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THE GLOBAL FINANCIAL MELTDOWN
THE MISSING WORDS AT THE G20 – OR AN ABSURD PLAN FOR THE GLOBAL ECONOMIC CRISIS
http://communities.canada.com/shareit/bl...risis.aspx


With all the public attention during G20 on the 1000 arrests and such, something critical was overlooked. That's the paradox the assembled heads of governments created for ending the global economic crisis.

The G20 leaders recognize that "demand" needs to grow. That means people must have the means to buy stuff. Do a search in the G20 Toronto Summit Declaration and fourteen times you'll find a reference to boosting or increasing "demand".

Yet they want to halve their deficits by 2013. How are they going to cut government spending and increase demand at the same time?

They acknowledge that some stimulus spending may still be necessary to stop the world from sinking deeper into recession. But by 2013 they want government deficits to plummet. How will they pull it off? It's already in the works; cut social-safety-net programs with a focus on social security and public pensions.

So the G20 wants to increase "private demand" and cut the deficit. Ok, there must be ways to do this without simply adding more government stimulus money.

Now do a search in the Declaration for the word "wages". You'll find it once. The document says "Reforms could support the broadly-shared expansion of demand if wages grow in line with productivity."

Wow! An admission that over the last four decades productivity has skyrocketed while wages have remained stagnant? A recognition that the greatest transfer of wealth from working people to the rich in modern history might have led to a lack of real demand and is a root cause of the crisis?

Are we about to see a G20 agreement on promoting anti-strike breaking laws, or eliminating legislation that makes it difficult to impossible to organize unions in many places around the world, including the US and Canada?

Sorry. That one sentence is all there is. Not one recommendation or agreement on how wages will rise in line with increases in productivity. One wonders why they bothered to put the sentence in the document.

Let's backtrack. If productivity is up, why can't we afford social programs now that we could in the past? Higher productivity means more wealth, not less, right? Let's just say the top five percent of income earners in the world have never had it so good.

So if the economic pie is bigger, there must be ways to lower deficits without cutting social spending, right?

Now do a search in the G20 Declaration for the word taxes. You will find zero. Not a single reference to taxing the riches the very few accumulated over the last decades of growth.

That says it all. If you don't like it, we always have a nice detention cell ready for you.


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HOW FINANCIAL BROKERS BECAME BOOKIES: THE INSIDIOUS TRANSFORMATION OF MARKETS INTO CASINOS

Ellen Brown

Global Research, July 13, 2010
http://www.webofdebt.com/articles/Web of Debt - 2010-07-12

"You all are the house, you're the bookie. [Your clients] are booking their bets with you. I don't know why we need to dress it up. It's a bet."

Senator Claire McCaskill, Senate Subcommittee on Investigations, investigating Goldman Sachs (Washington Post, April 27, 2010)

Ever since December 2008, the Federal Reserve has held short-term interest rates near zero. This was not only to try to stimulate the housing and credit markets but also to allow the federal government to increase its debt levels without increasing the interest tab picked up by the taxpayers. The total public U.S. debt increased by nearly 50% from 2006 to the end of 2009 (from about $8.5 trillion to $12.3 trillion), but the interest bill on the debt actually dropped (from $406 billion to $383 billion), because of this reduction in interest rates.

One of the dire unintended consequences of that maneuver, however, was that municipal governments across the country have been saddled with very costly bad derivatives bets. They were persuaded by their Wall Street advisers to buy credit default swaps to protect their loans against interest rates shooting up. Instead, rates proceeded to drop through the floor, a wholly unforeseeable and unnatural market condition caused by rate manipulations by the Fed. Instead of the banks bearing the losses in return for premiums paid by municipal governments, the governments have had to pay massive sums to the banks – to the point of bankrupting at least one city (Montgomery, Alabama).

Another unintended consequence of the plunge in interest rates has been that “savers” have been forced to become “speculators” or gamblers. When interest rates on safe corporate bonds were around 8%, a couple could aim for saving half a million dollars in their working careers and count on reaping $40,000 yearly in investment income, a sum that, along with social security, could make for a comfortable retirement. But very low interest rates on bonds have forced these once-prudent savers into the riskier and less predictable stock market, and the collapse of the stock market has forced them into even more speculative ventures in the form of derivatives, a glorified form of gambling. Pension funds, which have binding pension contracts entered into when interest was at much higher levels, are so strapped for returns that they actually seek out the riskier investments, which have higher returns. That means they can and do regularly get fleeced when the risk occurs.

Derivatives are basically just bets. Like at a racetrack, you don’t need to own the thing you’re betting on in order to play. Derivative casinos have opened up on virtually anything that can go up or down or have a variable future outcome. You can bet on the price of tea in China, the success or failure of a movie, whether a country will default on its debt, or whether a particular piece of legislation will pass. The global market in derivative trades is now well over a quadrillion dollars – that’s a thousand trillion – and it is eating up resources that were at one time invested in productive enterprises. Why risk lending money to a corporation or buying its stock, when you can reap a better return betting on whether the stock will rise or fall?

The shift from investing to gambling means that not only are investors making very little of their money available to companies to produce goods and services, but the parties on one side of every speculative trade now have an interest in seeing the object of the bet fail, whether a company, a movie, a politician, or a country. Worse, high-speed program traders can actually manipulate the market so that the thing bet on is more likely to fail.

High frequency traders -- a field led by Goldman Sachs -- use computer algorithms to automatically bet huge sums of money on minor shifts in price. These bets send signals to the market which can themselves cause the price of assets to shoot up or tumble down. By placing high-volume trades, the largest speculative traders can thus intentionally “fix” prices in any direction they want.

“Prediction” Markets

Casinos for betting on what something will do in the future have been promoted as reliable “prediction” markets, and they can cover a broad range of issues. MIT’s Technology Review launched a futures market for technological innovations, in order to bet on upcoming developments. The NewsFutures and TradeSports Exchanges enable people to wager on matters such as whether Tiger Woods will take another lover, or whether Bin Laden will be found in Afghanistan.

A 2008 conference of sports leaders in Auckland, New Zealand, featured Mark Davies, head of a sport betting exchange called Betfair. Davies observed that these betting exchanges, while clearly gambling forums, are little different from the trading done by financial firms such as JPMorgan. He said:
“I used to trade bonds at JPMorgan, and I can tell you that what our customers do is exactly the same as what I used to do in my previous life, with the single exception that where I had to pore over balance sheets and income statements, they pore over form and team-sheets.”

The online news outlet Slate monitors various prediction markets to provide readers with up-to-date information on the potential outcomes of political races. Two of the markets covered are the Iowa Electronic Markets and Intrade. Slate claims that these political casinos are consistently better at forecasting winners than pre-election polls. Participants bet real money 24 hours a day on the outcomes of a range of issues, including political races. Newsfutures and Casualobserver are similar, smaller exchanges.

Besides shifting the emphasis to gambling (“Why Vote When You Can Bet?” says Slate’s “Guide to All Political Markets”), prediction markets can be manipulated so that they actually affect outcomes. This became evident, for example, in 2008, when the John McCain campaign used the InTrade market to shift perception of his chances of winning. A supporter was able to single-handedly manipulate the price of McCain’s contract, causing it to move up in the market and prompting some mainstream media to report it as evidence that McCain was gaining in popularity.

Betting on Terrorism

The destructive potential of betting on political outcomes became particularly apparent in a notorious prediction market sponsored by the Pentagon, called the “policy analysis market” (PAM) or “terror futures market.” PAM was an attempt to use the predictive power of markets to forecast political events tied to the Middle East, including terrorist attacks. Trading in American Airlines shares in the days before the September 11th attack on the World Trade Center was one of the bases of the Pentagon’s justification for the program. According to the New York Times, the PAM would have allowed trading of futures on political developments including terrorist attacks, coups d’état, and assassinations.

The exchange was shut down a day after it launched, after commentators pointed out that the system made it ridiculously easy to make money with terror attacks.
At a July 28, 2003 press conference, Senators Byron L. Dorgan (D-ND) and Ron Wyden (D-OR) spoke out against the exchange. Wyden stated, “The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque,” while Dorgan called it “useless, offensive and unbelievably stupid”.
“This appears to encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead U.S. intelligence authorities,” they said in a letter to Admiral John Poindexter, the director of the Terrorism Information Awareness Office, which developed the idea. A week after the exchange closed, Poindexter offered his resignation.

Carbon Credit Trading

A massive new derivatives market that could be as destructive as the derivatives that contributed to the current economic meltdown is the trading platform called Carbon Credit Trading, which is on its way to dwarfing world oil trade. The program would allow trading not only in “carbon allowances” (permitting companies to emit greenhouse gases) and “carbon offsets” (allowing companies to emit beyond their allowance if they invest in emission-reducing projects elsewhere), but carbon derivatives -- such as futures contracts to deliver a certain number of allowances at an agreed price and time. Eoin O’Carroll cautioned in the Christian Science Monitor:

“Many critics are pointing out that this new market for carbon derivatives could, without effective oversight, usher in another Wall Street free-for-all just like the one that precipitated the implosion of the global economy. . . . Just as the inability of homeowners to make good on their subprime mortgages ended up pulling the rug out from under the credit market, carbon offsets that are based on shaky greenhouse-gas mitigation projects could cause the carbon market to tank, with implications for the broader economy.”

Robert Shapiro, former undersecretary of commerce in the Clinton administration and a cofounder of the U.S. Climate Task Force, warns, “We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market.”

The proposed form of cap and trade has not yet been passed in the U.S., but a new market in which traders can speculate on the future of allowances and offsets has already been launched. The largest players in the carbon credit trading market include firms such as Morgan Stanley, Barclays Capital, Fortis, Deutsche Bank, Rabobank, BNP Paribas, Sumitomo, Kommunalkredit, Credit Suisse, Merrill Lynch and Cantor Fitzgerald. Last year, the financial services industry had 130 lobbyists working on climate issues, compared to almost none in 2003. The lobbyists represented companies such as Goldman Sachs and JPMorgan Chase.

Billionaire financier George Soros says cap-and-trade will be easy for speculators to rig. “The system can be gamed,” he said last July at a London School of Economics seminar. “That’s why financial types like me like it — because there are financial opportunities.”

Time to Board Up the Casinos and Rethink Our Social Safety Net?

At one time, gambling was called a sin and was illegal. Derivative trading was originally considered an illegal form of gambling. Perhaps it is time to reinstate the gambling laws, board up the derivatives casinos, and return the stock market to what it was designed to be: a means of funneling the capital of investors into productive businesses.

Short of banning derivatives altogether, the derivatives business could be slowed up considerably by imposing a Tobin tax, a small tax on every financial trade. “Financial products” are virtually the only products left on the planet that are not currently subject to a sales tax.

A larger issue is how to ensure adequate retirement income for the population without forcing people into gambling with their life savings to supplement their meager social security checks. It may be time to rethink not only our banking and financial structure but the entire social umbrella that our Founding Fathers called the Common Wealth.

Deficit hawks cry that we cannot afford more spending. But according to Richard Cook, who formerly served at the U.S. Treasury Department, the government could print and spend several trillion new dollars into the money supply without causing price inflation. Writing in Global Research in April 2007, he noted that the U.S. Gross Domestic Product in 2006 came to $12.98 trillion, while the total national income came to only $10.23 trillion; and at least 10 percent of that income was reinvested rather than spent on goods and services.

Total available purchasing power was thus only about $9.21 trillion, or $3.77 trillion less than the collective price of goods and services sold. Where did consumers get the extra $3.77 trillion? They had to borrow it, and they borrowed it from banks that created it with accounting entries on their books. If the government had replaced this bank-created money with debt-free government-created money, the total money supply would have remained unchanged. That means a whopping $3.77 trillion in new government-issued money could have been fed into the economy in 2006 without increasing the inflation rate.

In a 1924 book called Social Credit, C. H. Douglas suggested that government-issued money could be used to pay a guaranteed basic income for all. Richard Cook proposes a national dividend of $10,000 per adult and $5,000 per dependent child annually. In 2007, that would have worked out to about $2.6 trillion to provide a basic security blanket for everyone.

The Federal Reserve has funneled $4.6 trillion to Wall Street in bailout money, most of it generated via “quantitative easing” (in effect, printing money); yet hyperinflation has not resulted. To the contrary, what we have today is dangerous deflation. The M3 money supply shrank in the last year by 5.5 percent, and the rate at which it is shrinking is accelerating. The explanation for this anomaly is that the Fed’s $4.6 trillion added by quantitative easing fell far short of the estimated $10 trillion that disappeared from the money supply when the “shadow lenders” exited the market, after discovering that the “triple-A” mortgage-backed securities they had been purchasing from Wall Street were actually very risky investments.

Whether or not a national dividend is the best way to reflate the money supply, the important point here is that the government might be able to issue and spend several trillion dollars into the economy without creating hyperinflation. The money would merely make up for the shortfall between GDP and purchasing power, replacing the debt-money created as loans by private banks. As long as resources are sitting idle and people are unemployed -- and as long as the new money is used to put these resources together productively to create new goods and services -- price inflation will not result. Creating the national money supply is the sovereign right of governments, not of banks; and if the government wants to remain sovereign, it needs to exercise that right.

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THE EU BANKING SYSTEM IS IN BIG TROUBLE


Global Research, July 10, 2010
Information Clearing House - 2010-07-09

The EU banking system is in big trouble. Many of the Union's largest banks are sitting on hundreds of billions of euros in dodgy sovereign bonds and non performing real estate loans. But writing down their losses will deplete their capital and force them to restructure their debt. So the banks are concealing their losses through accounting sleight-of-hand and by borrowing money from the European Central Bank. This has helped to hide the rot at the heart of the system.

Presently, 170 banks are having difficulty accessing the wholesale markets where they get their funding,. Financial institutions are wary of lending to each other because they're not sure who is solvent or not. It's a question of trust.

ECB chief Jean-Claude Trichet has tried to keep the problems under wraps, but markets aren't easily fooled. Stress gauges, like euribor, have been rising for the last two months. Investors smell a rat. They know the banks are playing hide-n-seek with downgraded assets and they know that Trichet is helping them out.

A week ago, stocks rallied on news that EU banks would repay most of the 442bn euro one-year emergency loan from the ECB. The news was mainly a publicity stunt designed to hide what was really going on. Yes, the banks borrowed significantly less that analysts had predicted (another 132bn euro), but just two days later, 78 banks borrowed another 111bn euro. The additional loans makes it look like Trichet cooked up the whole thing to trick investors.

EU banks were engaged in the same high-risk activities as their counterparts in the US. They were playing fast and loose on speculative trades that were ramped up with maximum leverage. Bankers raked in hundreds of billions in salaries and bonuses before the bubble burst. Now the securities and bonds they purchased have plunged in value, so they've turned to the ECB for a bailout. Sound familiar?

Trichet is a banking industry rep, much like Geithner and Bernanke. His job is to maintain the political and economic power of the banks and to dump the losses onto the public. Presently, the ECB provides "limitless" loans to underwater banks so they can maintain the appearance of solvency. Trichet has lowered rates to 1 percent, provided a safe haven for overnight deposits, and begun an aggressive bond purchasing program (Quantitative Easing) which keeps prices of sovereign bonds artificially high. Valuations on bank assets are supported by a central authority and do not reflect true market pricing.

The wholesale-funding market (repo) has not shut down. Banks can still exchange their sovereign bonds and real estate securities for short-term loans. It merely requires that they take a haircut on the value of their collateral, which would then have to be recorded as a loss leaving them capital impaired. This is how markets work, but the banks are not required to play by the rules.

From Bloomberg News: "European lenders had $2.29 trillion at risk in Greece, Italy, Portugal and Spain at the end of 2009, including loans to governments, according to the Bank for International Settlements...German banks’ writedowns on loans and securities will probably reach $314 billion by the end of 2010, with state-owned lenders and savings banks facing the bulk of the losses, the International Monetary Fund said in a report in April."

See? The ECB is not buying Greek bonds because of a "sovereign debt crisis". They are buying them so the banks won't lose money. The "sovereign debt crisis" meme is all public relations hype. If it becomes too expensive to fund government operations, Greece can leave the EU and return to the drachma which would give it greater flexibility to settle its debts. That would increase demand for Greek exports and improve tourism. This is the best solution for Greece. So, where's the crisis?

If Greece, Portugal and Spain, leave the EU and restructure their debt, banks in Germany and France will default and bondholders will lose their shirts. In other words, the investors, who took a risk, will lose money---which is how the system is supposed to work.

Bloomberg again: "The region’s banks have written down a proportionately lower percentage of their assets than their U.S. counterparts. U.S. banks will have written down 7 percent of their assets by the end of 2010 and euro-area banks 3 percent, according to the IMF. European banks still haven’t shown analysts they have completed their writedowns." (Bloomberg)

So, the banks are underwater, but nothing has been done to fix the problem. Where are the regulators?

On Tuesday, euribor hit a 10-month high. The pressure is building despite Trichet's emergency programs. ECB bank lending is nearly 800bn euro while overnight deposits are roughly 240bn euro. Trichet is willing to drag the EU through 10 or 15 years of subpar growth and high unemployment (like Japan) to keep a handful of bankers and bondholders from accepting their losses. If things get bad enough, Trichet might invoke the "nuclear option", that is, allow a major bank to implode "Lehman-style" so he can extort hundreds of billions of euros from the EU member states. It's been done before; just ask Bernanke or Paulson.

The "Stress Test" Fraud

The bank stress tests in the US were organized by the Treasury as a "confidence-building" measure. They allowed the banks to use their own internal-models to determine the value of complex securities. The same rule will apply to EU banks. The Daily Telegraph reports that some of the banks will actually test themselves. As least that removes any doubt about the results.

From Bloomberg News -- "European stress tests on 91 of the region’s biggest banks drew criticism from analysts who said regulators are underestimating probable losses on Greek and Spanish government bonds. The tests are designed to assess how banks will be able to absorb losses on loans and government bonds, the Committee of European Banking Supervisors said yesterday. Regulators have told lenders the tests may assume a loss of about 17 percent on Greek government debt, 3 percent on Spanish bonds and none on German debt, said two people briefed on the talks who declined to be identified because the details are private.

Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by CEBS. Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or restructuring." (Bloomberg)

The tests are a joke. The banks will continue to use accounting-rule changes and other gimmickry to obfuscate their losses. Trichet will use the tests to step up his bond purchasing program (QE) which will transfer the banks losses onto the member states. Many of the banks are insolvent and need restructuring. But they are in no real danger, because they still have a stranglehold on the process.

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OBAMA-DODD-FRANK FINREG MONTROSITY DELAYS DERIVATIVES CURBS UNTIL 2022!

Webster G. Tarpley
Tarpley.net
July 15, 2010

The Obama-Dodd-Frank financial regulation bill, a miserable excuse for real Wall Street reform, is now about to gain final approval in the Senate. This wretched bill is now supported by the New England liberal (meaning Wall Street) Republican clique including Olympia Snow, Susan Collins, and Scott Brown, who are joined by the notoriously corrupt reactionary Democrat, Ben Nelson of Nebraska . This bill will create a multitude of new regulations and a number of large new bureaucracies, but it is utterly devoid of any bright-line prohibitions against the causes of the financial panic which struck the United States in 2008, and which continues to the present day in the form of a world economic depression.

The cause of the 2008 banking panic was that zombie banks and hedge fund hyenas were speculating with toxic and highly leveraged derivatives. The new bill does virtually nothing to attack the causes of this ongoing financial disintegration. It is a total defeat for the interests of the American people, and an historic victory for the Wall Street financier oligarchy which owns both the Democratic and Republican parties.

Stockbrokers and investment bankers have battled mightily to avoid any legal compulsion to act in the best interests of their clients, who are often the retail investors which both parties claim to care so much about. The new bill will not prevent unscrupulous used-car dealers from ripping off their customers through inflated financing costs. There is nothing in the bill to stop the plague of foreclosures, which last year turned almost 4 million American families into displaced persons on the home front. There is no ban on the disastrous use of Adjustable Rate Mortgages (ARMs), the financial equivalent of time bombs, which are ruining the lives of so many millions of Americans. There is no cap on leverage banks can use in financial transactions. Despite widespread complaining about the Federal Reserve, this bill gives the Fed more regulatory power rather than less. It represents the complete triumph of the Wall Street derivatives lobby, so much so that even hardened cynics are astounded by the impudence and insolence of Obama and both parties in the Congress.

The graveyard of hope and change

Senator Dorgan proposed an amendment to abolish the concept of banks that were too big to fail. His amendment was rejected. Senator Kaufman tried to limit the size of banks, but his amendment was deleted. Senator Whitehouse tried to limit interest rates on credit cards and predatory payday loans, or at least to allow states to regain their regulatory role in this area, but he was defeated. Granted, many of these amendments were mere public relations exercises that were always virtually doomed to failure.

Senators McCain and Cantwell tried to restore the firewall, contained in the landmark Glass-Steagall Act of 1933-1999, which rigorously separated commercial banks with FDIC insured deposits on the one hand from investment banking and stock-jobbing on the other. Glass-Steagall was one of the signature legislative achievements of the New Deal, and there are few better illustrations of the deep hostility of the modern Democratic Party and of Obama in particular to the heritage of Franklin D. Roosevelt than the stubborn refusal of the degenerate Democrats of today to force through the necessary restoration of the Glass-Steagall protections – even in the wake of a breakdown crisis of the entire Anglo-American banking system.

Senator Blanche Lincoln of Arkansas , who is fighting for her own political survival because of her record of subservience to Wall Street, tried to redeem herself with paragraph 716 of title VII of the bill, an attempt to ban trading in credit default swaps (derivatives) by FDIC banks. Notice that by this point there was no effort whatsoever to prevent these banks from dealing in collateralized debt obligations (CDOs), which were the toxic derivatives which destroyed Bear Stearns, Lehman Brothers, Merrill Lynch, and Citibank. Nor was there any effort to curb the use of structured investment vehicles (SIVs), toxic instruments which are often used as the final packaging of a mass of CDOs and other kited derivatives. Still, since credit default swaps had been the main culprits in the bankruptcy of AIG, costing the American taxpayer $182 billion and counting, it would have been a meritorious project to keep commercial banks away from these diabolical instruments.

But it was not to be. In a dirty deal negotiated far away from the C-SPAN cameras, Dodd, Frank, and Rahm Emanuel completely gutted any effort to get commercial banks out of the business of placing side bets using credit default swaps. At a certain point in the televised reconciliation hearings, Congressman Peterson of Minnesota , the chairman of the House Agriculture Committee, came forward with a compromise which made paragraph 716 into a macabre joke. The infamous Peterson demanded that banks be allowed to trade credit default swaps in the form of foreign exchange swaps ( thought to be the largest category of swaps), interest-rate swaps, and credit derivatives – provided that the underlying securities were investment-grade. Since these categories represent the vast majority of swaps, and since it is not hard to procure an investment grade rating on junk paper from corrupt agencies like Standard & Poor’s, Fitch, and Moody’s, this alleged compromise meant that nothing was left of Senator Lincoln’s attempt. Treasury Secretary Tiny Tim Geithner had vehemently proclaimed the irreducible hostility of the Obama regime to any interference with this type of derivative. Interestingly, the German government had already explicitly banned naked credit default swaps issued as bets on government securities denominated in euros.

Since the restoration of the real Glass-Steagall firewall had been defeated early in the process, Senator Cantwell attempted to provide a weak face-saving substitute in the form of the so-called Volcker rule, which posited that commercial banks were not allowed to engage in speculation and other proprietary trading for their own account. This Volcker rule was already vitiated by the obvious gray area between speculation and so-called market-making, which entities like Goldman Sachs and Morgan Stanley were sure to exploit to circumvent any new legislation. However, zombie banks like State Street Bank and Bank of New York-Mellon (the latter the back-office of the TARP program. i.e. the October 2008 Wall Street bailout) found even the weak Volcker rule to be too onerous.

Demagogue Scott Brown drives his truck through the Volcker rule

Senator Scott Brown of Massachusetts won election last January by duping gullible voters with a cultural populist prop in the form of a pickup truck. At this point in the haggling, Senator Brown documented his subservience to Wall Street by driving his truck through what remained of the Volcker role. He forced through a provision allowing commercial banks to use 3% of their capital for speculation through hedge funds. It might seem that 3% is a minute fraction of a bank’s Tier I capital, and that Brown’s amendment might not be so dangerous after all. But this is not the case.

If you buy stocks and their price falls to zero, you can lose 100% of your investment, but no more. But when you are dealing with derivatives, your losses can be geometrically pyramided into interplanetary space. This proposition is not a matter of theory, but has been documented through a decade and a half of bankruptcies by hedge funds which had been speculating with derivatives, all the way back to Long-Term Capital Management of Connecticut in 1998.

Cantwell recants

In the case of two Bear Stearns hedge funds which imploded in 2007-8, losses of about 50 times the original capital were attained. Under Scott Brown’s loophole, losses of 50:1 would already be enough to bankrupt the bank. But the 2008 crisis offers cases in which derivatives losses might attain or exceed 100:1 on the capital being wagered. These cases occur when debt instruments are wrapped into a mortgage-backed security or other asset-backed security. These latter are then included in a collateralized debt obligation, which together with other collateralized debt obligations can be made into a super CDO or CDO². Credit default swaps can be attached to these super CDOs. A number of super CDOs thus equipped can then be wrapped up in a structured investment vehicle (SIV). At every level of this cancerous mass of kited derivatives, leverage comes into play geometrically. The investment of 3% of capital in such a poisonous concoction can easily bankrupt any financial institution many times over. This phenomenon is one of the basic reasons why losses were so great in 2008, despite the fact that subprime mortgages are a relatively marginal area of the financial world. The losses became so monstrous because derivatives are the most effective tools yet devised for magnifying and multiplying financial destruction. As for Senator Cantwell, she capitulated and announced that she would support the resulting phony bill anyway.

Perhaps the members of the Massachusetts Tea Party would like now to contemplate their own roles as dupes and useful idiots for the Mitt Romney faction of Wall Street asset strippers and hedge fund hyenas, who are the people who put Scott Brown into office. From now on, Brown should be referred to on Capitol Hill as the senator from Bank of New York-Mellon, since he has no regard for the welfare of the people of Massachusetts .

But even this 3% loop hole, big enough to drive a truck through, was still too restrictive for Wall Street. The army of Gucci-clad lobbyists decided that even these nominal restrictions had to be postponed for more than a decade, quite possibly in the hopes that they may be overturned by some future reactionary majority likely to emerge amid the shipwreck of the feckless and treacherous Obama regime.

Plenty of time for more financial catastrophes before 2022

At the time of the reconciliation hearings, the remaining Volcker rule provisions were apparently supposed to take effect after seven years, allegedly to give the swaps-jobbers time to unwind their positions. But after the C-SPAN televised reconciliation proceedings were over, dark forces loyal to Wall Street revisited the conference report and introduced even longer delays in implementing even the meager restraints on credit derivatives. This crime appears to have occurred on June 28-29. On the Bloomberg Business Week website we read a report dated June 29: “Goldman Sachs Group and Citigroup Inc. are among U.S. banks that may have as long as a dozen years to cut stakes in in-house hedge funds and private- equity units under a regulatory revamp agreed to last week. Rules curbing banks’ investments in their own funds would take effect 15 months to two years after a law is passed, according to the bill. Banks would have two years to comply, with the potential for three one-year extensions after that. They could seek another five years for ‘illiquid’ funds such as private equity or real estate, said Lawrence Kaplan, an attorney at Paul, Hastings, Janofsky & Walker LLP in Washington. Giving banks until 2022 to fully implement the so-called Volcker rule is an accommodation for Wall Street in what President Barack Obama called the toughest financial reforms since the 1930s…. Partly as a result of last-minute changes to the wording of the bill, analysts, lawyers and congressional staffers say it’s unclear whether the extension period for illiquid funds would run concurrently with the other transition periods. That could mandate full compliance in less than 12 years.”[1]

The London Guardian also detailed the ingenious dilatory tricks for stalling, dodging, and postponing which the Wall Street lobbyists had built into the bill: “Language in the act …allows for a six-month study and a further nine months of rule-making. The measure is supposed to become effective 12 months after the final rule is laid, then banks have two years to conform. But if they need to, they can apply for a three-year extension. On top of that, a five-year moratorium is available for "illiquid" funds that are hard to unwind.”[2]

The revenge of the SIVs

Encoded in the 12-year delay are most emphatically those structured investment vehicles which cause so much damage in the second half of 2008. As Business Week pointed out: “The Volcker rule forbids banks from stepping in with capital infusions or other forms of support when their own funds fail. In December 2007, Citigroup agreed to assume $59 billion of assets bought by ‘structured investment vehicles’ sponsored by the bank. During the following two years, Citigroup lost more than $3 billion on the SIVs, which were a kind of hedge fund that invested in mortgage bonds, credit-card securities and other assets that soured amid the financial crisis.”[3]

No account of these tragic events would be complete without some attention to the systematic betrayal of the national interest by the reactionary Republicans. The Republicans are in practice more fanatically committed to derivatives than even the Democrats, and they wear their love of derivatives on their sleeves. At one point in the reconciliation process, Senator Shelby of Alabama proposed an amendment which would have removed any and all destructions on the use of derivatives by anyone whatsoever, period. The Republican method is to pretend that derivatives are used exclusively for the traditional hedging which has been carried out from time immemorial by the users of certain commodities, specially to protect themselves from price fluctuations during the time these raw materials are being turned into finished commodities. The GOP simply ignores that 99% plus of the notional value of today’s $1.5 quadrillion derivatives bubble has nothing to do with the end users of any commodities. If the Republicans were acting in good faith, it would be easy to craft a narrowly defined exemption for the end-users of raw materials and other commodities, but this is not their real purpose. The GOP serves the derivatives-mongers and the swap-jobbers cynically and blatantly, while the Democrats do this under a veil of deception and anti-Wall Street rhetoric.

As Senator Harkin pointed out, Shelby was really arguing that a hedge fund of the first magnitude was really a mom-and-pop Main Street business. Shelby ’s goal of opening the barn door wide to any derivatives to be issued by anybody at any time was not successful, but the Peterson amendment and similar Democratic betrayals substantially accomplished the same goals under a cloak of deception. Intervening along the same lines in defense of Wall Street come out hedge funds, and derivatives were hardened reactionary Republicans like Senators Corker, Gregg, and Chambliss. Caught between these Republicans and their own venal Dodd-Frank leadership, the small positive initiatives of figures like Blanche Lincoln, Cantwell, Harkin, and Kanjorski were surrounded and crushed.

The last Democrat in the Senate: Feingold

The one principled no vote of a Democratic senator is now likely to come from Feingold of Wisconsin, who is fighting for political survival against a reactionary Republican opponent. Feingold says that his litmus test for the bill is simply the question of whether this measure can stop the next financial meltdown. Since the answer is so obviously no, and since the fingerprints of Wall Street are all over the bill, he promises to oppose it. Feingold has voted in the past against the Iraq war powers resolution of 2002, against the Patriot Act of 2001, and against the Wall Street bailout of October 2008. He points with pride to his opposition to the Interstate Banking Act of 1994, which would have prevented the emergence of “too big to fail” by maintaining the sensible New Deal ban on commercial banks operating in more than one state. He also voted against the catastrophic Graham-Leach-Bliley Act of 1999, which opened the door to the derivatives bubble by completely deregulating these toxic instruments.

The utter failure of Wall Street reform means that the door is now wide open for the second wave of the current world economic depression to continue, as the world descends still further into the financial maelstrom. As for the Obama regime, they are preparing an austerity program of unprecedented savagery which they intend to impose on the American people with the help of large numbers of defeated Congressmen during the lame duck session of November-December of this year. You were warned: Obama is a Wall Street puppet, and the events of this year are a first installment of the tragic consequences of such an administration.

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CHINA CALLS OUR BLUFF: THE U.S. IS INSOLVENT AND FACES BANKRUPTCY AS A PURE DEBTOR NATION
Washington's Blog
Global Research, August 3, 2010
Washington's Blog - 2010-07-23

America's biggest creditor - China - has called our bluff.

As the Financial Times notes, the head of China's biggest credit rating agency has said America is insolvent and that U.S. credit ratings are a joke:

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview.

He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.

In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007.

“The financial crisis was caused because rating agencies didn’t properly disclose risk and this brought the entire US financial system to the verge of collapse, causing huge damage to the US and its strategic interests,” Mr Guan said.

Recently, the rating agencies have been criticised for being too slow to downgrade some of the heavily indebted peripheral eurozone economies, most notably Spain, which still holds triple A ratings from Moody’s.

There is also a view among many investors that the agencies would shy away from withdrawing triple A ratings to countries such as the US and UK because of the political pressure that would bear down on them in the event of such actions.

Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.

The results were very different from those published by Moody’s, Standard & Poor’s and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong’s belief that China is more politically and economically stable than all of these countries.

Mr Guan said his company’s methodology has been developed over the last five years and reflects a more objective assessment of a government’s fiscal position, ability to govern, economic power, foreign reserves, debt burden and ability to create future wealth.

“The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ,” Mr Guan said.

A wildly enthusiastic editorial published by Xinhua , China’s official state newswire, lauded Dagong’s report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a “victim”.

“Compared with the US’ conquest of the world by means of force, Moody’s has controlled the world through its dominance in credit ratings,” the editorial said...

China is right. U.S. credit ratings have been less than worthless. And - in the real world - America should have been downgraded to junk. See this, this, this, this, this,this, this, this and this.

China is not shy about reminding the U.S. who's got the biggest pockets. As the Financial Times quotes Mr. Guan:

“China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

Might Makes Right Economic Collapse

Indeed, Guan is even dissing America's military prowess:

“Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable.”

As I've repeatedly shown, borrowing money to fund our huge military expenditures are - paradoxically - weakening our national security:

As I've previously pointed out, America's military-industrial complex is ruining our economy.

And U.S. military and intelligence leaders say that the economic crisis is the biggest national security threat to the United States. See this, this and this.

[I]t is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... thus destroying our status as an empire ...

Indeed, as I pointed out in 2008:

So why hasn't America's credit rating been downgraded?
Well, a report by Moody's in September states:

"In superficially similar circumstances, the ratings of Japan and some Scandinavian countries were downgraded in the 1990s.

For reasons that take their roots into the large size and wealth of the economy and, ultimately, the US military power, the US government faces very little liquidity risk — its debt remains a safe heaven. There is a large market for even a significant increase in debt issuance."

So Japan and Scandinavia have wimpy militaries, so they got downgraded, but the U.S. has lots of bombs, so we don't? In any event, American cannot remain a hyperpower if it is broke.

The fact that America spends more than the rest of the world combined on our military means that we can keep an artificially high credit rating. But ironically, all the money we're spending on our military means that we become less and less credit-worthy ... and that we'll no longer be able to fund our military.

The Scary Part

I chatted with the head of a small investment brokerage about the China credit rating story.

Because he gives his clients very bullish, status quo advice, I assumed that he would say that China was wrong.

To my surprise, he simply responded:

They're right. What's scary is that China knows it.

In other words, everyone who pays any attention knows that we're broke. What's scary is that our biggest creditor knows it.

Tricks Up Their Sleeves?

China has been threatening for many months to replace the dollar as the world's reserve currency (and see this). And China, Russia and other countries have made a lot of noises about replacing the dollar with the SDR. See this and this.

Gordon T. Long argues that the much talked about gold swaps are part and parcel of the plan to replace the dollar with the SDR. Time will tell if he's right.

China, of course, is not without its own problems. See this and this.

In related news, Germany's biggest companies are starting to shun Wall Street as too risky.

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GLOBAL COLLAPSE OF THE FIAT MONEY SYSTEM :
TOO BIG TO FAIL GLOBAL BANKS WILL COLLAPSE BETWEEN NOW AND FIRST QUARTER 2011

Matthias Chang
www.globalresearch.ca/index.php?context=va&aid=20853

Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.

Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.

Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid.

Why?

Let me be plain and blunt. The “unexpected developments” Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning.

So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers’ scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest.

This was the fairy tale.

Then, there were some economists who were worried that as a result of the FED’s printing press (electronic or otherwise) working overtime, hyper-inflation would set in soon after.

But nothing happened. The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.

Why?

What happened?

Let me explain in simple terms step by step.

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!

8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. .

Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent.

It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II.

Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks.

The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.

Warning:

When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs.

I expect that the FED and other central banks will pre-empt such a run and will do the following:

1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above.

Solution:

Maintain a bank balance sufficient to enable you to comply with the above potential impositions.

Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.

CONCLUSION

There will be a financial tsunami (round two) the likes of which the world has never seen.

Global banks will collapse!

Be ready.

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IMF FEARS 'SOCIAL EXPLOSION' FROM WORLD JOBS CRISIS

America and Europe face the worst jobs crisis since the 1930s and risk "an explosion of social unrest" unless they tread carefully, the International Monetary Fund has warned.

By Ambrose Evans-Pritchard

September 14, 2010 "The Telegraph" -- "The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment," said Dominique Strauss-Kahn, the IMF's chief, at an Oslo jobs summit with the International Labour Federation (ILO).

He said a double-dip recession remains unlikely but stressed that the world has not yet escaped a deeper social crisis. He called it a grave error to think the West was safe again after teetering so close to the abyss last year. "We are not safe," he said.

A joint IMF-ILO report said 30m jobs had been lost since the crisis, three quarters in richer economies. Global unemployment has reached 210m. "The Great Recession has left gaping wounds. High and long-lasting unemployment represents a risk to the stability of existing democracies," it said.

The study cited evidence that victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. A new twist is an apparent decline in the "employment intensity of growth" as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace. The world must create 45m jobs a year for the next decade just to tread water.

Olivier Blanchard, the IMF's chief economist, said the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time.

"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," he said.

Spain has seen the biggest shock, with unemployment near 20pc. Britain's rate has risen from 5.3pc to 7.8pc over the last two years, a slightly better record than the OECD average. This contrasts with the 1970s and early 1980s when Britain was notoriously worse. UK jobless today totals 2.48m.

Mr Blanchard called for extra monetary stimulus as the first line of defence if "downside risks to growth materialise", but said authorities should not rule out another fiscal boost, despite debt worries. "If fiscal stimulus helps avoid structural unemployment, it may actually pay for itself," he said.

"Most advanced countries should not tighten fiscal policies before 2011: tightening sooner could undermine recovery," said the report, rebuking Britain's Coalition, Germany's austerity hawks, and US Republicans. Under French socialist Strauss-Kahn, the IMF has assumed a Keynesian flavour.

The report skirts the contentious issue of whether globalisation lets companies engage in "labour arbitrage", locating plant in low-wage economies such as China to ship products back to the West. Nor does it grapple with the trade distortions caused by China's currency policy, except to call on "surplus countries" to play their part in rebalancing.

The IMF said there may be a link between rising inequality within Western economies and deflating demand.

Historians say the last time that the wealth gap reached such skewed extremes was in 1928-1929. Some argue that wealth concentration may cause investment to outstrip demand, leading to over-capacity. This can trap the world in a slump.



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EGYPT vs IMF: TIME TO DEFAULT?
Eric Walberg

Global Research, July 7, 2011
http://www.globalresearch.ca/index.php?context=va&aid=25538

The financial flip-flop of Egypt’s revolutionary government, first requesting and then declining a $3 billion dollar IMF loan, highlights Egypt’s hard choices at this point in the revolution, but is a good sign.


It is no secret that Egypt has put all its faith in the US and Western international institutions since the days of Egyptian president Anwar Sadat, contracting a huge foreign debt, a process that was increasingly corrupt, despite being careful watched over by those very agencies. This debt is financed by foreign banks, and must be repaid in dollars -- with interest. If much of the money they create and then “lend” is siphoned off into Swiss bank accounts, that is Egypt’s problem. No one is trying to charge the people who gave Mubarak or his henchmen their money and then let them re-deposit it with them, but it takes two to tango.

Whether or not a fraction of it actually helps the Ahmeds in the meantime, it is the Egyptian people who are held responsible for it all and must comply with IMF “adjustment programmes”, involving privatisation, deregulation, regressive taxation, an end to subsidies to the poor, and much more unpleasant “tough love”.

Egypt’s revolution momentarily shattered the complacency of this devilish scenario. The explosion under the weight of the grinding poverty the system produced caught the Western bankers and political leaders by surprise and they hurried to embrace the revolution and co-opt it when they realised it was inevitable. This culminated in the IMF’s offer of the loan to cover the yawning gap in Egypt’s first post-revolution budget, which will double the lowest salaries, improve social services and introduce a progressive income tax.

This unusual gesture of generosity by the IMF (a low interest rate and supposedly no strings attached) was really intended to keep Egypt from straying from the orthodox monetary fold, as other countries have done in the past in similar situations. It was enthusiastically supported by Egypt’s elite, largely trained at US universities in the arcana of monetary theory. “Otherwise, Egypt was about to be considered in default,” Hani Genena, senior economist at Pharos Holding for Investments told Al-Ahram Weekly. This is precisely what countries such as Russia, Argentina and Ecuador have done in the past.

The Higher Council of the Armed Forces, Egypt’s de facto ruler, was not impressed with assurances that the loans were “without conditions”, and General Sameh Sadeq told the government to cancel the loan, with its “five conditions that totally went against the principles of national sovereignty” which would “burden future generations”. Finance Minister Samir Radwan complied and hastily negotiated funds from Qatar and Saudi Arabia (countries with their own agendas for Egypt’s revolution) to plug the remaining hole. The spurned lover, the IMF, and its sidekick the World Bank, were not pleased. The latter said it would have to “review” its financial plans for Egypt.

As news of the loan tiff was breaking, US Senators John McCain, Joe Lieberman and John Kerry visited Cairo to offer their gift to the revolution: a bill in Congress to create “economic assistance funds” for Egypt and Tunisia. Recall McCain’s presidential campaign slogan to “Bomb, bomb, bomb Iran!”, and his and Lieberman’s militant support of Israel. If anything, their visit merely confirmed to Egypt’s military leaders the need to keep the IMF and its henchmen at bay.

Another visitor to Cairo last week was Mahatir Mohamed, who turned Malaysia into an economic powerhouse after extricating it from its colonial past. When his “tiger” economy was subverted by speculators in 1997, he stopped the run on the Malaysian currency and stabilised the economy without going to the IMF cap in hand, and Malaysia survived the crisis much better than the other “Asian tigers” who bowed to IMF pressure. “Malaysians refused the IMF and World Bank’s assistance because we wanted our economic decisions to be independent,” he told reports in Cairo this week proudly -- music to Field Marshall Mohamed Tantawi’s ears.

In fact, many observers are convinced the army’s decision was in response to the same popular anger and national pride that allowed Mahatir to successfully defy the bankers in his day. “I felt a surge of pride when I heard the loan was rejected,” University of Cairo employee Mohamed Shaban told the Weekly. Egyptians intuitively understand Mayer Rothschild’s principle: “Give me control of a nation’s currency and I care not who makes her laws.” Egypt’s military leaders understand this too.

The process of petitioning the grudging financial centres of Zurich and London to recover at best a tiny fraction of the stolen billions that were stashed abroad and thus are responsible for an outsize part of Egypt’s foreign debt will take decades and yield precious little besides huge legal costs, as the experience of the Philippines and Indonesia shows.

Egypt indeed could consider defaulting on what is called in financial jargon an “odious debt”, referring to the national debt incurred by a regime for purposes that do not serve the best interests of the nation. The US did this to tear up Iraq’s debt in 2003. Ecuador did it in 2009. The latter (unlike the US in Iraq) even in compliance with international law. Greek citizens have already formed an Audit Committee to establish which parts of the national debt are “odious” or otherwise illegitimate.

But such a radical step would bring the collective wrath of the powerful world financial elite down on Egypt and is not an easy option. There is no longer a Soviet Union to turn to, as there was in the time of Nasser, when he dared defy the empire.

But neither is there any need to leave Egypt’s budgetary financing up to an elite of world bankers. Once a government realises that money is just a convention, something that it can use responsibly to grease the wheels of the economy, to generate employment and incomes, using the nation’s wealth for the people, it can responsibly create what money it needs, keeping a careful eye on what will increase production and wealth without putting too much pressure on prices. Taxation returns this money that the government in effect “loaned” to itself interest-free.

Michael Hudson, president of the Institute for the Study of Long Term Economic Trends and adviser to the Russian, Japanese and Icelandic governments, told the Weekly Egypt has a “much broader choice” than Western governments in pursuing an independent financial and economic reform, as it still has nationally-owned commercial banks. It could set up a Recovery Fund for the Revolution without any need to borrow from anyone, using Egypt’s millions of unemployed -- a force that can move mountains -- as collateral, to create jobs which will automatically repay the money the government creates in new income and more tax revenue.

The plan to bring Toshka back to life by redistributing land to peasants and providing them with start-up capital is a perfect example of what must be done. There is no reason to “borrow” this money, especially from other countries, and worse yet to pay them interest. After all, investment in the country’s future is a risk that should be equally share by both the giver and taker of loans, in compliance with sharia law.


Hudson’s associates at the Center for Full Employment and Price Stability, the Levy Economics Institute, and the Center for Full Employment and Equity are now preparing a report for the Asian Development Bank on alternative monetary and fiscal policies to promote full employment and price stability without relying on IMF/WB funding.

Eric Walberg writes for Al-Ahram Weekly http://weekly.ahram.org.eg/ You can reach him athttp://ericwalberg.com/ His Postmodern Imperialism: Geopolitics and the Great Games is available athttp://claritypress.com/Walberg.html


EGYPT's RISING FOOD PRICES: THE ECONOMIC CRISIS IS DRIVING  POLITICAL PROTESTS SPARKED IN PART BY US FINANCIAL SPECULATION
Danny Schechter
http://www.globalresearch.ca/index.php?context=va&aid=23019

This is an upstairs/downstairs story that takes us from the peak of a Western mountaintop for the wealthy to spreading mass despair in the valleys of the Third World poor.


It is about how the solutions for the world financial crisis that the Ceos and Big pols are massaging in a posh conference center in snowy Davos Switzerland have turned into a global economic catastrophe in the streets of Cairo, the current ground zero of a certain to spread wave of international unrest.


Yes, the tens of thousands in the streets demanding the ouster of the cruel Mubarek regime are there now pressing for their right to make a political choice but they are being driven by an economic disaster that has sent unemployment skyrocketing and food prices climbing.


People are out in the streets not just to meet but by their need to eat.


As Nouriel Roubini who was among the first to predict the financial crisis while others were pooh-poohing him as “Dr Doom” says don’t just look at the crowds in Cairo but what is motivating them now, after years of silence and repression.

He says that the dramatic rise in energy and food prices has become a major global threat and a leading factor that has gone largely unreported in the coverage of events in Egypt.

"What has happened in Tunisia, is happening right now in Egypt, but also riots in Morocco, Algeria and Pakistan, are related not only to high unemployment rates and to income and wealth inequality, but also to this very sharp rise in food and commodity prices," Roubini said.

Prices in Egypt are up 17% because of a worldwide surge in commodity prices that has many factors but speculation on Wall Street and big banks is a key one.

As IPS reported, “Wall Street investment firms and banks, along with their kin in London and Europe, were responsible for the technology dot-com bubble, the stock market bubble, and the recent U.S. and UK housing bubbles. They extracted enormous profits and their bonuses before the inevitable collapse of each.


Now they've turned to basic commodities. The result? At a time when there has been no significant change in the global food supply or in food demand, the average cost of buying food shot up 32 percent from June to December 2010, according to the U.N. Food and Agriculture Organisation (FAO). Nothing but price speculation can explain wheat prices jumping 70 percent from June to December last year when global wheat stocks were stable, experts say.”

Here’s a key fact buried in a CNN Money report—the kind intended for investors, not the public at large: “About 40% of Egypt's citizens live off less than $2 a day, so any price increase hurts.”


Brilliant!


Think about that: what would you be doing if you were living of $2 a day. You won’t be drinking mochachinos at Starbucks, that’s for sure.


Trust me, the people on top are following this unrest closely on Wall Street as anxiety grows:


Reports the Washington Post:


U.S. stocks declined sharply Friday as violent clashes in Egypt injected a jolt of anxiety into global financial markets.


Egypt is central to U.S. interests in the Middle East as a moderate state and a key player in both counterterrorism operations and regional peace negotiations, said Helima L. Croft, a geopolitical analyst at Barclays Capital.


If street protests were to end President Hosni Mubarak's nearly 30-year hold on power, "I think there would be a fear that you could see radicalism sweeping across the Middle East," Croft said, adding that the fear might be unfounded.


Beyond its political significance, Egypt controls the Suez Canal, an important shipping lane.”


Suddenly, there are worries about Egypt being able to pay off its debt, it suddenly was pronounced riskier than Iraq, according to Asia Times:


“The cost of protecting Egyptian debt against default for five years with the contracts jumped 69 basis points, or 0.69 percentage points, this week to 375 today, compared with 328 for Iraq, according to prices from CMA, a data provider in London. Just last week, Iraqi swaps cost 19 basis points more than Egypt’s, and in June, an average 240 basis points more, as Iraq recovered from the U.S.-led invasion in 2003.


The unrest, inspired by the revolt that toppled Tunisia’s leader, “does raise political risks,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates Corp. oversee $3 billion in emerging-market assets. “If this is a revolution, the price of risk for Egypt could go much higher, and if it’s a failed one” the cost will drop to 300 basis points and probably 250, Fine said in a phone interview.”


While most of the increases in food prices are due to droughts and floods, US policy contributed to it mightily, argues Mike “Mish” Shedlock on his Global economic blog, revealing a reality the media has missed:


“Bernanke's "Quantitative Easing" policies combined with rampant credit growth in China and India has led to increased speculation in commodities. That speculation has forced up food prices.


Please note that speculation in commodities is not a cause of anything. Rather commodity speculation is a result of piss poor monetary policies not only the Fed, but central bankers worldwide.”


Michael Fitzsimmons says that US energy policy is also contributing to the problems in Egypt, but agrees that monetary policy is a prime culprit. He writes, “ to sum things up: Ben Bernanke's implementation of "QE2" has directly led to food inflation across the world. In many developing and poor countries (i.e. Egypt and elsewhere) food makes up a much larger percentage of an individual's income and is felt much more severely than in the U.S.


Why have most media outlets ignored this? The financiers schmoozing at the World Economic Forum in Davos know all about it and are worried as well as Bloomberg News reported.


“This protest won’t end in North Africa; it will spread in many countries because of high unemployment and increasing food prices,” Hamza Alkholi, chairman and chief executive of Saudi Alkholi Group, a holding company investing in industrials and real estate, said in an interview in Davos, Switzerland.


In an age of globalization, a hike in global prices will spread unrest globally. Egypt had its own “bread riot” in  l977 when prices went up suddenly on the orders of the World Bank so it is no stranger to the need to fight back.


The question is why aren’t Americans up in arms too as inflation at the pump and the grocery store drives princes higher here. Part of the reason is that they don’t know that the US has worse economic inequality according to a scientific measure: The Gini Coefficent


Washington’s Blog reports “According to the CIA World Fact Book, the U.S. is ranked as the 42nd most unequal country in the world, with a Gini Coefficient of 45. Egypt in contrast is ranked as the 90th most unequal country, with a Gini Coefficient of around 34.4.”


He asks, “so why are Egyptians rioting, while the Americans are complacent?”


According to the report, Building a Better America, Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate Americans consistently underestimate the amount of inequality in our nation.


And why is that? Could our media have anything to do with it, a media consumed with when it bleeds it leads, but where context and background are missing?


Danny Schechter blogs for Mediachannel.org (Newsdissector.com/blog) His new film Plunder views the financial crisis as a crime story.  



Reply
THE SYSTEMIC GLOBAL ECONOMIC CRISIS: AT THE CROSSROADS OF THREE ROADS OF GLOBAL CHAOS
GEAB:Global Europe Anticipation Bulletin
http://www.leap2020.eu/GEAB-N-51-is-avai...a5775.html

This GEAB issue marks the fifth anniversary of the publication of the Global Europe Anticipation Bulletin. In January 2006, on the occasion of the first issue, the LEAP/E2020 team indicated that a period of four to seven years was opening up which would be characterized by the “Fall of the Dollar Wall”, an event similar to the fall of the Berlin Wall which resulted, in the following years, in the collapse of the communist bloc then that of the USSR. Today, in this GEAB issue, which presents our thirty-two anticipations for 2011, we believe that the coming year will be a pivotal year in the roll out of this process between 2010 and 2013. It will be, in any case, a ruthless year because it will mark the entry into the terminal phase of the world before the crisis (1).

Since September 2008, when the evidence of the global and systemic nature of the crisis became clear to all, the United States, and behind it the Western countries, were content with palliative measures that have merely hidden the undermining effects of the crisis on the foundations of the present-day international system. 2011 will, according to our team, mark the crucial moment when, on the one hand, these palliative measures see their anesthetic effect fade away whilst, in contrast, the consequences of systemic dislocation in recent years will dramatically surge to the forefront (2).

In summary, 2011 will be marked by a series of violent shocks that will explode the faulty safety devices put in place since 2008 (3) and will carry off, one by one, the “pillars” on which the “Dollar Wall” has rested for decades. Only the countries, communities, organizations and individuals which, over the last three years, have actually undertaken to learn the lessons from the current crisis to distance themselves as quickly as possible from the pre-crisis patterns, values and behavior will get through this year unscathed; the others will be carried away in the procession of monetary, financial, economic, social and political difficulties that 2011 holds.

Thus, as we believe that 2011 will, globally, be the most chaotic year since 2006, the date of the beginning of our work on the crisis, in this GEAB issue our team has focused on 32 anticipations for 2011, which also include a number of recommendations to deal with future shocks. Thus, this GEAB issue offers a kind of map forecasting financial, monetary, political, economic and social shocks for the next twelve months.

If our team believes that 2011 will be the worst year since 2006, the beginning of our anticipation work on the systemic crisis, it’s because it’s at the crossroads of three paths to global chaos. Absent fundamental treatment of the causes of the crisis, since 2008 the world has only gone back to take a better jump forward.

A bloodless international system
The first path that the crisis can take to cause world chaos is simply a violent and unpredictable shock. The dilapidated state of the international system is now so advanced that its cohesion is at the mercy of any large-scale disaster (4). Just look at the inability of the international community to effectively help Haiti over the past year (5), the United States to rebuild New Orleans for six years, the United Nations to resolve the problems in Darfur, Côte d'Ivoire for a decade, the United States to progress peace in the Middle East, NATO to beat the Taliban in Afghanistan, the Security Council to control the Korean and Iranian issues, the West to stabilize Lebanon, the G20 to end the global crisis be it financial, food, economic, social, monetary, ... to see that over the whole range of climatic and humanitarian disasters, like economic and social crises, the international system is now powerless.

In fact, since the mid-2000s at least, all the major global players, at their head of course the United States and its cortege of Western countries, do no more than give out information, or gesticulate. In reality, all bets are off: The crisis ball rolls and everyone holds their breath so it doesn’t fall on their square. But gradually the increasing risks and issues of the crisis have changed the casino’s roulette wheel into Russian roulette. For LEAP/E2020, the whole world has begun to play Russian roulette (6), or rather its 2011 version, “American Roulette” with five bullets in the barrel.


Monthly progression of the FAO food index (2010) and the price of principal foodstuffs (2009/2010) (base 100: averaged over 2002-2004) - Source: FAO/Crikey, 01/2011
Soaring commodity prices (food, energy (7),...) should remind us of 2008 (8). It was indeed in the six months preceding Lehman Brothers and Wall Street’s collapse that the previous episode of sharp increases in commodity prices was set. And the actual causes are the same as before: a flight from financial and monetary assets in favour of “concrete” investments. Last time the big players fled the mortgage market and everything that depended on it, as well as the U.S. Dollar; today they are fleeing all financial stocks, Treasury bonds (9) and other public debts. Therefore, we have to wait for a time between Spring and Autumn 2011 for the explosion of the quadruple bubble of Treasury bonds, public debt (10), bank balance sheets (11) and real estate (American, Chinese, British, Spanish,... and commercial (12)), all taking place against a backdrop of a heightened currency war (13).

The inflation induced by US, British and Japanese Quantitative Easing and similar stimulus measures of the Europeans and Chinese will be one of the destabilizing factors in 2011 (14). We will come back to this in more detail in this issue. But what is now clear with respect to what is happening in Tunisia (15), is that this global context, especially the rise in food and energy prices, now leads on to radical social and political shocks (16). The other reality that the Tunisian case reveals is the impotence of the French, Italian or American “godfathers” to prevent the collapse of a “friendly regime” (17).

Impotence of the major global geopolitical players
And this impotence of the major global geopolitical players is the other path that the crisis can use to produce world chaos in 2011. In effect, one can place the major G20 powers in two groups whose only point in common is that they are unable to influence events decisively.

On one side we haves a moribund West with, on the one hand, the United States, for whom 2011 will show that its leadership is no more than fiction (see this issue) and which is trying to freeze the entire international system in its configuration of the early 2000s (18), and on the other hand we have Euroland, “sovereign” in the pipeline, which is currently mainly focused on adapting to its new environment (19) and new status as an emerging geopolitical entity (20), and which, therefore, has neither the energy nor the vision necessary to influence world events (21).

And on the other side are the BRIC countries (with China and Russia in particular) who are, at the moment, proving to be incapable of taking control of all or part of the international system and whose only action is therefore limited to quietly undermine what remains of the foundations of the pre-crisis order (22).

Ultimately, impotence is widespread (23) at the international community level, increasing not only the risk of major shocks, but also the significance of the consequences of these shocks. The world of 2008 was taken by surprise by the violent impact of the crisis, but paradoxically the international system was better equipped to respond being organized around an undisputed leader (24). In 2011, this is no longer the case: not only is there no undisputed leader, but the system is bloodless as we have seen above. And the situation is aggravated further by the fact that the societies of many countries in the world are on the verge of socio-economic break-up.


US petrol prices (2009-2011) - Source: GasBuddy, 01/2011

Societies on the edge of socio-economic break-up
This is particularly the case in the United States and Europe where three years of crisis are beginning to weigh very heavily on the socio-economic and therefore political balance. US households, now insolvent in their tens of millions, oscillate between sustained poverty (25) and rage against the system. European citizens, trapped between unemployment and the dismantling of the welfare state (26), are starting to refuse to pay the bills for financial and budget crises and are beginning to look for culprits (banks, the Euro, government political parties…).

But amongst the emerging powers too, the violent transition which constitutes the crisis is leading societies towards situations of break-up: in China, the need to control expanding financial bubbles is hampered by the desire to improve the lot of whole sectors of society such as the need for employment for tens of millions of casual workers; in Russia, the weakness of the social security system fits badly with the enrichment of the elite, just as in Algeria shaken by riots. In Turkey, Brazil and India, everywhere the rapid change these countries are seeing is triggering riots, protests and terrorist attacks. For reasons that are sometimes contradictory, growth for some, penury for others, across the globe our diverse societies tackle 2011 in a context of strong tensions and socio-economic break-up, which have the making of political time bombs.

It’s its position at the crossroads of three paths which thus makes 2011 a ruthless year. And ruthless it will be for the States (and local authorities) which have chosen not to draw hard conclusions from the three years of crisis which have gone before and / or who have contented themselves with cosmetic changes not altering their fundamental imbalances at all. It will also be so for businesses (and States (27)) who believed that the improvement in 2010 was a sign of a return to “normal” of the global economy. And finally it will be so for investors who have not understood that yesterday’s investments (securities, currencies,...) couldn’t be those of tomorrow (in any case for several years). History is usually a “good girl”. She often gives a warning shot before sweeping away the past. This time, it gave the warning shot in 2008. We estimate that in 2011, it will do the sweeping. Only players who have undertaken, even painstakingly, even partially, to adapt to the new conditions generated by the crisis will be able to hang on; for the others, chaos is at the end of the road.

Notes:

(1) Or of the world that we have known since 1945 to repeat our 2006 description.

(2) The recent decision by the US Department of Labor to extend the inclusion of the measure of long-term unemployment in the US employment statistics to five years instead of the maximum of two years until now, is a good indicator of the entry into a new stage of the crisis, a step that has seen the disappearance of the “practices” of the world before. As a matter of fact, the US government cites “the unprecedented rise” of long-term unemployment to justify this decision. Source: The Hill, 12/28/2010

(3) These measures (monetary, financial, economic, budgetary, strategic) are now closely linked. That’s why they will be carried away in a series of successive shocks.

(4) Source: The Independent, 01/13/2011

(5) It’s even worse because it was international aid that brought cholera to the island, causing thousands of deaths.

(6) Moreover Timothy Geithner, US Treasury Secretary, little known for his overactive imagination, has just indicated that “the US government could once again have to do exceptional things”, referring to the bank bailout in 2008. Source: MarketWatch, 01/13/2011

(7) Moreover, India and Iran are in the course of establishing a system of exchange “gold for oil” to try and avoid supply disruptions. Source: Times of India, 01/08/2011

(8) In January 2011 the FAO food price index (at 215) has just exceeded its previous record set in May 2008 (at 214).

(9) Wall Street banks are currently unloading their US Treasury bonds as fast as possible (unseen since 2004). Their official explanation is “the remarkable improvement in the US economy which no longer requires us to seek refuge in Treasury Bonds”. Of course, you are free to believe it, like Bloomberg ’s journalist on 01/10/2011.

(10) Thus Euroland is already taking big steps forward along the path described in the GEAB N°50 with a discount in the case of refinancing the debts of a member state, whilst Japanese and US debt are now about to enter the storm. Sources: Bloomberg, 01/07/2011; Telegraph, 01/05/2011

(11) We believe that, in general, global banks’ balance sheets contain at least 50% ghost assets which in the coming year will require to be discounted by between 20% to 40% due to the return of the global recession combined with austerity, the rise in defaults on household, business, community and state loans, currency wars and a pickup in the fall of real estate prices. The American, European, Chinese, Japanese and others “stress-tests” can still continue to try and reassure markets with “Care Bears” scenarios except that this year it’s “Alien against Predator ” which is on the banks’ agenda. Source: Forbes, 01/12/2011

(12) Each of these real estate markets will fall sharply again in 2011 in the case of those which have already started falling in recent years, or in the case of China, which will begin its sharp deflation amid economic slowdown and monetary tightening.

(13) The Japanese economy is, moreover, one of the first victims of this currency war, with 76% of the CEOs of 110 major Japanese companies surveyed by Kyodo News now reported being pessimistic about Japanese growth in 2011 following the rise in the yen. Source: JapanTimes, 01/04/2011

(14) Here are several instructive examples put together by the excellent John Rubino. Source: DollarCollapse, 01/08/2011

(15) By way of reminder, in the GEAB N°48 we had classified Tunisia in the category of countries “with significant risks” in 2011.

(16) No doubt, moreover, that the Tunisian example is generating a round of reassessment amongst the rating agencies and the “experts in geopolitics”, who, as usual, didn’t see anything coming. The Tunisian case also illustrates the fact that it’s now the satellite countries of the West in general and the US in particular, who are on the way to shocks in 2011 and in the years to come. And it confirms what we regularly repeat: a crisis accelerates all the historical processes. The Ben Ali regime, twenty-three years old, collapsed in a few weeks. When political obsolescence is involved everything changes quickly. Now it's all the pro-Western Arab regimes which are obsolete in the light of events in Tunisia.

(17) No doubt this « Western godfather » paralysis will be carefully analyzed in Rabat, Cairo, Jeddah and Amman, for example.

(18) A configuration that was all the more favorable because it was without a counterweight to their influence.

(19) We will return in more detail in this GEAB issue, but seen from China we are not mistaken. Source: Xinhua, 01/02/2011

(20) Little by little Europeans are discovering that they are dependent on centres of power other than Washington. Beijing, Moscow, Brazilia, New Dehli,… Source: La Tribune, 01/05/2011; Libération, 12/24/2010; El Pais, 01/05/2011

(21) All Japan's energy is focused on its desperate attempt to resist the attraction of China. As for other Western countries, they are not able to significantly influence global trends.

(22) The US Dollar’s place in the global system is a part of these last foundations that the BRIC countries are actively eroding day after day.

(23) As regards deficit, the US case is textbook. Beyond the speeches, everything continues as before the crisis with a deficit swelling exponentially. However, even the IMF is now ringing the alarm. Source: Reuters, 01/08/2011

(24) Moreover, even the Wall Street Journal on 01/12/2011, echoing the Davos Forum, is concerned over the lack of international coordination, which is in itself a major risk to the global economy.

(25) Millions of Americans are discovering food banks for the first time in their lives, whilst in California, as in many other states, the education system is disintegrating fast. In Illinois, studies on the state deficit are now comparing it to the Titanic. 2010 broke the record for real estate foreclosures. Sources: Alternet, 12/27/2010; CNN, 01/08/2011; IGPA-Illinois, 01/2011; LADailyNews, 01/13/2011

(26) Ireland, which is facing, purely and simply, a reconstruction of its economy, is a good example of situations to come. But even Germany, with remarkable current economic results however can’t escape this development as shown by the funding crisis for cultural activities. Whilst in the United Kingdom, millions of retirees are seeing their incomes cut for the third year running. Sources : Irish Times, 12/31/2010; Deutsche Welle, 01/03/2011; Telegraph, 01/13/2011

(27) In this regard, US leaders confirm that they are rushing straight into the wall of public debt, failing to anticipate the problems. Indeed, the recent statement by Ben Bernanke, the Fed chairman, that the Fed will not help the States (30% fall in 2009 tax revenues according to the Washington Post on 01/05/2011) and the cities collapsing under their debts, just as Congress decides to stop issuing “Build America Bonds” which enabled States to avoid bankruptcy these last few years, shows a Washington blindness only equal to that which Washington demonstrated in 2007/2008 in the face of the mounting consequences of the “subprime” crisis. Sources: Bloomberg, 01/07/2011; WashingtonBlog, 01/13/2011


ECONOMIC CRISIS AND “SOCIAL EXPLOSION"
http://www.globalresearch.ca/index.php?context=va&aid=25454


The IMF recently warned that the United States must raise its $14.3 trillion debt ceiling or it would risk default on its debt. This type of news story was unimaginable just four years ago, but then, so was the idea that the United States Federal Reserve would be audited by the IMF, as the Fund does to poor Third World countries; but then, that happened back in 2008.

The sovereign debt crisis currently unfolding in Europe is the greatest current threat to global financial markets, according to the policy maker at the Bank of England. However, economists from the Bank of China have recently warned that, “the U.S. sovereign debt problem is more hazardous than the European debt crisis,” and that, “the U.S. sovereign debt risk will continue to intensify in the next few years.”

Josef Ackerman, CEO of Deutsche Bank and member of the Steering Committee of the Bilderberg Group recently stated that, “if the crisis in Greece spreads to the rest of the euro zone, it could be a bigger disaster than the fall of Lehman Brothers.”

The debt contagion will further consume Ireland and Portugal, with Spain, Italy, and Belgium not far behind. Eventually, the Greek crisis would go all the way to America. In January of this year, the IMF warned Japan, Brazil, and America about the potential for a massive sovereign debt crisis to grip their nations.

As Greece recently passed further austerity measures – which effectively destroy the standard of living for the majority of people, in order to service and illegitimate debt to foreign banks – riots continued in Greece in protest to such measures. A large protest movement has recently erupted in Spain in the face of their economic crisis. Tens of thousands protested Spain’s austerity measures, and no surprise, considering youth unemployment is more than 43% and the government is instead deciding to save foreign banks. A youth protest movement has also been developing in Portugal in response to the deep social and economic crisis being experienced there.

Back in 2008, the IMF warned that the global economic crisis could result in massive social unrest. In 2009, the UN warned that the crisis could bring on “political instability and social unrest.” Moody’s, a major credit ratings agency, warned in 2009 that Britain and other highly indebted countries risk major social unrest and “public tension.” In 2010, Moody’s warned that the U.S., U.K., Germany, France, and Spain that in order for these countries to handle their debts, they also “will test social cohesion,” in the face of austerity measures. In 2010, the IMF warned America and Europe are in the worst jobs crisis since the Great Depression and face “an explosion of social unrest.”

So, what happened to that notion of an “economic recovery”?

Of course, all this information is not surprising to those who have been following events and the economic crisis and its true origins with a more critical eye. Global Research has recently published a collection of essays from various researchers, academics, economists, social critics, and authors, all offering a more critical, nuanced, historically relevant and presently perceptive view of the global economic crisis. This book provides the reader with a more relevant and expansive understanding of the crisis we currently face, including the history of central banking, the shadow banking system, the relationship with war and ‘national security,’ empire and energy, speculation and ideology, think tanks and board rooms, Wall Street and Washington, poverty and social inequality.

Global Research is hoping you will take an interest in reading, “The Global Economic Crisis: The Great Depression of the XXI Century,” edited by Michel Chossudovsky and Andrew Gavin Marshall to discover the true nature of the crisis we are in.

But don’t take our word for it, here’s what some reviewers had to say:

“In-depth investigations of the inner workings of the plutocracy in crisis, presented by some of our best politico-economic analysts. This book should help put to rest the hallucinations of ‘free market’ ideology.”

Michael Parenti, Political Scientist and social critic

“This important collection offers the reader a most comprehensive analysis of the various facets – especially the financial, social and military ramifications – from an outstanding list of world-class social thinkers.”

Mario Seccareccia, Professor of Economics, University of Ottawa

"Provides a very readable exposé of a global economic system, manipulated by a handful of extremely powerful economic actors for their own benefit, to enrich a few at the expense of an ever-growing majority.”

David Ray Griffin, author of The New Pearl Harbor Revisited

“This meticulous, vital, timely and accessible work unravels the history of a hydra-headed monster: military, media and politics, culminating in “humanity at the crossroads”; the current unprecedented economic and social crisis… From the first page of the preface of The Global Economic Crisis, the reasons for all unravel with compelling clarity. For those asking “why?” this book has the answers.”

Felicity Arbuthnot, award-winning author and journalist based in London



EUROPEAN DEATH SPIRAL – END GAMES
Satyajit Das is the author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives.

Politics now increasingly dominates economics. Commenting about the EU bailout of Ireland, the Irish Times referred to the Easter Rising against British rule asking: "was what the men of 1916 died for a bailout from the German chancellor with a few shillings of sympathy from the British chancellor on the side". An Irish radio show played the new Irish national anthem to the tune of the German anthem.

In Greece, the severe cutbacks in government spending have resulted in strikes and violent protests on the streets of Athens. Faced with cutbacks in living standards, Europeans are fighting back. The Rolling Stones’ late-sixties anthem has been resurrected in Europe: "Everywhere I hear the sound of marching, charging feet, boy/ Summer’s here and the time is right for fighting in the street, boy."

In many countries, governments, often unstable coalitions, are struggling to pass legislation, implementing necessary spending cuts or tax increases. In Ireland, the opposition parties have promised to re-negotiate the bailout package if elected at an election due early in 2011. In Germany, the paymaster and strength behind the EU, Europe’s biggest tabloid Bild asked "First the Greeks, then the Irish, then…will we end up having to pay for everyone in Europe?"

In December 2010, a special EU meeting, convened to discuss the situation, provided a clear pointer to how events might evolve. At the meeting, the German view, set out by Chancellor Angela Merkel, prevailed.

The meeting rejected any attempt to increase the scope and amount of the existing bailout facilities. The E-Bond proposal was quietly shelved. The EU agreed to formalise the ESM through a short amendment to the Lisbon Treaty. The new facility would be inter-governmental with any Euro Zone member having a national right of veto. The facility was highly conditional, capable of being triggered only as a last resort.

A key element was the requirement for "collective action clauses", effectively forcing lenders to bear losses. The provision, which must be included in all European government bonds after June 2013, would require the payment period to be extended in case of a crisis. If the solvency problems persisted, then further extension of maturity, reductions in interest rates and a write-off in the principal would occur. In addition, new bailout funds would automatically subordinate existing debt and have to be paid back first.

Chancellor Merkel’s position reflects the views of the German constitutional court, which endorsed European economic and monetary union prescribed in the 1992 Maastricht treaty only on the basis of the treaty’s no-bail-out provisions. This influences the need to impose losses on investors.

It is clear that the stronger members of the EU, led by Germany, have decided to limit future liability in bailouts. As membership of the Euro prevents large devaluation of the currency, economic adjustment will require reduction of the budget deficit and deflation. As Greece and Ireland demonstrate, more rigorous deficit cutting may not return the countries to solvency. The EU proposals implicitly recognise that over-indebted countries cannot sustain currency debt levels. The reduction of the debt burden will have to come through restructuring or default, with creditors taking losses.

Unless confidence returns rapidly or the EU changes its position, it seems restructuring or defaults by several peripheral European sovereigns may be unavoidable. Investor concerns that the Greek and Irish did not solve the fundamental problems may be confirmed. The safety nets are now seen as unlikely to be large enough to rescue larger countries, like Spain and Italy, if they require support. Investors will need to take losses.

Large volumes of maturing debt mean that the test is likely to come sooner than later. The heavily indebted European sovereign states face $2.85 trillion of maturing debt in the period to 2013. Portugal, Italy, Ireland, Greece and Spain have bond maturities of $502 billion in 2011. The financing needs of Greece, Ireland, Portugal and Spain over the last quarter of 2010 and 2011 are Euro 320 billion, rising to Euro 712 billion if Italy is included. In addition, private sector borrower in these countries face maturities of $988 billion of corporate bonds and $200 billion of syndicated bank loans over the same period. Likelihood of low economic growth, failure to meet IMF plan targets, further banking sector problems and credit downgrades exacerbate the risk.

If Europe muddles it way through the refinancing crisis, then the expiry of existing support facilities in 2013 and the changed regime of the ESM poses new risks and may continue the instability.

A Faraway Continent

In the prelude to World War II, British Prime Minister Neville Chamberlain dismissed the German occupation of Sudeten arguing that it was "a quarrel in a far away country between people of whom we know nothing." North American and Asia have been bystanders as the European crisis developed. Increasing concerns are evident, as European problems now threaten global recovery.

China, which contributed around 80 per cent of total global growth in 2010, has expressed growing concern about the problems in Europe. Trade between China and the EU, its largest export market, totals around $470 billion annually, contributing a trade surplus of Euro 122 billion for China in the first nine months of 2010. Any slowdown in Europe would affect Chinese growth. China is also a major holder of Euro sovereign bonds, standing to lose significantly if problems continue. China has indicated preparedness to use some of its $2.7 trillion of foreign exchange reserves to buy bonds of countries such as Greece and Portugal.

A slowdown in China would affect commodity markets, both volumes and prices, and commodity exporters such as Australia, China and South Africa. Minutes of a 7 December 2010 from the central bank of Australia, one of the world’s best performing economies, indicated increasing concerns about developments in Europe.

A continuation of the European debt problems, especially restructuring or default of sovereign debt, would severely disrupt financial markets. Losses would create concerns about the solvency of banks, in particular European banks. In a repeat of the events of September 2008 (when Lehman Brothers filed for bankruptcy protection and AIG almost collapsed) and April/ May 2010 (prior to the bailout of Greece), money markets could seize up, as trust about the ability of parties to perform contracts evaporated. In turn, this volatility would feed through into the real economy, undermining the weak recovery.

Unless resolved, the European debt problems will affect currency markets and through that channel the global economy. Any breakdown in the Euro, such as the withdrawal of defaulting countries or change in the mechanism, would result in a sharp fall in the new currencies. In turn, this would, in the first instance, result in large losses to holders of debt of those countries from the devaluation.

Depending on the new arrangements, the US dollar would appreciate abbreviating the nascent American recovery. This may compound existing global imbalances and trigger further American action to weaken the dollar. Further rounds of quantitative easing are possible, setting off inflation and de-stabilising, large scale capital flows into emerging markets. In turn, the risk of protectionism, full-scale currency and trade wars would increase. A break-up of the Euro would adversely affect Germany, which has been growing strongly. A return to the Deutschemark or, more realistically, an Euro without the peripheral countries may result in a sharp appreciation of the currency, reducing German export competitiveness.

As the Australian central bank noted in its December 2010 minutes: "… the deterioration in the situation in Europe over the past month had increased the downside risks to the global economy. How this would ultimately play out, and the implications … were difficult to predict. It was possible that conditions could settle down, as they had after the episode of financial instability in May. Alternatively, an escalation of the current problems was not out of the question. If this prompted a fresh retreat from risk-taking in global financial markets, it would probably have more impact … than any trade effect."

End Game

Events since the announcement of the bailout package in early 2010 have been reminiscent of 2008. Then, the optimism following bailouts of Bear Stearns and other troubled American banks produced premature. The promise of China to purchase Portuguese bonds is similar to the ill-fated investments of Asian and Middle-Eastern sovereign wealth funds in US and European banks.

Eventually with each successive rescue and the re-emergence of problems, the capacity and will for further support diminished. The EU rescue of Greece and Ireland are also reminiscent of US attempts to rescue its banking system, with more and more money being thrown at the problem. The strategy was defective, preventing the creative destruction required to restore the system to health. The actions may have doomed the economy into a protracted period of low growth, laying the foundations for future problems.

At the time of the Greek bailout, the real question was: "If Euro 750 billion isn’t enough, what is?" Increasingly, markets fear that there may not be enough money, to solve the problem painlessly.

In 11 May 1931, the failure of a European bank – Austria’s Credit-Anstalt – was a pivotal event in the ensuing global financial crisis and the Great Depression. The failure set off a chain reaction and crisis in the European banking system. Some 80 years later, European sovereigns may be about to set off a similar sequence of events with unknown consequences.

Satyajit Das is the author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives.

Reply
BREAKDOWN CRISIS OUT OF CONTROL
URGENT APPEAL FOR A GLOBAL GLASS-STEAGALL SYSTEM

Helga Zepp-LaRouche
http://www.larouchepub.com/hzl/2011/3832...gl-st.html

Aug. 12—It would be better if leaders found the courage to openly admit what is now obvious: The global breakdown-crisis of the financial system is out of control; it is global; there is a danger of a meltdown of the financial system and the real economy, which threatens to dwarf the Crash of 1929 and the subsequent Great Depression—and that governments have no idea what to do. Most of them have the dreadful suspicion that the European fiscal union dictated by London and the draconian austerity measures associated with it will not solve the problem, but indeed will create conditions throughout Europe such as those they are now seeing with the riots in Great Britain.

It is no wonder that we are also dealing with an unprecedented crisis of the credibility of governments, which have placed themselves at the mercy of "the markets" for the past four years, since the crisis erupted in July 2007. And instead of restraining these markets by re-regulation, they got roped in, with one "emergency" after another, to greater and greater concessions to the power of financial institutions, thereby transforming hundreds of billions of the private debt of the speculators into government debt, for which the population is now being punished, with huge austerity programs in the public budgets.

The financial sector, with one new "bailout" after another, expresses its gratitude by launching new speculative attacks, first against Greece and other EU "peripheral" states, and most recently against France and Germany, and by betting with credit default swaps (CDS) against these countries "as if the end of the world had come," according to Handelsblatt). At the same time, the credit downgrades of various countries by the rating agencies has produced a contraction of the completely uncontrolled so-called shadow banking, which, because of the leverage effect of credit derivatives, is causing a geometrically accelerating collapse. Ironically, it turns out that precisely the "most profitable"—and also the most risky—sector of the casino economy is the Achilles' heel of the system.

No to a European Fiscal Union
In this dramatic situation, the agents of the British Empire—whether the Financial Times, or European Central Bank head Jean-Claude Trichet, or European Commission President José Manuel Barroso, who, with his demand for an increase of the capital stock of the European Financial Stability Facility (EFSF), just two weeks after the July 21 EU summit, invoked a new "emergency"—are asserting that only the immediate establishment of a European economic government could stop the final collapse of the Eurozone. Only a European fiscal union would be bigger and more powerful than the markets, is the sophistical argument.

Of course, such a European economic government—as was planned from the very beginning by the architects of the European Monetary Union—would be able to enforce, supposedly more effectively, precisely what "the markets" want anyway, namely the most brutal cuts, as are now being imposed on Greece, Portugal, Italy, Spain, and France—except that the states concerned would then have absolutely no veto right to protect the common good of their countries, with such already mentioned social consequences as we see in the British riots.

Such elimination of the last remnants of national sovereignty would be the last step in a whole series of violations of the national constitutions of Europe, as was confirmed yet again in the 2009 "Lisbon verdict" of the German Constitutional Court in Karlsruhe, as well as even in the EU treaties of Maastricht and Lisbon. The ECB, violating its own statutes, has, for some time, been buying up the junk bonds of bankrupt states on the secondary market—thus causing hyperinflation instead of guaranteeing the stability of the euro—and acting clearly against the interests of European states and the general welfare of the citizens.

With this attack on constitutionality, which in the U.S. is taking the form of the White House-controlled "Super Congress," de facto destroying the power of Congress, and which in Europe is taking the form of an unconstitutional EU federal state, the representatives of this policy have deprived themselves of their own legitimacy. The evidence of their already visible failure is average youth unemployment of over 20%, which has produced a generation of the hopeless, with no future under the present system. A continuation and intensification of this policy, as would occur in a European fiscal union, would plunge the trans-Atlantic region into a new dark age, which would soon reach every nook and cranny of the Earth.

The Glass-Steagall Solution
Faced with this existential threat, there is only one way out: a global, two-tier banking system in the tradition of the U.S. Glass-Steagall Act of 1933. The bill for a new Glass-Steagall Act, H.R. 1489, which was introduced by Democratic Rep. Marcy Kaptur (D-Ohio) in the U.S. House of Representatives, is now being cosponsored by 32 other Congressmen, and supported by the national trade union federation, the AFL-CIO; the National Farmers' Union (NFU); and numerous regional and local trade union and party institutions, city councils, etc.

I enumerate the necessary emergency measure:

All the countries of the trans-Atlantic region must adopt legislation for a two-tier banking system, based on Franklin D. Roosevelt's Glass-Steagall Act of June 16, 1933, the principles of which also existed in European countries until the early 1980s, with strict regulations under which the banking sector primarily had the character of industrial banks, and private savings could not be used for risky speculative operations.

As was the case before the repeal of Glass-Steagall in 1999 by the Gramm-Leach-Bliley Act, commercial banks, investment banks, and the insurance sector will have to be completely separated from each other.
The commercial banks will have to be placed under state protection; the investment banks will have to bring their balance sheets into order on their own, without the help of taxpayers' money, which in practice means that toxic paper in the trillions will have to be written off, even if it leads to the insolvency of the banks.

Those legitimate areas from the old system that deal with the real economy or the productive lives of working people will be identified, and be held valid in the new system. Some categories of these claims will have to be frozen at first, because of complex interdependencies, and then analyzed by a state institution, valued, and honored.

A national banking system in the tradition of Alexander Hamilton must then issue long-term loans, within the new credit system, with low interest rates for productive investment purposes, which, by an emphasis on increasing energy-flux density and scientific and technical progress, will raise economic productivity. The participating nations must immediately establish a system of fixed exchange rates.
For the reconstruction of the global economy, long-term cooperation agreements will have to be concluded among sovereign states, whose purpose will be to build well-defined infrastructure and development projects. These agreements represent de facto a new credit system, a New Bretton Woods system, in the tradition of Roosevelt.

Given the decades-long destruction of industrial and agricultural capacities as a result of the monetarist dogma, beneath the level required for decent living conditions for the world's current population of around 7 billion, the goal must be to achieve, through a science-driver, the next, higher platform of economic development, as Lyndon LaRouche has formulated this from the standpoint of physical economy. As an historical example, the increase in productivity achieved by President John F. Kennedy's Apollo program has lasted to the present day.
Join me in directing an urgent appeal to parliaments and governments to fulfill their constitutional duty and to protect the common good of those they represent, by adopting a two-tier banking system immediately.


THE ONLY SOLUTION IS TO FIRE OBAMA; RESTORE GLASS-STEAGALL
http://www.larouchepub.com/lar/2011/3832...ality.html

We had an event, yesterday, a diplomatic event in Washington, D.C. The most significant part of that event is obviously the thing that was least on the schedule, and that is, as most of the diplomats there indicated, they have no comprehension of what the world situation is, or their immediate situation, right now. They're all trapped in a fantasy-land, which presumes that things aren't as bad as they are, a gross underestimation of the crisis which faces humanity now. For example, what we're dealing with immediately is the threat of, say, as early as Saturday, there could be a collapse of the entire world system, a chain-reaction collapse. We're on the edge now, of the decisions which will decide that. Perhaps some of these nations will be frightened enough not to do the stupid thing, the absolutely stupid thing, but none of them will be bright enough to know what to do, to be successful, in dealing with it.

And that's the mission before us. And that's the subject of the discussion here, today....

We are in a general breakdown crisis. And anyone who thinks there is not a general breakdown crisis, who does not think there's an immediate collapse of civilization, beginning in the trans-Atlantic region and extended to the rest of the world: We are looking at a breakdown crisis which has planet-wide, immediate implications. And all those people, who think there are little solutions on the way up there, or little things that can be worked out, or ways to postpone the crisis, are idiots!

We're now in a breakdown crisis. We do not produce enough, presently, to sustain people, in terms of the immediate needs of mankind! This is true in the United States, as in food supplies for the coming year; this is true in Europe; this is true in much of the rest of the world, they just don't know it. Their ignorance of reality is what seizes them and controls them, and controls their fate. That's where we are.

A Lack of Willingness To Comprehend
We had a diplomatic session, in Washington yesterday, and that is what we found. It was the largest diplomatic turnout we've had—and among all these people, there was a general expression of absolute confusion and misunderstanding of what the world situation is.

This, of course, is helped by the press, and similar kinds of things. It's helped by the politicians: Our politicians, generally are absolute idiots; there are a few exceptions. But the Democratic Party, the Republican Party—the main body of them are absolute idiots. They have no comprehension, and they lack the willingness to comprehend! They lack the willingness to understand the crisis! They lack the willingness to face reality! And this is typically a Boomer problem. They will not face reality: The entire system is now coming down. If there's not a radical and sudden change in direction, civilization is going under.

It can go under now. It can go under, who knows what day? Who knows how soon? But the potential for an immediate collapse exists this week: It came into existence on Sunday [Aug. 7], when everything was set up for a general breakdown crisis of the entire international financial-monetary system. And in all the governments of the world, there's not one which has shown understanding of the nature of this crisis. And therefore, what we have to say here—even though we may be regarded as a small voice in the world—it's probably the only thing that's worth hearing at this time.

The whole thing is coming down. Everyone in government is generally, more or less, a fool. They're in a state of denial, and that's the kind of question we have to take up today. Because somebody has got to speak the truth, when you're on the edge of a potential slide into Hell. And that time is now. We don't know when it would happen; we don't know if it would happen at some particular time, or in some way or another. We do know what the potential is. We do know that under present principles, under present guiding policies of the governments of the world, there is no chance for the survival of humanity. And only if there is a change, of the relevant type, will mankind come out of this thing safely.

And Hell is beginning now. We entered Hell this week. That question, when you begin to feel the heat, is the only question, and why.

And that's what we face. And we've got to get ourselves up to scratch on this level. Don't talk about this solution, that solution, this solution—forget it! It's very simple: What has to be done, is simply to put the entire financial-monetary system through a breakdown crisis, a managed breakdown crisis, in which, first of all, Glass-Steagall is essential.

Without Glass-Steagall and without firing the President of the United States, there's no chance for civilization. This man has to be thrown out of office now! If he is not thrown out of office, very soon, there's no chance for humanity! Because he's jamming up the works under British control. The only thing we have in our favor, is that some of the Europeans, including some of the British, realize what they're doing: They're gambling with extinction. Not extinction now, but a process that leads to extinction.

And therefore, that's the question we have to take up now, the question I posed yesterday.

Denial of Reality
I saw, in that group of diplomats, there, I saw complete consternation, complete denial of reality, complete ignorance of reality! Which reflects the fact that the governments of the world are not in reality. They're in a fantasy-land. And the time has come when it's all coming down. Unless we can reverse it—and it can be reversed, by the right decision: Fire Obama! Get him out of there! We have all the grounds for doing so! If we don't get him out of there, you will not find a political force capable of removing him and removing his policy. If you don't throw him out, no United States! That's where it stands. He has to be thrown out now, and there are grounds for doing so; several procedures exist. That's where we stand.

Which means there's a change in thinking among the political forces, the leading political forces, in the United States, among other places, as well as in Europe. And it has to be a change from what they think. It will not be a negotiation with them, on compromise! There is no compromise.

Glass-Steagall is indispensable; it is not the solution: It's the precondition for the solution! And the precondition is to junk, entirely, the so-called Green movement. That's the problem. The Green movement is what's killing us; it's killing humanity. If you don't throw the Green movement out, if you don't throw Obama out now, you're not going to have civilization!

So, you don't have a right to negotiate this, because if you don't come up with the right answer, there is no civilization. Therefore, if you don't agree with what I'm indicating has to be done, your ideas are worthless; you're self-doomed by your own folly. It's come to that point: The habits you've acquired, the people out there, the habits they've acquired, are the thing that dooms them. And it's those habits, that kind of thinking, which must be thrown out the window, to get back to the American System, and what the American System represented under Franklin Roosevelt and similar kinds of leaders.

Without doing that now, without cleaning up the act now, in that way, there's no chance: You've come to the end of the line, and the decisions you make now will be either salvation or doom.



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