution, but it at least for a time will keep order. America is Humpty Dumpty. Such events have an excellent chance of occurring in 2011 and 2012, if a meeting is not held over the next six months. The key to such an accord is to revert to a gold standard for currencies worldwide at a price in excess of $6,000 an ounce; otherwise the scenario will just begin again.
It is obvious we cannot continue to do what we are doing. It is not working. We are all headed toward global deflationary depression, even the most solvent nations, because most have very little or no gold left.
You had best prepare. First for higher inflation, then hyperinflation and than deflationary depression. If you do not prepare you will be very unhappy.
“Crisis is an Opportunity”: Engineering a Global Depression to Create a Global Government
by Andrew Gavin Marshall
Global Research, October 26, 2010
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The following is a sample from an forthcoming book by Andrew Gavin Marshall on 'Global Government', Global Research Publishers, Montreal. For more by this author on the issue of the economic crisis and global governance, see the recently-released book by Global Research "The Global Economic Crisis: The Great Depression of the XXI Century," Michel Chossudovsky and Andrew Gavin Marshall, (Editors), in which the author contributed three chapters on the history of central banking, the rise of a global currency and global central bank, and the political economy of global government.
Problem, Reaction, Solution: “Crisis is an Opportunity”
In May of 2010, Dominique Strauss-Kahn, Managing Director of the IMF, stated that, “crisis is an opportunity,” and called for “a new global currency issued by a global central bank, with robust governance and institutional features,” and that the “global central bank could also serve as a lender of last resort.” However, he stated, “I fear we are still very far from that level of global collaboration.”[1] Well, perhaps not so far as it might seem.
The notion of global governance has taken an evolutionary path to the present day, with the principle global political and economic actors and institutions incrementally constructing the apparatus of a global government. In the modern world, global governance is an inter-lapping, intersecting, and intertwined web of international organizations, think tanks, multinational corporations, nations, NGOs, philanthropic foundations, military alliances, intelligence agencies, banks and interest groups. Globalization – a term which was popularized in the late 1980s to refer to the global spread of multinational corporations – has laid the principle ideological and institutional foundations for this process. Global social, economic and political integration do not occur at an equal pace; rather, economic integration and governance on a global level has and will continue to be ahead of the other sectors of human social interaction, in both the pace and degree of integration. In short, global economic governance will set the pace for social and political global governance to follow.
In 1885, Friedrich List, a German mercantilist economic theorist wrote that when it came to the integration of a “universal union or confederation of nations,” that “all examples which history can show are those in which the political union has led the way, and the commercial union has followed. Not a single instance can be adduced in which the latter has taken the lead, and the former has grown up from it.”[2] The twentieth century thus changed the historical trend, with undertaking economic integration – union – which is then followed by political integration. The best example of this is the European Union, which started out as a series of trade agreements (1951), eventually leading to an economic community (1957), followed by an economic union (1993), followed by a currency union (2002), and with the recent Lisbon Treaty, is now in the process of implementing the apparatus of a political union (2009). While this same regional governance model is occurring on a global scale in Africa, South America, East Asia, the Gulf Arab states, and with North American and Euro-American integration, it is simultaneously taking place on a global level. With the establishment of the World Trade Organization (WTO) in 1995, global trade systems were institutionally integrated, while the major global economic institutions of the IMF and World Bank, as well as others including the Bank for International Settlements (BIS), accelerated their management of the global economy.
The process of globalization has firmly established a globally integrated economic system, and now the global economic crisis is facilitating the implementation of global economic governance: to create the economic apparatus of a global government, including a global central bank and a global currency. This process is exponentially accelerated through economic crises, which create the need, desire, urgency and means of establishing a structure of global economic governance, purportedly under the guise of “preventing economic crises” and “maintaining” the global economy.
The same institutions and actors responsible for creating the crisis, are then given the job of determining the solution, and are then given the power and means of implementing it: problem, reaction, solution. They create a problem to incur a particular reaction for which they then propose a predetermined solution. When pressure needs to be applied to individual states that are not following dictates of the institutions of global governance, the market is turned against them in a barrage of economic warfare, often in the form of currency speculation and derivatives trading. The result of this economic warfare against a nation is that it must then turn to these same global institutions to come to its rescue: problem, reaction, solution.
The global economic crisis, really having only just begun, will in years to come spiral into a Great Global Debt Depression, plunging the entire world into the greatest economic catastrophe ever known. This will be the ultimate catalyst, the most pervasive crisis, and most commanding ‘opportunity’ to implement the formation of a global government. In 1988, the Economist ran an article entitled, “Get Ready for the Phoenix,” in which it postulated that by the year 2018, there will be a global currency, which it termed the “Phoenix.” The mention of a phoenix is not to go unnoticed, as symbolically, a phoenix dies and from its ashes a new phoenix emerges. It is the symbol of destruction as a form of creation; the ultimate incarnation of crisis as an opportunity. The article in the Economist acknowledged this meaning, with the idea that economic and monetary collapse will likely lead to the formation of a global currency, stating that, “several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice.” Further:
As time passes, the damage caused by currency instability is gradually going to mount; and the very trends that will make it mount are making the utopia of monetary union feasible... The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power.[3]
This further reinforces the notion of crisis as an opportunity, and established the desire to form a global currency far before any crises that prompted official calls for one. In 2000, Paul Volcker, former Chairman of the Federal Reserve, stated that, “if we are to have a truly global economy, a single world currency makes sense,” and a European Central Bank executive stated that, “we might one day have a single world currency,” in “a step towards the ideal situation of a fully integrated world.”[4] In 1998, Jeffrey Garten, , former Undersecretary of Commerce for International Trade in the Clinton administration, former Managing Director at Lehman Brothers and member of the Council on Foreign Relations, wrote an article for the New York Times in which he called for the creation of a “global Fed” and said that, “the world needs an institution that has a hand on the economic rudder when the seas become stormy. It needs a global central bank.”[5]
The Global Economic Crisis As a Pretext for Global Governance
With the onset of the global economic crisis in 2008, powerful political and economic figures began making the call for constructing systems of global governance to manage and “prevent” crises. In September of 2008, in the midst of the financial crisis, Garten wrote an article for the Financial Times renewing his call for a global central bank, which he termed a “Global Monetary Authority.”[6] A month later, Garten wrote a piece for Newsweek saying that, “leaders should begin laying the groundwork for establishing a global central bank.”[7] In the same month, John Mack, CEO of Morgan Stanley said that, “it may take continued international coordination to fully unlock the credit markets and resolve the financial crisis, perhaps even by forming a new global body to oversee the process.”[8]
In October of 2008, then Prime Minister of the UK, Gordon Brown, called for “a new Bretton Woods – building a new international financial architecture for the years ahead,” and that he would want “to see the IMF reformed to become a ‘global central bank’ closely monitoring the international economy and financial system.”[9] In the same month, Brown wrote an op-ed for the Washington Post in which he said that this ‘new Bretton-Woods’ should work towards “global governance.”[10]
That month, the world’s central bankers met in Washington D.C., of which the principle question they faced was “whether it is time to establish a global economic ‘policeman’ to ensure the crash of 2008 can never be repeated,” and that any organization with the power to police the global economy would have to include representatives of every major country – a United Nations of economic regulation.” A former governor of the Bank of England stated that the answer might be in the form of the Bank for International Settlements (BIS), the central bank to the world’s central banks, which compared to the IMF, “is more independent and much better placed to deal with this if it is given the power to do so.”[11]
The first major summit of the G20 – the group of the 20 largest economies in the world – was in November of 2008, in the midst of the financial crisis. The G20 was to replace the G8 in the management of the global economy. The member nations are the United States, Canada, France, Germany, Italy, the United Kingdom, the European Union, Australia, Russia, Japan, South Korea, Turkey, Mexico, Indonesia, Saudi Arabia, Brazil, South Africa, Argentina, India and China. The World Bank and IMF also work directly with the G20, as does the Bank for International Settlements.
In March of 2009, Russia suggested that the G20 meeting in April should “consider the possibility of creating a supra-national reserve currency or a ‘super-reserve currency’,” and to consider the IMF’s Special Drawing Rights (SDRs) in this capacity.[12] A week later, China’s central bank governor proposed the creation of a global currency controlled by the IMF, replacing the US dollar as the world reserve currency, also using the IMF’s SDRs as the reserve currency basket against which all other currencies would be fixed.[13]
Days after this proposal, the US Treasury Secretary Timothy Geithner, former President of the New York Federal Reserve Bank, told the Council on Foreign Relations that, in response to a question about the Chinese proposal, “we're actually quite open to that suggestion. But you should think of it as rather evolutionary, building on the current architectures, than -- rather than -- rather than moving us to global monetary union.”[14]
In late March a UN panel of economists recommended the creation of a new global currency reserve that would replace the US-dollar, and that it would be an “independently administered reserve currency.”[15]
Following the April 2009 G20 summit, “plans were announced for implementing the creation of a new global currency to replace the US dollar’s role as the world reserve currency.” Point 19 of the communiqué released by the G20 at the end of the Summit stated, “We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity.” SDRs, or Special Drawing Rights, are “a synthetic paper currency issued by the International Monetary Fund.” As the Telegraph reported, “the G20 leaders have activated the IMF's power to create money and begin global ‘quantitative easing’. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body.”[16] The Washington Post reported that the IMF is poised to transform “into a veritable United Nations for the global economy”:
It would have vastly expanded authority to act as a global banker to governments rich and poor. And with more flexibility to effectively print its own money, it would have the ability to inject liquidity into global markets in a way once limited to major central banks, including the U.S. Federal Reserve... the IMF is all but certain to take a central role in managing the world economy. As a result, Washington is poised to become the power center for global financial policy, much as the United Nations has long made New York the world center for diplomacy.[17]
In April of 2010, the IMF released a report in which it explained that while SDRs will aid in ‘stabilizing’ the world economy, “a more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency,” but that this is “unlikely to materialize in the foreseeable future absent a dramatic shift in appetite for international cooperation.”[18] Of course, the exacerbation of a global economic crisis – a new great depression – could spur such a “dramatic shift in appetite for international cooperation.”
While the IMF is pushed to the forefront of the global currency agenda, the Bank for International Settlements (BIS) remains as the true authority in terms of ‘global governance’ overall. As the IMF’s magazine, Finance and Development, stated in 2009, “the Bank for International Settlements (BIS), established in 1930, is the central and the oldest focal point for coordination of global governance arrangements.”[19] Jean-Claude Trichet, President of the European Central Bank (ECB), gave a speech at the Council on Foreign Relations in April of 2010 in which he explained that, “the significant transformation of global governance that we are engineering today is illustrated by three examples”:
First, the emergence of the G20 as the prime group for global economic governance at the level of ministers, governors and heads of state or government. Second, the establishment of the Global Economy Meeting of central bank governors under the auspices of the BIS as the prime group for the governance of central bank cooperation. And third, the extension of
Financial Stability Board membership to include all the systemic emerging market economies.[20]
In concluding his speech, Trichet emphasized that, “global governance is of the essence to improve decisively the resilience of the global financial system.”[21] The following month, Trichet spoke at the Bank of Korea, where he said, “central bank cooperation is part of a more general trend that is reshaping global governance, and which has been spurred by the global financial crisis,” and that, “it is therefore not surprising that the crisis has led to even better recognition of their increased economic importance and need for full integration into global governance.” Once again, Trichet identified the BIS and its “various fora” – such as the Global Economy Meeting and the Financial Stability Board – as the “main channel” for central bank cooperation.[22]
The Great Global Debt Depression
As commentators and governments praised the ‘economic recovery’, the world entered into a massive global debt crisis, a veritable ‘Great Global Debt Depression,’ in which the major industrialized nations of the world, having taken on excessive debts due to bailouts, stimulus packages and decades of imperial expenditures and war-mongering. The debt trap used to enslave the ‘global south’ has come home to roost. The first stage of the ‘Great Global Debt Depression’ began in Greece, where the country was so indebted that it needed to seek help in the form of an IMF ‘bailout’ simply to pay the interest on its debt. For nearly a decade, Greece’s government colluded with major Wall Street firms such as Goldman Sachs and J.P. Morgan Chase to hide its true debt in the derivatives market, so when a new government came to power in October of 2009, it inherited a debt twice as large as it had anticipated, at 300 billion euros.[23]
In early 2010, Greece sought a bailout from the European Union (European Central Bank – ECB) and the IMF in order to pay the annual interest fee on its debt. The ECB and IMF agreed to a loan in April.[24] Greece, however, had been pressured by both the EU and the IMF that in order to receive a loan, it must implement “fiscal austerity measures” in order to reduce its deficit, and also to convince “global markets” that it could reduce its deficit. Greece had implemented two austerity packages that included massive social spending cuts and increases in taxes. Yet, this seemed to not be enough for the EU, IMF or global markets.[25] As Greece was imposing ‘fiscal austerity’ and seeking international loans, ‘global markets’ had turned against the country, as derivatives – particularly Credit Default Swaps (CDS) – were being used to bet that Greece would default on its debt, thus plunging the country further into crisis. Many of the banks participating in this speculative assault were the very same ones that helped Greece hide its debt in the first place. Thus, if Greece defaults on its debt, the speculators who bet against Greece stand to profit, and as these trades become popular, it makes it more difficult for Greece to borrow the money it needs to pay its interest. As one expert explained, “It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house.”[26]
J.P. Morgan Chase, Goldman Sachs, and several other leading banks helped hide the debt for several nations across Europe, which all began to enter into a debt crisis.[27] Interestingly, banks rapidly expanded their use of the derivatives trade not only in Greece, but Spain and Portugal as well, “as worries about those countries’ debts moved markets around the world.” Subsequently, “European banks including the Swiss giants Credit Suisse and UBS, France’s Société Générale and BNP Paribas and Deutsche Bank of Germany have been among the heaviest buyers of swaps insurance.” The reason for this: “those countries are the most exposed. French banks hold $75.4 billion worth of Greek debt, followed by Swiss institutions, at $64 billion,” and “German banks’ exposure stands at $43.2 billion.”[28] J.P. Morgan Chase, Goldman Sachs, and other US banks are also participating in the derivatives assault against Greece, which may be “pushing Greece toward financial collapse.”[29] Thus, we have a situation in which major global banks helped governments acquire expansive debts (and hide it from their balance sheets), and then the countries enter into a debt crisis. As they impose fiscal austerity measures to reduce their deficits, and seek help from central banks and the IMF to pay their interest, these same global banks speculate against the debts, thus pushing the nations further into crisis, exacerbating the social crisis, and forcing further and more expansive ‘austerity measures.’ The interest payments on the debt are, as an added insult, to be paid to these same global banks, which hold most of the debt of these nations. In short, the debt crisis is amounting to a form of financial warfare and social genocide, implemented by the major global banks, the central banking system (which they control), and the international organizations that serve their interests.
A working paper issued by the Bank for International Settlements (BIS) in March of 2010 explained that the West is facing a massive debt crisis, and that the United Kingdom and United States – along with other nations such as Spain and Ireland – took on massive debt in the past three years, making the debt crises in Italy and Greece “comparatively small.”[30] Further, investors are expected “to demand a higher risk premium for holding the bonds issued by a highly indebted country.”[31] In other words, the BIS warned that speculators would likely undertake a ‘market’ assault against indebted nations, further exacerbating the debt crisis and increasing pressure to impose ‘fiscal austerity’, or commit ‘social genocide’. In September of 2009, the derivatives market had rebounded to $426 trillion, and continued to pose “major systemic risks” for the financial system.[32]
Nouriel Roubini, an economist who had predicted the 2008 financial crisis, warned in March of 2010 that, “the recent difficulties of Greece are part of the iceberg. Markets have already targeted Greece, Spain, Portugal, Great Britain, Ireland and Iceland. They could deal with other countries, including Japan and the United States.”[33] Renowned economist Kenneth Rogoff (who accurately predicted the 2008 economic crisis) had also warned that a global debt crisis is on the horizon, which “could set the scene for years of financial troubles.”[34]
In 2010, the World Economic Forum warned of the potential of a “full-scale sovereign fiscal crisis” – a global debt crisis – possibly accompanied by a second major financial crisis.[35] Jürgen Stark, an executive member of the European Central Bank warned in April of 2010 that, “We may already have entered into the next phase of the crisis: a sovereign debt crisis,” which could spread across the EU, to the U.K., United States, and Japan.[36] Economic historian (and Bilderberg participant) Niall Ferguson warned of a “Greek Crisis Coming to America,” and a “fiscal crisis of the western world,” which will spread from Greece, throughout Europe, and to the U.S. and Japan.[37]
Structural Adjustment in the West
As the nations of the West took on enormous debts by giving the banks money (effectively buying the bad debt of the banks), and with decades of imperialism building massive foreign debts, the West and notably America, are entering into a period in which they will be subjected to the same or similar forms of ‘structural adjustment’ as they have inflicted upon the rest of the world. With the G20 promising to impose “fiscal austerity,” public sector jobs will be lost, state-owned assets and infrastructure privatized, taxes raised, interest rates will soar (eventually), and liberalized markets will be expanded and institutionalized, not least so that major global banks will be able to profit off of the subsequent collapse of nations through the financial weapon of speculation. The middle classes will vanish and poverty will reign supreme, while the rich become immeasurably richer and more powerful. Naturally, people will rise up, take to the streets, protest, demonstrate, riot, even rebel and revolt. As sure as the people will resist, the state will repress with police, the military and the ‘Homeland Security State’ apparatus of surveillance and control. Make no mistake: this is the ‘Thirdworldization’ of the West: the ‘Post-Industrial Revolution.’
In early June of 2010, the G20 finance ministers and central bank governors met in Seoul, South Korea, in a meeting with significantly less media coverage than the later G20 leaders summit in Toronto, and significantly more importance to the state of the world economy. The communiqué released by the finance minister and central bankers following the summit stated that G20 nations needed to speed up the process of “fiscal consolidation” (see ‘fiscal austerity’).[38] The IMF presented a report at the meeting recommending the adoption of “adjustment policies” to presumably aid in economic growth.[39] There was no mention, however, of how similar “adjustment policies” failed to deliver growth to the developing world over the previous 30 years, and in fact, spread poverty and economic despair instead.
After the G20 leaders meeting in late June of 2010, leaders of the world’s largest economies agreed on a timetable to impose ‘fiscal austerity’ measures to cut their deficits and halt the growth of their debts. The plan entailed cutting deficits in half by 2013.[40] In June, Germany had announced massive austerity cuts to spending, spurring protests in the streets.[41] Simon Johnson, former Chief Economist at the IMF, stated that fiscal austerity would likely result in “exacerbating developing world-type problems in the United States – and to creating the conditions for another financial crisis.”[42] The chief economist of the major global bank HSBC, stated in May of 2010 that, “at the very least, governments need to pursue a multi-year period of fiscal austerity,” and ultimately, “fiscal positions will become intolerable politically, economically and financially.”[43]
Fiscal austerity will imply massive cuts in social spending, which will do to the developed world what they did to the ‘developing’ world: health, education and social services will be cut, with public employees in those and other sectors fired, creating a massive new wave of unemployed people. Simultaneously, taxes will be dramatically increased, particularly on the middle and lower classes, which would then be more impoverished than ever before. However, fiscal austerity is not the only condition of “structural adjustment,” as many other measures will be taken, advancing on current trends, including further expanding and institutionalizing trade liberalization, as well as selling off public assets in major privatization schemes. Since the West largely privatized all the state-owned industries in the dawn of the neoliberal era, the remaining areas of privatization are largely in infrastructure projects such as roads, airports and ports. However, in America, this will be undertaken by individual states and cities desperate for cash and ‘investment’. Thomas Osborne, head of infrastructure and privatization at UBS bank, said in May of 2009 that, “privatization will eventually take hold,” but it will be done in “a more incremental approach.”[44]
In September of 2010, the Chicago Council on Global Affairs released a report on infrastructure privatization. The Council represents and is run by various officials from J.P. Morgan Chase & Co., CME Group (the world’s largest derivatives exchange), the Federal Reserve Bank of Chicago, Bank One Corporation, McKinsey and Company, Goldman Sachs, Boeing, Northern Trust, United Airlines, the Chicago Board of Trade, and a host of other corporate, financial and banking interests, and the board even includes the First Lady, Michelle Obama.[45] In the report sponsored by the Chicago Council, it stated that, “the trend toward infrastructure privatization is happening not just in the United States, but globally.”[46] Ultimately, the report found that, “financial realities mean that the privatization of infrastructure will continue.”[47] In defining infrastructure, the report identified roads, bridges, port facilities, water treatment plants, electric transmission lines, and railways, as well as hospitals, prisons, “and other communal assets that serve the public interest.”[48]
On this note, sovereign wealth funds (SWFs) from around the world are buying up American infrastructure. Sovereign wealth funds are state-owned investment funds of stocks, bonds, financial assets, resources and property. Some of the world’s largest SWFs are those of the United Arab Emirates, Saudi Arabia, Norway, China, South Korea, Kuwait, and Russia. As the “recovery” edges into the oblivion of the Great Global Debt Depression, SWFs are buying up American infrastructure, including:
A toll highway in Indiana. The Chicago Skyway. A stretch of highway in Florida. Parking meters in Nashville, Pittsburgh, Los Angeles, and other cities. A port in Virginia. And a whole bevy of Californian public infrastructure projects, all either already leased or set to be leased for fifty or seventy-five years or more in exchange for one-off lump sum payments of a few billion bucks at best, usually just to help patch a hole or two in a single budget year.
America is quite literally for sale, at rock-bottom prices, and the buyers increasingly are the very people who scored big in the oil bubble. Thanks to Goldman Sachs and Morgan Stanley and the other investment banks that artificially jacked up the price of gasoline over the course of the last decade, Americans delivered a lot of their excess cash into the coffers of sovereign wealth funds like the Qatar Investment Authority, the Libyan Investment Authority, Saudi Arabia's SAMA Foreign Holdings, and the UAE's Abu Dhabi Investment Authority.[49]
This process is also underway in Canada, as the Ontario government in 2009 considered selling off “all or part” of its Crown corporations to reduce the provincial deficit, and it hired CIBC and Goldman Sachs to write a blueprint for possible privatizations.[50] Further, there are increased calls – globally – for advancing the agenda of the privatization of water, a scheme which the World Bank has pushed on several countries around the world, resulting in enormous costs – in economic, political and social terms – to the poorest people, and enormous profits for the handful of global water conglomerates. Organized around the International Water Association and the World Water Council, the major water conglomerates, the World Bank and the UN have been promoting water privatization schemes across the ‘developing’ world and increasingly within the West as a means to ‘solving’ the world water crisis. As we have seen, however, from the cases of water privatization in places like Bolivia, South Africa, El Salvador, and several others, it is the poor who suffer the most, and it will be the same whether it is in Angola or America.
Debt Slavery
While nations of the West begin to impose fiscal austerity on their populations and social structures, the harsh effects will come with time, as nations have maintained extremely low interest rates, thus keeping the ‘cost’ of money cheap. However, as the Bank for International Settlements (BIS) report of June 2010 stated, “both fiscal and monetary policy may have to be tightened at the same time.” This means that, according to the BIS, interest rates must rise along with fiscal austerity measures. It was, lest we forget, the extremely high interest rates in the late 70s and early 80s that set off the 1980s debt crisis, as nations with large foreign debts could no longer afford to pay their annual interest payments, thus needing to turn to the IMF and World Bank for ‘assistance’ in the form of ‘structural adjustment programs’. The massive stimulus spending and bailouts will create the likely scenario of causing inflation, making prices rise dramatically. To fight inflation, nations can raise interest rates, which then make the currency more expensive, and thus, reduces the rates of inflation.
As central banks around the world injected billions and trillions of dollars into the financial system, they kept interest rates extremely low in order to encourage the flow of money. In the 2009 annual report of the BIS, it warned that this policy could create massive inflation, so interest rates will have to be raised eventually. The major question is ‘when’ they will rise; if it’s too late, inflation could get out of control, if it’s too early, it could destroy the ‘recovery.’[51] So as the 2010 annual report of the BIS calls for simultaneous fiscal and monetary tightening, this could be potentially disastrous, possibly “pushing the global economy into depression.”[52] The effect of high interest rates, while potentially decreasing the rate of inflation, will increase the cost of the annual debt payments nations must make, thus exacerbating and feeding the ‘fiscal austerity’ measures imposed to reduce spending. This would reverberate onto the average person, as interest rates on all debts, including their personal debts would also increase. While fiscal austerity will increase taxes, increase poverty, and deconstruct the middle class, high interest rates would bleed them dry. However, inflation itself acts as a hidden tax, increasing the cost of consumer goods such as food and fuel, as the currency depreciates in value. This is also a major cost to the vanishing middle class. It seems that either way, the average person is in the crosshairs of a system of economic terrorism. It’s the epitome of a ‘Catch-22’; you’re damned if you do, and you’re damned if you don’t.
Raising interest rates during a time of fiscal austerity, however, is particularly destructive to the average person. Notably, “fiscal and monetary tightening were tried in tandem in the early 1930s and it didn't work then.”[53] In other words, it helped plunge the world into the Great Depression. Today, however, it would be significantly worse, as now we have the reality of mortgages, credit card debt, derivatives, student debt, etc. These things did not exist at the onset of the Great Depression, so today it would result in the ‘Greatest Depression.’ It’s a debt trap, and everyone is caught in it. If states don’t raise interest rates, the ‘market’ may turn against them, as major global banks, hedge funds and currency speculators may ‘lose confidence’ in a nation’s currency, and flee the currency, thus plunging it in value, leading to potentially hyperinflation (as was experienced in Weimar Germany and Zimbabwe), which also has the effect of devastating a nation and plundering the wealth of its people.
While increasing interest rates is done in the name of reducing the debt at a quicker pace, it ultimately has the opposite effect. It essentially creates a condition in which a nation is permanently indebted, and the cumulative debt increases annually. This occurs due to a nation struggling to pay its annual interest on the debt, and so it seeks the ‘assistance’ of the IMF and international creditors to provide a quick loan to the country to pay the interest. The IMF provides a loan, which is instantly redirected to pay the creditors, and the loan amount that the IMF provided is then added to the overall national debt. Thus, rising interest rates will increase the annual interest payments, because the debt itself has enlarged. The nation will need the ‘assistance’ of another loan – more debt – to pay interest on its overall debt, which then continues to rise. This is how the nations of the ‘Third World’ became so indebted: accumulating more debt to pay interest on old debt, which then creates new debt, requiring more debt to pay the interest on the accumulated debt, and on and on and on. Meanwhile, the ‘structural adjustment programs’ (SAPs) were implemented under the ‘conditions’ of IMF and World Bank loans and ‘assistance’ to deconstruct the social foundations of a nation, eliminate the middle class and exacerbate poverty, presumably in order to help reduce the deficit. This now appears to be the fate of the ‘First World’ industrialized nations. While the BIS annual report called for increasing interest rates, an internal working paper written by the Chief Economist of the BIS in March of 2010 warned that, “fighting rising inflation by tightening monetary policy would not work, as an increase in interest rates would lead to higher interest payments on public debt, leading to higher debt.”[54]
Ultimately, talk about whether or not to increase interest rates, and how to impose fiscal austerity are misleading. This is because these discussions operate on the basis that these debts are legitimate. The legal doctrine of ‘odious debt’ stipulates that sovereign debt incurred without the consent of the people and not benefiting the people is odious and should not be transferable to a successor government. In other words, if a debt doesn’t benefit the people, it’s illegitimate and should not be repaid. If this principle was applied to the ‘Third World’, it could be safely said that the IMF, World Bank, and Western nations would effectively lose their control of the global south. It is through the mechanism of debt that modern imperialism functions most effectively. Naturally, the correct economic path to take for an actual recovery would be to declare all these major debts illegitimate – of the ‘Third World’, and of the Western world – as the debts of the West were incurred from financing foreign imperial adventures, and the debt of the ‘rest’ is the result of that imperialism.
Through the economic crisis, the debts incurred were largely done so in terms of buying the bad debts of the banks that created the crisis, thus, they too are illegitimate. Even the ‘stimulus’ money was indebted in order to solve a financial crisis created by a corrupt minority around the world. Credit card debts and student debts exacerbate poverty, and if there are no jobs for students in a broken economy, their debt is illegitimate. Since credit card debt was incurred to finance consumption and allow people to live beyond their means, there is a notion of responsibility on the part of the debtor, however, because credit card companies target the indebted and have essentially ‘captured’ the middle class, and now they must pay through their own impoverishment, people have been misled, and the debt ultimately did not benefit them; thus, it too is illegitimate. If our governments, the banks, the corporations and all creditors have colluded together to seek personal profit and gain, while impoverishing us and the rest of the world in the process, all the world’s debts to these institutions, actors and nations is odious and should not be repaid. Taking this stance, however, would not get you far in the world of economics or politics, as you would be advocating for the end of financial, economic, social and political imperialism and power structures; not a particularly popular position from the perspective of the powerful.
So the debates and discussions will rage on; when to raise interest rates, how to impose fiscal austerity, how to create ‘recovery’; all the while global political and economic institutions, states and actors will be working to impoverish you and destroy the foundations of society upon which you stand.
Third World America
As a further indication of the coming ‘third world’ status of America, in June of 2008, in the midst of the financial crisis, the United States Federal Reserve was audited by the IMF for the first time in history. As part of the investigation, “the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team.”[55]
Simon Johnson, former Chief Economist at the IMF, wrote an article in May of 2009 explaining that the problem with most third world nations (“emerging market economies”) is that the governments are so closely tight-knit with the corporate and banking elite that they form a financial oligarchy, and that this is essentially the same problem in the United States. He wrote that, “the finance industry has effectively captured our government,” and “recovery will fail unless we break the financial oligarchy that is blocking essential reform.”[56]
In March of 2009, an article appeared in the Washington Post written by Desmond Lachman, a fellow at the American Enterprise Institute, a previous emerging market strategist at Salomon Smith Barney and deputy director of the IMF’s Policy and Review Department, in which he referred to America as the “world’s scariest emerging market.” In other words, America resembles a third world debtor nation, from its corrupt banking elite, to the inept political class, and a massive foreign debt, America “is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we're trying to fix it.”[57]
Towns, cities, and states across America are resorting to drastic actions to reduce their debts, such as closing fire stations, scaling back trash collection, turning off street lights, ending bus services and public transportation, cutting back on library hours or closing them altogether, school districts cutting down the school day, week or year, and it was reported in September of 2010 that “local governments will eliminate roughly half a million employees in the next fiscal year, with public safety, public works, public health, social services, and parks and recreation hardest hit by the cutbacks.” Simultaneously, this is occurring with a dramatic increase in the rate of privatizations or “public-private partnerships” in which even libraries are being privatized.[58]
Structural Adjustment and “Social Explosion”
The imposition of ‘structural adjustment’ in the ‘Third World’ resulted in an explosion of social unrest, as the rural poor, the urban poor, and the urban middle class would come together to protest these policies,[59] and “between 1976 and 1992 there were 146 protests against IMF-supported austerity measures in 39 countries around the world. These took the form of political demonstrations, strikes and riots.”[60] As “fiscal austerity” and ‘structural adjustment’ are imposed on the West, we can expect the same results to occur. In fact, this process has already begun.
At the onset of the global economic crisis in 2008, the IMF warned that governments of the west could see “violent unrest on the streets,” as “violent protests could break out in countries worldwide if the financial system was not restructured to benefit everyone rather than a small elite.”[61] A cynical statement of the IMF, considering it is one of the central institutions that supports and upholds the interests of that “small elite.” In early 2009, Eastern Europe was already experiencing social unrest in opposition to austerity packages, and Latvia experienced the largest protests since the mass rallies against Soviet rule in the late 1980s.[62]
Similar tensions were felt across Western Europe throughout 2009, notably in France where massive strikes and protests were taking place, and several commentators were saying that civil unrest in places like Iceland and Eastern Europe were “a sign of things to come: a new age of rebellion.”[63] On May 1, 2009, major protests and riots broke out in Germany, Greece, Turkey, France and Austria, and there were further protests and riots that broke out in Russia, Italy, Spain, and some politicians were even discussing the threat of revolution.[64] In February of 2009, Dennis Blair, the Director of National Intelligence in the newly formed Obama administration (the highest intelligence position in the country), told the U.S. Congress what constituted the major ‘national security’ threats to the United States, explaining that the ‘economic crisis’ is a greater threat than terrorism:
I’d like to begin with the global economic crisis, because it already looms as the most serious one in decades, if not in centuries... Economic crises increase the risk of regime-threatening instability if they are prolonged for a one- or two-year period... And instability can loosen the fragile hold that many developing countries have on law and order, which can spill out in dangerous ways into the international community.[65]
In the same month, the highest-ranking general in the United States, Adm. Michael Mullen, Chairman of the Joint Chiefs of Staff, ranked “the financial crisis as a higher priority and greater risk to security than current wars in Iraq and Afghanistan.” He explained, “It's a global crisis. And as that impacts security issues, or feeds greater instability, I think it will impact on our national security in ways that we quite haven't figured out yet.”[66] Again, in the same month, the head of the World Trade Organization (WTO) warned that, “the global economic crisis could trigger political unrest equal to that seen during the 1930s.” He elaborated, “the crisis today is spreading even faster (than the Great Depression) and affects more countries at the same time.”[67]
In February of 2009, renowned economic historian and Harvard professor, Niall Ferguson, predicted a “prolonged financial hardship, even civil war, before the ‘Great Recession' ends,” and that, “the global crisis is far from over, [it] has only just begun.” He elaborated:
There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable.[68]
In May of 2009, the head of the World Bank warned that, “the global economic crisis could lead to serious social upheaval,” as “there is a risk of a serious human and social crisis with very serious political implications.”[69] Zbigniew Brzezinski, former National Security Adviser, co-founder of the Trilateral Commission and a key architect of ‘globalization’ warned that, “There's going to be growing conflict between the classes and if people are unemployed and really hurting, hell, there could be even riots!”[70]
In December of 2009, Moody’s – one of the world’s major credit ratings agencies – warned that “future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world,” resulting in “political and social tension.”[71] In March of 2010, Moody’s warned that the U.S., U.K., Germany, France, Spain and other Western nations could likely see “social unrest” as a result of imposing ‘fiscal austerity’, which “will test social cohesion.”[72]
An article in the Financial Times in May of 2010 warned of the emergence of “an age of rage,” in which the initial shock of an economic downturn subsides, and social unrest emerges, as there is usually a lag between an economic collapse and “social fury,” and that it will ultimately be “a test of the strength of democratic institutions in a time of extreme fiscal stress.”[73]
In September of 2010, the IMF chief Dominique Strauss-Kahn said that America and Europe, in the midst of the worst jobs crisis since the Great Depression, face an “explosion of social unrest.” Speaking at the summit of the International Labour Federation, Strauss-Kahn stated, “the labour market is in dire straits. The Great Recession has left behind a waste land of unemployment,” and that, “the Great Recession has left gaping wounds. High and long-lasting unemployment represents a risk to the stability of existing democracies.” The Chief Economist of the IMF, Olivier Blanchard, explained that, “long-term unemployment is alarmingly high: in the US, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression.”[74]
On September 29, 2010, massive protests took place across Europe against the austerity measures being imposed by European governments, with a general strike called in Spain, virtually shutting down Spain’s transportation system. Further, roughly 100,000 protesters “staged the biggest Brussels march in a decade and riot police barricaded EU headquarters as marchers from 30 countries joined the backlash against brutal spending cuts.”[75]
These protests continued throughout October of 2010, particularly in France, where millions of people went on strike, protested, and in some cases, rioted against President Sarkozy’s fiscal austerity plans, turning him into the most unpopular president in more than 50 years.[76]
The G20 Korea Summit
To further accelerate the process of global economic governance, it is essential for the principle economic institutions and powers to integrate China fully into this system. China is already a signatory to the World Trade Organization, having opened up its banking sector to foreign investment, with its economy fully integrated with and largely dependent upon the West, it is pivotal to include China in the system of global governance. China is represented in the Bank for International Settlements (BIS), which the IMF referred to as “the central and the oldest focal point for coordination of global governance arrangements.”[77] The board of directors of the BIS has 19 members, comprising the Governors of the central banks of Belgium, France, Germany, Italy and the United Kingdom and the Chairman of the Board of Governors of the US Federal Reserve System, as well as the Governors of the central banks of Brazil, Canada, China, Japan, the Netherlands, Sweden and Switzerland and the President of the ECB (European Central Bank). China is also represented in the G20, of which the President of the European Central Bank, Jean-Claude Trichet, referred to as “the prime group for global economic governance at the level of ministers, governors and heads of state or government.”[78] In 2009, China and India were invited as official members of the Trilateral Commission,[79] an international think tank created by David Rockefeller and Zbigniew Brzezinski in 1973 with the aim of creating a “community of industrial nations” comprising Western Europe, North America and Japan, essentially with the aim of managing the process of globalization.
In November of 2010, the G20 is to be hosted by South Korea, where they will meet to again advance the process of global governance and global social genocide. Prior to the official meeting of heads of state, a much more important preliminary meeting took place between the finance ministers and central bank governors of the G20 nations. This took place in late October of 2010 in Seoul, South Korea, at a time when the world is immersed in a global currency war. The currency war involves several major nations, from America, to Brazil and China, seeking to depreciate their currency in order to make exports more attractive, so their central banks (all of which cooperate on global governance at the BIS), buy and sell each others’ currencies, attempting to decrease the value of their own currency while increasing the value of competitor currencies. In short, it’s a race to the bottom. To convince China to appreciate its currency, incentives must be given. If China is to be following the dictates of the global financial powers, its economic weight in the world demands that China be better represented and more involved in the governance of these institutions. This means that if China is being integrated into a system of global governance, it must be invited to the management table.
The G20 agreed on implementing an historic reform in the IMF, where for the first time since its creation in 1944, the management structure of the IMF has been [slightly] altered. The significance is that European countries have agreed to give up two of their seats on the 24-member executive board, making room for China and India, and more than 6 per cent of IMF voting power will be transferred to underrepresented countries at the fund. As the Financial Times reported:
After the changes take effect, Brazil, Russia, India and China will be all included in the fund’s 10 biggest shareholders. The US, with a 17.67 per cent share of IMF quotas, will retain its veto power for the fund’s key decisions as they will continue to require a super-majority of 85 per cent.[80]
This is important to note as it clearly indicates that America still remains the ‘Godfather’ of the global financial system. The IMF requires 85% of voters to agree on any changes or decisions, and since the U.S. has 17.67% of the shares, if the U.S. votes against anything, the IMF cannot go forward, giving the U.S. veto power over the IMF. Yet these changes still represent an incremental effort to bring China within this system of global governance. At the same time, a top Chinese banker stated that, “the yuan should be included in the basket of currencies that constitute the International Monetary Fund's Special Drawing Rights.”[81] This would give China a more direct stake in the formation of a global currency, of which its central bank governor is already a firm supporter.
Conclusion
Herman Von Rompuy became President of the European Union in 2009, a new position established by the Lisbon Treaty passed the same year. Rompuy was selected as President following his attendance at a meeting of the Bilderberg Group.[82] Shortly after being given the position, Von Rompuy gave a speech in which he declared that 2009 is “the first year of global governance.”[83] As Denis Healey, a founding member and former member of the Steering Committee of the Bilderberg Group for over 30 years, stated in 2001, “To say we were striving for a one-world government is exaggerated, but not wholly unfair. Those of us in Bilderberg felt we couldn't go on forever fighting one another for nothing and killing people and rendering millions homeless. So we felt that a single community throughout the world would be a good thing.”[84]
So while institutions and organizations of global governance continue to grant themselves more power and expand their control and authority over the world, the people of the world must wake up to this process and seek to stem and stall its advancement. A global government would represent the people of the world even less than they are already not represented through their national governments. Institutions of global governance are totally unaccountable to the people, totally undemocratic, and are inherently totalitarian. As Gideon Rachman wrote for the Financial Times in December of 2008, “for the first time in my life, I think the formation of some sort of world government is plausible.” While articulating the need for a global government, modeling it on the European Union “going global,” he examined the setbacks that the EU had in this process, suggesting the same is likely in the process for global government. Specifically, he identified that whenever the people were involved in the process, they would act to stall or reject the process of integration. Thus, Rachman concluded, the European Union “has progressed fastest when far-reaching deals have been agreed by technocrats and politicians – and then pushed through without direct reference to the voters. International governance tends to be effective, only when it is anti-democratic.”[85] In other words, if we want global governance, we must kill democracy in the process.
What this implies then, is that the people have the potential to prevent this process from taking place, but only if they become directly involved in rejecting it. This means that people’s movements need to stop recognizing the legitimacy of these international organizations and institutions, complaining only that they are not included in discussions, and instead demand that they be dismantled altogether in favour of forming new governance arrangements – political, economic and social – that actively represent and empower the people over the entrenched powers. This is no simple task, in fact, it is likely the greatest, most monumental and challenging task that has ever faced humanity. So it seems necessary that the people not waste their time, not waste their votes, voices, or ideas, and work together to promote true progressive and humane change. There is hope in humanity yet, but so long as we allow the powerful to accumulate more power for themselves, we cannot expect things to get better for the majority. We must take advantage of our freedoms in order to fight for and preserve them. We can either be free thinkers, directing the course of our own lives, or we can be slaves to bankers.
Andrew Gavin Marshall is a Research Associate with the Centre for Research on Globalization (CRG). He is co-editor, with Michel Chossudovsky, of the recent book, "The Global Economic Crisis: The Great Depression of the XXI Century," available to order at Globalresearch.ca. He is currently writing a book on 'Global Government' due to be released in the New Year.
The horrible truth starts to dawn on Europe's leaders
The entire European Project is now at risk of disintegration, with strategic and economic consequences that are very hard to predict.
In a speech this morning, EU President Herman Van Rompuy (poet, and writer of Japanese and Latin verse) warned that if Europe’s leaders mishandle the current crisis and allow the eurozone to break up, they will destroy the European Union itself.
“We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union,” he said.
Well, well. This theme is all too familiar to readers of The Daily Telegraph, but it comes as something of a shock to hear such a confession after all these years from Europe’s president.
He is admitting that the gamble of launching a premature and dysfunctional currency without a central treasury, or debt union, or economic government, to back it up – and before the economies, legal systems, wage bargaining practices, productivity growth, and interest rate sensitivity, of North and South Europe had come anywhere near sustainable convergence – may now backfire horribly.
Jacques Delors and fellow fathers of EMU were told by Commission economists in the early 1990s that this reckless adventure could not work as constructed, and would lead to a traumatic crisis. They shrugged off the warnings.
They were told too that currency unions do not eliminate risk: they merely switch it from currency risk to default risk. For that reason it was all the more important to have a workable mechanism for sovereign defaults and bondholder haircuts in place from the beginning, with clear rules to establish the proper pricing of that risk.
But no, the EU masters would hear none of it. There could be no defaults, and no preparations were made or even permitted for such an entirely predictable outcome. Political faith alone was enough. Investors who should have known better walked straight into the trap, buying Greek, Portuguese, and Irish debt at 25-35 basis points over Bunds. At the top of boom funds were buying Spanish bonds at a spread of 4 basis points. Now we are seeing what happens when you build such moral hazard into the system, and shut down the warning thermostat.
Mr Delors told colleagues that any crisis would be a “beneficial crisis”, allowing the EU to break down resistance to fiscal federalism, and to accumulate fresh power. The purpose of EMU was political, not economic, so the objections of economists could happily be disregarded. Once the currency was in existence, EU states would have give up national sovereignty to make it work over time. It would lead ineluctably to the Monnet dream of a fully-fledged EU state. Bring the crisis on.
Behind this gamble, of course, was the assumption that any crisis could be contained at a tolerable cost once the imbalances of EMU’s one-size-fits-none monetary system had already reached catastrophic levels, and once the credit bubbles of Club Med and Ireland had collapsed. It assumed too that Germany, The Netherlands, and Finland would ultimately – under much protest – agree to foot the bill for a ‘Transferunion’.
We may soon find out whether either assumption is correct. Far from binding Europe together, monetary union is leading to acrimony and mutual recriminations. We had the first eruption earlier this year when Greece’s deputy premier accused the Germans of stealing Greek gold from the vaults of the central bank and killing 300,000 people during the Nazi occupation.
Greece is now under an EU protectorate, or the “Memorandum” as they call it. This has prompted pin-* terrorist attacks against anybody associated with EU rule. Ireland and Portugal are further behind on this road to serfdom, but they are already facing policy dictates from Brussels, but will soon be under formal protectorates as well in any case. Spain has more or less been forced to cut public wages by 5pc to comply with EU demands made in May. All are having to knuckle down to Europe’s agenda of austerity, without the offsetting relief of devaluation and looser monetary policy.
As this continues into next year, with unemployment stuck at depression levels or even creeping higher, it starts to matter who has political “ownership” over these policies. Is there full democratic consent, or is this suffering being imposed by foreign over-lords with an ideological aim? It does not take much imagination to see what this is going to do to concord in Europe.
My own view is that the EU became illegitimate when it refused to accept the rejection of the European Constitution by French and Dutch voters in 2005. There can be no justification for reviving the text as the Lisbon Treaty and ramming it through by parliamentary procedure without referenda, in what amounted to an authoritarian Putsch. (Yes, the national parliaments were themselves elected – so don’t write indignant comments pointing this out – but what was their motive for denying their own peoples a vote in this specific instance? Elected leaders can violate democracy as well. There was a corporal from Austria … but let’s not get into that).
Ireland was the one country forced to hold a vote by its constitutional court. When this lonely electorate also voted no, the EU again disregarded the result and intimidated Ireland into voting a second time to get it “right”.
This is the behaviour of a proto-Fascist organization, so if Ireland now – by historic irony, and in condign retribution – sets off the chain-reaction that destroys the eurozone and the European Union, it will be hard to resist the temptation of opening a bottle of Connemara whisky and enjoying the moment. But resist one must. The cataclysm will not be pretty.
My one thought for all those old friends still working for the EU institutions is what will happen to their euro pensions if Mr Van Rompuy is right?
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The entire European Project is now at risk of disintegration
Tuesday, November 16, 2010
Is Europe Coming Apart Faster Than Anticipated?
The sky is black with PIIGS coming home to roost: I was going to write my customary long and boring think piece—but the simmering crisis in the Eurozone just got the heat turned up: Things are boiling over there!
“Euro Dead” by Ryca.
So let’s take a break from our regularly scheduled programming, and give you a run-down of this late-breaking news:
The bond markets have no faith in Ireland—Greece has been shown up as having lied again about its atrocious fiscal situation—and now Portugal is teetering—
—in other words, the PIIGS are screwed. I would venture to guess that we are about to see this slow-boiling European crisis bubble over into a full blown meltdown over the next few days—and it’s going to get messy.
So to keep everything straight, let’s recap:
The spreads on Irish sovereign debt widened, and the Germans are pressing them to accept a bailout—despite the fact that the Irish government is fully funded until the middle of 2011. But it’s not the Irish fiscal situation that the bond markets or the Germans are worried about—it’s the Irish banking sector that is freaking everyone out.
After all, the Irish government fully—and very foolishly—backed the insolvent Irish banks back in 2008. And for unexplained reasons, the Irish government is committed to honoring Irish bank bonds fully—which the country simply cannot afford. However, German banks are heavily exposed to Irish banks, which explains why Berlin is so eager to have Ireland accept a bailout.
Right now, European Union, International Monetary Fund and European Central Bank officials are meeting with Irish representatives, putting together a bail-out package. The reason the Irish are so leery, of course, is that any bail-out would be accompanied by very severe austerity measures: In other words, the Irish people would suffer the consequences of shoring up the Irish banks—which is the same as saying the Irish people would suffer austerity measures in order to keep German banks from suffering losses. Also, the EU/IMF/ECB bail-out would probably also cost the Irish their precious 12.5% corporate tax rate—a key magnet for bringing capital to the Emerald Isle.
Add to the Irish worry, Greece is once again wearing a bright red conical dunce cap: They’ve been shown up to have lied again about their fiscal situation. Three guesses what they lied about: If you guessed Greek deficit, you win—yesterday, the Greek government officially revised its deficit figures: 15.4% for 2009, and 9.4% for 2010 (as opposed to an original 7.8% projection). Odds are good that these figures will be revised—for the worse—soon enough: Nobody believes anything other than Greece is insolvent.
That’s what’s going on this morning—and as a reaction, the dollar (if you can believe it) is roaring back alive: As I write (noon EST), the Euro is at $1.3511, the Pound at $1.5870, gold down to $1,333 an ounce, silver $25.05 an ounce; the dollar is up ¥83.45.
There was no specific reason why things took a turn for the worse today—but this downturn of sentiment has been having a cascading/contagion effect through the rest of Europe:
As a result of the Irish not taking the EU bail-out, Portugal’s debt started to tumble—which has everyone worried. Portugal is looking an awful lot like Greece did five-six months ago: It’s debt spread over the German benchmark is 6.5%, and climbing. Even France’s debt yield spread widened against the German bund—it costs more to insure French debt than it costs to insure Chilean debt (I guess a good “Viva Chile!” would be in order?).
The reason the entire slate of Euro bonds are tumbling is because of Ireland—but the real worry is Spain.
If Ireland and then Portugal go down the tubes, then it would only be a matter of time before Spain is next—and Spain is far larger than Greece, Ireland and Portugal combined.
If Spain goes, then it’s curtains for the whole Eurozone, perhaps even for the European Union as a political entity.
So Germany, the EU, the IMF and the ECB all want to save Ireland as a firewall, against further bond market deterioration.
The problem is, the Irish don’t want to be saved.
Ireland isn’t the only country that doesn’t want the EU/IMF/ECB bail-out of the Irish to happen. Several other EU countries also do not want any more bail-outs, be it of Ireland or Greece or Portugal or anyone else:
Austria has just announced that it is withholding bailout funds to Greece, according to Reuters. The reason, as articulated by Austria’s Finance Minister, Josef Proell, is that they are sick and tired of Greece’s bs. He was much more polite, of course, but essentially this is what he said. So Athens won’t be getting any of Austria’s money until there has been “extensive debate”.
Now, the Greek bailout is to the tune of €30 billion—Austria’s end is a measely €190 million: Six tenths of 1% of the total package. But for the political impact of the Austrian government’s decision, their contribution to the bailout fund could be twenty or thirty times as large. More than one government, and more than one political party, is working on slogans along the lines of, “If the Austrians can do it, why can’t we?”
Finland is another country openly unwilling to play ball vis-à-vis bailouts: The Finns have made it clear today that they are unwilling to put pressure on Ireland to accept an EU bailout. Again according to Reuters, the Finns are opposed to bailing out Ireland because of an upcoming election, and popular opposition to more bail-outs. This makes sense, especially if you consider that Finland has been helping to bail out Iceland, and the Baltic countries, especially Latvia.
Now, of course, the bitching and moaning by small-fry Euro-nations in and of itself means nothing—except for two things:
One, the European Financial Stability Fund (EFSF) needs a unanimous vote to be activated to save Ireland, or anyone else. If (and that’s a big if) the Irish finally tap this funding source, undoubtedly the EFSF would pay up—but in order to get that unanimity, a lot of political favors would have to be doled out to recalcitrant members.
And two, Austria and Finland’s objections to an Irish bailout is the visible articulation of differences that are raging privately in Berlin and Paris, and every other capital of Eurozone countries. The debate is between bail-outs, and letting the chips fall where they may.
Which brings us to a key point: There is clearly political exhaustion setting in. All these efforts to save all these small countries—Greece, Ireland, Portugal, the Baltics, Iceland—is leaving the European political leadership exhausted, not to mention leaving them out of bullets, as it were.
That’s because all these bail-outs have come at tremendous political costs, among the constituents of the nations doing the bailing out. The Finnish example—where clear and present political danger keeps the politicians from helping in a bail out—is a harbinger of things to come for the rest of Europe’s political leadership.
But even without this political exhaustion, one has to stop and consider an obvious truth: Some countries are simply too large to bail out.
What happens when Spain finally gets into serious trouble? It’s not an if question anymore—not when Spain is running practically 20% unemployment, and a projected fiscal deficit this year of 9.3%, according to Bloomberg. Just like Greece, Ireland and Portugal, eventually, the bond markets will turn on Spanish debt—it’s only a matter of time.
What will the EU and the ECB do then? Bail out Spain? Good luck with that—that’ll be like trying to hoist an elephant out of a septic tank with nothing but a smile: It simply cannot be done. Spain’s simply too big.
I think that these measures the European leadership is trying to carry out are simply postponing the inevitable. And what’s inevitable is a crash of the peripheral members of the Eurozone—the PIIGS plus Belgium. Because even if the Irish are bailed out in the next day or two, in a few months time, we’ll have another round of panic, this time over Portugal. And by next summer, it is going to be Spain—inevitably.
If Ireland is not sorted out—which at this point is in fact highly likely—then the Euro-bond market might well crash in the near-term, bring down not just Irish debt, but Portuguese, Spanish and Italian debt as well. Maybe even French debt. And that would be curtains for the Eurozone—maybe even the European Union.
In my post just last week, The Tidal Forces Ripping Europe Apart, I argued that the stress of over-indebtedness coupled with an unwillingness to take haircuts and restructure the sovereign debt would rip the European Union apart.
I argued this would happen—I just didn’t think it would happen so soon . . .
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If Ireland is not sorted out—which at this point is in fact highly likely—then the Euro-bond market might well crash in the near-term, bring down not just Irish debt, but Portuguese, Spanish and Italian debt as well. Maybe even French debt. And that would be curtains for the Eurozone—maybe even the European Union.
The Wall Street Pentagon Papers: Biggest Scam In World History Exposed - Are The Federal Reserve’s Crimes Too Big To Comprehend?
Posted on Monday, December 6th, 2010 at 2:16 pm
By David DeGraw, AmpedStatus
The Wall Street Pentagon Papers: Biggest Scam In World History Exposed - Are The Federal Reserve's Crimes Too Big To Comprehend?What if the greatest scam ever perpetrated was blatantly exposed, and the US media didn’t cover it? Does that mean the scam could keep going? That’s what we are about to find out.
I understand the importance of the new WikiLeaks documents. However, we must not let them distract us from the new information the Federal Reserve was forced to release. Even if WikiLeaks reveals documents from inside a large American bank, as huge as that could be, it will most likely pale in comparison to what we just found out from the one-time peek we got into the inner-workings of the Federal Reserve. This is the Wall Street equivalent of the Pentagon Papers.
I’ve written many reports detailing the crimes of Wall Street during this crisis. The level of fraud, from top to bottom, has been staggering. The lack of accountability and the complete disregard for the rule of law have made me and many of my colleagues extremely cynical and jaded when it comes to new evidence to pile on top of the mountain that we have already gathered. But we must not let our cynicism cloud our vision on the details within this new information.
Just when I thought the banksters couldn’t possibly shock me anymore… they did. .............
rest of article and links to videos at above link.
Saturday, December 11, 2010
5 Signs the End is Near for the Criminal Banks
When will we get justice from the banksters? HINT: As soon as we demand justice and not a moment sooner.
Could it be any more clear? The international banks are proven criminal entities -- everyone knows it, and everyone is beginning to openly say it. Yet they are still apparently considered "Too-Big-to-Jail" by our public legislators.
Politicians from around the world continue to bow to the will of the banksters, whether they be in the private sector, privately-owned central banks, or global private banks, while the people continue to be brazenly looted to fund their criminal enterprise.
Our leaders are being forced by the international banks to give them public pensions and demand higher taxes without the consent of the voting public. So much for sovereign countries making their own laws. This, after these very bankers brought the nations of the world to their knees in the first place. The emperor is nearly naked for all to see; however, the final curtain to be pulled will thrust the angry populace well over the tipping point when they realize their servitude was purchased with fraudulent money.
It's all an illusion to enslave us. This insanity is about to end. We have the power to change our reality, but only if we have the collective awareness, courage and will to take it. The time for liberty and justice is here for free humans to live in a lawful society. We must immediately demand justice: seize the criminals' assets, release all debt prisoners, and reform our monetary system.
Here are 5 signs that the end is near for the criminal banks:
1. Global Awareness is growing among the peasants: Bloomberg recently reported that more than half of Americans polled want the Fed reined in or abolished. This poll indicates tremendous expansion of the public's knowledge of the Fed in America. This tipping point of awareness has already turned to rage in Europe.
2. Wikileaks to release Banking file: Regardless of what these new cables actually reveal, the WikiLeaks saga has hit center stage and will undoubtedly reveal a further wealth of criminal activity. This soap-opera-like, headline-grabbing story is guaranteed to penetrate even the laziest of mainstream news viewers.
3. Defaulting on Debt as a form of protest: The global awareness of the Greatest Bank Robbery of both individuals and governments already has led to a major shift in mentality regarding debt and one's obligation to pay it back. People are refusing to pay their credit cards (or not using them); walking away from mortgages; and are suing banks in the fraudulent mortgage scam. This is a movement that is beginning to recognize the system itself as an immoral one, so there is no moral obligation to further support criminality by participating. This is a massive paradigm shift which will have a "trickle-up" effect, as this mentality eventually asserts itself on governments to stop cooperating with the proven thieves of the banking industry. Governments will have to make the choice either to throw the banksters under the bus, or face their own possible collapse.
4. Ron Paul to chair Fed oversight: Author of End The Fed, Ron Paul, was named chairman of the House subcommittee on Domestic Monetary Policy that oversees the Fed. He openly and repeatedly refers to the bankers as criminals in nearly every interview. This is clearly a sign that the Fed's days of running the plantation are coming to an end. Over 25 years in the making, Ron Paul finally will have his platform.
5. After-the-Fed debate heats up: The focus until this point has been to End The Fed. Now the focus has shifted to the assumption that the Fed's days are truly numbered. The time has arrived for groups advocating a new monetary policy to fiercely debate what type of system should replace the current private central bank. This preparation and debate indicates that a collapse of the current banking structure is a foregone conclusion.
The above points are being addressed simultaneously as discussion is increasing about the fact that it is mathematically impossible ever to pay off the fraudulent debt that has been created. Once this is realized by the majority, the end of the criminal banks will be seen not only as a near-term possibility; it will be seen as a self-evident necessity. It is, in fact, The Bankers or Us:
Doomsday for the US Dollar: Post Mortem for the World's "Reserve Currency"
by Mike Whitney
Global Research, December 14, 2010
Paul Volcker is worried about the future of the dollar and for good reason. The Fed has initiated a program (Quantitative Easing) that presages an end to Bretton Woods 2 and replaces it with different system altogether. Naturally, that's made trading partners pretty nervous. Despite the unfairness of the present system--where export-dependent countries recycle capital to US markets to sustain demand---most nations would rather stick with the "devil they know", then venture into the unknown. But US allies weren't consulted on the matter. The Fed unilaterally decided that the only way to fight deflation and high unemployment in the US, was by weakening the dollar and making US exports more competitive. Hence--QE2.
But that means that the US will be battling for the same export market as everyone else, which will inevitably shrink global demand for goods and services. This is a major change in the Fed's policy and there's a good chance it will backfire. Here's the deal: If US markets no longer provide sufficient demand for foreign exports, then there will be less incentive to trade in dollars. Thus, QE poses a real threat to the dollar's position as the world's reserve currency.
Here's what Volcker said: “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.....The question is whether the exceptional role of the dollar can be maintained." (Bloomberg)
This is a good summary of the problems facing the dollar. And, notice that Volcker did not invoke the doomsday scenario that one hears so often on the Internet, that China--which has more than $1 trillion in US Treasuries and dollar-backed assets--will one day pull the plug on the USA and send the dollar plunging. While that's technically true, it's not going to happen. China has no intention of crashing the dollar and thrusting its own economy into a long-term slump. In fact, China has been adding to its cache of USTs because it wants to keep its own currency weak and maintain its hefty share of the global export market. Besides, China didn't become the second biggest economy in the world by carrying out counterproductive vendettas against its rivals. It's going to stick with the strategy that got it to where it is today.
Still, as Volcker points out, there are real threats to the dollar, and they're getting more serious all the time. For example, if the deficits continue to balloon as they have recently ($1.3 trillion in 2010) or if Fed chairman Ben Bernanke follows QE2 with QE3, QE4, QE5 ad infinitum, then foreign investors and central banks will begin to lose confidence in the US's ability to manage its finances and they will begin to ditch the dollar. That will increase the cost of funding government operations by many orders of magnitude. In fact, it looked like something like that was happening just last week when President Obama announced his approval for extending the Bush tax cuts. The markets figured that extending the cuts would swell the deficits which would force the Treasury to issue more debt. That triggered a flight out of USTs that sent yields up sharply. The bond market suffered its biggest 2-day selloff since 2009. The incident provided a snapshot of what's in store when the economy begins to recover and the government has to pay higher rates to service the debt.
In any event, the one-two punch of bigger deficits and QE cannot help but push the dollar lower, but that does not necessarily imply that the dollar will lose its top-spot as reserve currency. It's more complicated than that.
Here's how economist Menzie Chinn summed it up when he was asked how it would effect the US economy if the dollar lost its position as the world's reserve currency:
"If the dollar does indeed lose its role as leading international currency, the cost to the United States would probably extend beyond the simple loss of seigniorage narrowly defined. We would lose the privilege of playing banker to the world, accepting short-term deposits at low interest rates in return for long-term investments at high average rates of return. When combined with other political developments, it might even spell the end of economic and political hegemony."
Maintaining reserve status is the great imperative, because reserve status is the cornerstone upon which the empire rests. Lose that, and the whole superpower phenom begins to teeter. So, quirky, untested policies, like QE, are not initiated without a great deal of thought. (and apprehension) The Fed tries to anticipate what could go wrong and work out an exit strategy. Kevin Warsh, who is a member of the Board of Governors at the Fed, gave a good rundown of the potential problems with QE in an article in the Wall Street Journal. Here's an excerpt:
"The Fed's increased presence in the market for long-term Treasury securities also poses nontrivial risks. The Treasury market is special. It plays a unique role in the global financial system. It is a corollary to the dollar's role as the world's reserve currency. The prices assigned to Treasury securities--the risk-free rate--are the foundation from which the price of virtually every asset in the world is calculated. As the Fed's balance sheet expands, it becomes more of a price maker than a price taker in the Treasury market. And if market participants come to doubt these prices--or their reliance on these prices proves fleeting--risk premiums across asset classes and geographies could move unexpectedly. The shock that hit the financial markets in 2008 upon the imminent failures of Fannie Mae and Freddie Mac gives some indication of the harm that can be done when assets perceived to be relatively riskless turn out not to be." ("The New Malaise", Kevin Warsh, Wall Street Journal)
This is an astonishing admission for an acting member of the Fed. Warsh is basically conceding that the Fed is price-fixing on a global scale ("more of a price maker than a price taker") and he worries that this could undermine confidence in the bond market. The danger, as he sees it, is that investors will see through the ruse of government guarantees (like those for Fannie and Freddie) and exit the asset class altogether sinking the dollar on their way out. This is the grimmest scenario I've seen yet, but it seems much more plausible than the "China will dump its Treasuries all at once" theory.
The administration's support for Bernanke's "weak dollar" policy is evident in the way that Obama keeps reiterating his promise to double exports in 5 years. This simply can't be done without ripping the dollar to shreds, which appears to be Obama's intention. QE will lower the dollar's value against a basket of currencies which will make US exports cheaper than the competition. Bernanke sees it as a way to narrow the output gap and lower unemployment by cranking up the printing presses.
Foreign trading partners see it as beggar-thy-neighbor monetary policy at its worst, and they are deeply resentful. They'd rather see Congress do what it's done in the past, and push through a second round of fiscal stimulus to boost demand. They don't care about how big the US deficits are as long as they are used for a good purpose. And pulling the world out of a global slump is a good purpose. But that's not going to happen because the new GOP majority wants to implement their madcap "austerity" scheme which will bankrupt the states and dismantle popular social programs. They're as committed to "starve the beast" as ever, and they're convinced it's a winning strategy for retaking the White House in 2012. But belt-tightening reduces demand which makes American markets less attractive for foreign products. If the US economy continues to underperform, there will be less reason for foreign investors and central banks to stockpile dollars. The Fed's QE, Obama's export strategy, and the GOP's plan for debt consolidation are creating ideal conditions for an unexpected plunge in the dollar.
But there are other problems facing the dollar besides falling value and droopy demand. As Volcker says, "We have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate."
Indeed. Public confidence in US markets has steadily eroded as one scandal follows the other and the people involved are never held accountable. So far, not one CEO or CFO of a major investment bank or financial institution has been charged, arrested, prosecuted, or convicted in what amounts to the largest incident of securities fraud in history. In the much-smaller Savings and Loan investigation, more than 1,000 people were charged and convicted. As Volcker points out, the system is broken and the old rules no longer apply. The small gains that were recently made in Dodd-Frank financial regulation, are now under attack by the new majority in congress. The GOP has pledged to either roll back entire provisions of the bill or do what they can to make the law unenforceable. Here's a quick look at two of the Republican leaders who will be leading the effort to "defang" Fin-Reg:
"A heated battle is underway between Rep. Spencer Bachus, R-Ala., who is in line to become the next chairman of the House Financial Services Committee, and Rep. Ed Royce, R-Calif., who is challenging him for the post currently held by Democrat Barney Frank of Massachusetts....More than half the $1.25 million donated to Royce’s Road to Freedom political action committee (PAC) over the last two election cycles came from banks, auditors and insurance companies, according to the Center for Public Integrity.
Bachus... too, has deep financial ties to the industry, which contributed more than half the $2.7 million in PAC money he received in the past four years. ("Defang and Delay—Wall Street Plans to Neuter FinReg", Merrill Goozner, The Fiscal Times)
There's no doubt that Royce and Bachus are in Wall Street's pocket and are ready to do their bidding. Whatever inroads were made on the main issues-- Too Big To Fail, resolution authority, central clearinghouses and capital standards for derivatives, securitization, funding for the Consumers Financial Protection Agency (CFPA) etc.---will either be sabotaged or challenged by financial industry agents working from within the congress and senate.
Here's a blurp from a post by Zach Carter who hangs some big numbers on congressional influence peddling:
"A full 90 members of Congress who voted to bailout Wall Street in 2008 failed to support financial reform reining in the banks that drove our economy off a cliff. But when you examine campaign contribution data, it's really no surprise that these particular lawmakers voted to mortgage our economic future to Big Finance: This election cycle, they've raked in over $48.8 million from the financial establishment. Over the course of their Congressional careers, the figure swells to a massive $176.9 million.... When it comes to dealing out economic damage, no special interest group has been able to wreak more havoc that Big Finance...("Crony Capitalism: Wall Street's Favorite Politicians", Zach Carter, ourfuture.org)
Wall Street is the epicenter of global corruption; the world's biggest sewer. It's multi-trillion dollar Ponzi-mortgage scheme brought down the global financial system which was hastily resurrected by blanket Fed guarantees on fraudulent bonds and securities generated by undercapitalized financial institutions. But as bad as the bailout was, the Fed's ongoing meddling in the equities markets is even worse because shows to what extent the markets are being juiced. Consider this excerpt from an article on Bloomberg on Monday that shows the connection between the Fed's purchases of US Treasuries (QE) and the predictable surge in stock prices:
"Nine of the S&P 500’s 10 main industry groups, led by shares of financial companies, rose more on days when the Fed opened its checkbook for, or announced results of, what it calls Permanent Open Market Operations. The group of 81 banks, insurers and investment firms, including New York-based JPMorgan Chase & Co. and Wells Fargo & Co. of San Francisco, climbed an average 0.32 percent, compared with a 0.04 percent drop on non- POMO days....
FX Concepts LLC, the world’s largest currency hedge fund, buys higher-yielding assets such as stocks and the Australian dollar when the Fed is purchasing bonds, said John R. Taylor, who manages about $8 billion as chairman of the New York-based firm. The days have become “incredibly important for the market,” Taylor said." ("Stocks Rally With Bernanke Bond Purchases as QE Buoys S&P 500", Bloomberg)
This phenomenon has long been a topic of debate on economics blogs, but now that it's in the mainstream, people are likely to sit up and take notice. Bernanke's money is going in one end and coming out the other in the form of "frothy" stocks. Just like high-frequency trading, dark pools, off-balance sheets operations, shadow banking, securitization, and the billions in unreported mark-to-fantasy toxic assets; this latest discovery by Bloomberg will further confirm that Wall Street is a murky underworld of insider trading, criminal activity and Fed-sanctioned grand larceny.
DOOMSDAY FOR THE BUCK
The dollar's days as reserve currency may be coming to an end, but it won't be because China decided to jettison its pile of US Treasuries. Oh, no. It will be because austerity measures in the US reduced demand for imports making it less necessary to trade in dollars. And, it will be because Obama's "weak dollar" policy led to the demise of Bretton Woods 2 which kept interest rates low by recycling capital into the US. And, it will be because Congress and the White House were incapable of fixing the financial system, reigning in Wall Street, or restoring credibility to the markets. These are the real reasons the greenback is toast.
As Volcker opines, "We’re faced with broken financial markets, underperformance of our economy and a fractious political climate" because we no longer have "a successful governing model" that the rest of the world admires. Absent radical restructuring and a new regulatory regime, the dollar will be unable to maintain its "exceptional role" as the world's reserve currency. It's only a matter of time.
Mike Whitney is a frequent contributor to Global Research. Global Research Articles by Mike Whitney
Joined: 25 Jul 2005 Posts: 18032 Location: St. Pauls, Bristol, England
Posted: Sat Dec 18, 2010 11:54 pm Post subject:
Doomsday for the US Dollar: Post Mortem for the World's "Reserve Currency"
by Mike Whitney - Global Research, December 14, 2010
Paul Volcker is worried about the future of the dollar and for good reason. The Fed has initiated a program (Quantitative Easing) that presages an end to Bretton Woods 2 and replaces it with different system altogether. Naturally, that's made trading partners pretty nervous. Despite the unfairness of the present system--where export-dependent countries recycle capital to US markets to sustain demand---most nations would rather stick with the "devil they know", then venture into the unknown. But US allies weren't consulted on the matter. The Fed unilaterally decided that the only way to fight deflation and high unemployment in the US, was by weakening the dollar and making US exports more competitive. Hence--QE2.
But that means that the US will be battling for the same export market as everyone else, which will inevitably shrink global demand for goods and services. This is a major change in the Fed's policy and there's a good chance it will backfire. Here's the deal: If US markets no longer provide sufficient demand for foreign exports, then there will be less incentive to trade in dollars. Thus, QE poses a real threat to the dollar's position as the world's reserve currency.
Here's what Volcker said: “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.....The question is whether the exceptional role of the dollar can be maintained." (Bloomberg)
This is a good summary of the problems facing the dollar. And, notice that Volcker did not invoke the doomsday scenario that one hears so often on the Internet, that China--which has more than $1 trillion in US Treasuries and dollar-backed assets--will one day pull the plug on the USA and send the dollar plunging. While that's technically true, it's not going to happen. China has no intention of crashing the dollar and thrusting its own economy into a long-term slump. In fact, China has been adding to its cache of USTs because it wants to keep its own currency weak and maintain its hefty share of the global export market. Besides, China didn't become the second biggest economy in the world by carrying out counterproductive vendettas against its rivals. It's going to stick with the strategy that got it to where it is today.
Still, as Volcker points out, there are real threats to the dollar, and they're getting more serious all the time. For example, if the deficits continue to balloon as they have recently ($1.3 trillion in 2010) or if Fed chairman Ben Bernanke follows QE2 with QE3, QE4, QE5 ad infinitum, then foreign investors and central banks will begin to lose confidence in the US's ability to manage its finances and they will begin to ditch the dollar. That will increase the cost of funding government operations by many orders of magnitude. In fact, it looked like something like that was happening just last week when President Obama announced his approval for extending the Bush tax cuts. The markets figured that extending the cuts would swell the deficits which would force the Treasury to issue more debt. That triggered a flight out of USTs that sent yields up sharply. The bond market suffered its biggest 2-day selloff since 2009. The incident provided a snapshot of what's in store when the economy begins to recover and the government has to pay higher rates to service the debt.
In any event, the one-two punch of bigger deficits and QE cannot help but push the dollar lower, but that does not necessarily imply that the dollar will lose its top-spot as reserve currency. It's more complicated than that.
Here's how economist Menzie Chinn summed it up when he was asked how it would effect the US economy if the dollar lost its position as the world's reserve currency:
"If the dollar does indeed lose its role as leading international currency, the cost to the United States would probably extend beyond the simple loss of seigniorage narrowly defined. We would lose the privilege of playing banker to the world, accepting short-term deposits at low interest rates in return for long-term investments at high average rates of return. When combined with other political developments, it might even spell the end of economic and political hegemony.".........................
http://www.globalresearch.ca/index.php?context=va&aid=22402 _________________ www.lawyerscommitteefor9-11inquiry.org www.rethink911.org www.patriotsquestion911.com www.actorsandartistsfor911truth.org www.mediafor911truth.org www.pilotsfor911truth.org www.mp911truth.org www.ae911truth.org www.rl911truth.org www.stj911.org www.v911t.org www.thisweek.org.uk www.abolishwar.org.uk www.elementary.org.uk www.radio4all.net/index.php/contributor/2149 http://utangente.free.fr/2003/media2003.pdf
"The maintenance of secrets acts like a psychic poison which alienates the possessor from the community" Carl Jung
https://37.220.108.147/members/www.bilderberg.org/phpBB2/
Banks just too big to fail? Iceland shows otherwise
By Yalman Onaran, 5:30 AM Monday Feb 21, 2011
Decision to let banks go under looks smarter by the day, in contrast to Ireland's costly bailout, reports Yalman Onaran.
On his second day as head of Iceland's third-largest bank, Arni Tomasson faced a crisis: the firm that regulators had asked him to run was out of cash.
It was October 8, 2008, at the height of the global financial meltdown and Iceland's bank assets in Britain had been frozen. Customers flocked to branches of Tomasson's Glitnir Banki to withdraw money, even though the Government had guaranteed their deposits. By the end of the day, the vaults were empty, says Tomasson, recalling the drama.
The only way Glitnir and other lenders could avoid a panic the next morning was to get more cash, which they were having trouble doing. A container of crisp kronur sat on the tarmac at Reykjavik's airport awaiting payment.
The British company that printed the bills, De La Rue, was demanding sterling, and the central bank couldn't access its British account.
"Everybody was panicked - depositors, creditors, banks around the world," Tomasson says.
But Tomasson got the cash he needed that night after the central bank managed to open an emergency line of credit with a European lender. Now he's sitting in an office in Reykjavik, handling about US$24 billion ($32 billion) of claims by creditors as life in Iceland's capital returns to normal.
Unlike other nations, including the US and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country's banks, whose assets had ballooned to US$209 billion, 11 times gross domestic product.
The crisis almost sank the country. The krona lost 58 per cent of its value by the end of November 2008, inflation reached 19 per cent in January 2009, GDP fell 7 per cent that year and the Prime Minister resigned after nationwide protests.
But with the economy projected to grow 3 per cent this year, Iceland's decision to let the banks fail is looking smart.
"Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks," says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. "Ireland's done all the wrong things, on the other hand. That's probably the worst model."
Ireland guaranteed all the liabilities of its banks when they ran into trouble and has been injecting capital - €46 billion so far - to prop them up. That brought the country to the brink of ruin, forcing it to accept a rescue package from the European Union in December.
Ireland's banks had more than 10 times the assets of Iceland's lenders, making their collapse more dangerous for the European financial system. Ireland also couldn't devalue its currency because it is part of the euro zone. Still, countries with larger banking systems can follow Iceland's example, says Adriaan van der Knaap, a managing director at UBS.
"It wouldn't upset the financial system," says Van der Knaap, who has advised Iceland's bank resolution committees. "Even Irish banks aren't too big to fail."
Under an emergency act of Iceland's parliament on October 6, 2008, the assets and liabilities of the three biggest banks - Kaupthing, Landsbanki Islands and Glitnir - were divided based on whether they were originated at home or abroad. The act created three new banks that were given the deposits and loans made to Icelandic companies and consumers. Resolution committees were set up to manage and liquidate what the old banks were left with: the overseas borrowing and lending that fuelled a sevenfold increase in assets from 2000 to 2008.
"If we'd guaranteed all the banks' liabilities, we'd be in the same situation as Ireland," says Iceland's Minister of Economic Affairs, Arni Pall Arnason. Today, Iceland is recovering. The three new banks had combined profits of US$309 million in the first nine months of last year. The economy grew for the first time in two years in the third quarter, by 1.2 per cent, and inflation is down to 1.8 per cent. Stores in Reykjavik were filled with Christmas shoppers in early December and bank branches were crowded with customers.
Iceland's banking boom began in 2001, after the US Federal Reserve began cutting interest rates, pumping cheap money into the global economy. The next year Iceland sold its majority stakes in two banks. The new owners, along with those of Glitnir, which was already in private hands, expanded lending at home and overseas.
Banking's share of national output almost doubled to 9 per cent, while that of fishing, the traditional backbone of Iceland's economy, halved to 4 per cent.
More homes were built from 2004 to 2008 than in the entire previous decade, fuelled by a Government decision in 2003 to lower down payments on mortgages to 10 per cent from 30 per cent.
The 367 Range Rovers sold in Iceland in 2007 exceeded the number in Denmark and Sweden, which combined have almost 50 times Iceland's population of 318,000.
The banks were particularly aggressive in Britain. Many of the borrowers had insufficient or low-quality collateral, according to investigations launched by the Icelandic Government since the crisis.
Loans were also made to companies in which bank executives and owners had stakes or which were controlled by their friends, according to dozens of lawsuits initiated by regulators and resolution committees. Gunnar Andersen, director-general of Iceland's Financial Supervisory Authority, says that before his arrival in April 2009, the agency was understaffed and failed to see the red flags being raised as the banks grew through risky lending. So did auditors and credit-rating firms. Moody's Investors Service gave the Icelandic banks its fourth-highest rating of Aa3 in 2007, Andersen says.
The three banks had become the largest companies in Iceland, creating thousands of well-paid positions, says former central bank chairman David Oddsson, who oversaw the privatisation of Iceland's state-owned lenders when he was Prime Minister. "Nobody wanted to listen when the party was on."
It was Oddsson's decision not to build up the central bank's foreign currency reserves from 2005 to 2008 that made a bailout impossible. "They were collecting debt at such a fast pace, it would be stupid for us to build a mountain they could lean on if they failed," Oddsson says.
After the three lenders were seized by regulators, the Government negotiated with the creditors, almost all outside the country.
Glitnir's 8500 creditors and Kaupthing's 28,000 expect to get about 30 cents on the dollar for their claims, based on secondary-market prices of the banks' debt and asset valuations by the resolution committees. Claims against the three banks add up to US$107 billion and it may take years to resolve them in court, even after the resolution committees finish their work.
At Kaupthing's offices, housed on the seventh floor of a building with floor-to-ceiling windows overlooking the Atlantic Ocean, a half-dozen asset managers huddle over computer monitors watching market prices for stocks and bonds the bank owns. They and their counterparts at Landsbanki and Glitnir are in no hurry to sell.
"Creditors are telling us not to hurry, not to do fire sales," says Tomasson, the Glitnir resolution committee chairman.
At the headquarters of one of the new banks, Arion, chief executive Hoskuldur Olafsson talks about the challenges facing the new bank. Those include restructuring thousands of consumer loans, mortgages and debts of small Icelandic companies.
While the bank got the loans from Kaupthing at steep discounts - in some cases for nothing - it has to work with borrowers to make sure they can pay back, Olafsson says. "Asset values and income in Iceland have gone down a lot, so people just can't pay," he says.
Creditors have an interest in seeing the new banks succeed. They stand to recover more if they can be sold for a good price to strategic investors or in a public offering. Glitnir aims to do so in three years; Kaupthing is shooting for five.
While the shattered trust of the public may take years to rebuild, there aren't any alternatives for Icelanders, who have kept their deposits at the new banks.
"I lost all confidence in the banks, but where else can we go?" says Jon Birgir Valsson, a customer at an Islandsbanki branch in downtown Reykjavik.
Rebuilding the confidence of international investors may take longer. Iceland's banks won't be able to access international markets until political and financial uncertainties are removed.
Those include an agreement reached with Britain and the Netherlands, which has to be approved by President Olafur Grimsson. The head of state has said he'll decide this month whether to put the issue to a referendum again. Voters rejected a previous arrangement last year that forced a higher interest rate on Iceland.
Birna Einarsdottir, chief executive of another of the new banks, Islandsbanki, agrees that settlement of these issues and completion of debt restructuring is required before the Government and the banks can access international capital markets again.
"In the beginning, banks and other financial institutions in Europe were telling us, 'Never again will we lend to you'," Einarsdottir says. "Then it was 10 years, then five. Now they say they might soon be ready to lend again."
This time, her bank won't use foreign funds to go on a lending binge.
"We will only focus on areas where we can bring on the nation's expertise, such as fishing and geothermal energy," says Einarsdottir. "We will grow cautiously."
Economy Minister Arnason acknowledges that the nation got into banking without the right infrastructure or knowhow. Still, he doesn't think Icelanders have to go back to fishing now that they've proven themselves inept at finance.
His Government needs to find work for the 2000 highly educated finance-sector employees who lost their jobs, he says. Arnason will have a better chance of keeping his countrymen home if Iceland can resume growth as predicted. It would also help prove his predecessors were right to let the country's banks fail: Ireland, which rescued its financial institutions, is on the way to shrinking for a fourth consecutive year.
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