Derivatives turn the financial system into a casino. And the House always wins.
Photo Credit: Jean Lee/ Shutterstock.com
Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.
Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus. A “bail in” is a quantum leap beyond a “bail out.” When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to “recapitalize” themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the “creditors” include the depositors who put their money in the bank thinking it was a secure place to store their savings.
The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here. “Too big to fail” now trumps all. Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.
Why Derivatives Threaten Your Bank Account
The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.
In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.
The tab for the 2008 bailout was $700 billion in taxpayer funds, and that was just to start. Another $700 billion disaster could easily wipe out all the money in the FDIC insurance fund, which has only about $25 billion in it. Both JPMorgan and Bank of America have over $1 trillion in deposits, and total deposits covered by FDIC insurance are about $9 trillion. According to an article on Bloomberg in November 2011, Bank of America’s holding company then had almost $75 trillion in derivatives, and 71% were held in its depository arm; while J.P. Morgan had $79 trillion in derivatives, and 99% were in its depository arm. Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion; and JPM is the biggest player, with 30% of the market.
It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:
Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.
There will be no more $700 billion taxpayer bailouts. So where will the banks get the money in the next crisis? It seems the plan has just been revealed in the new bail-in policies.
All Depositors, Secured and Unsecured, May Be at Risk
The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.
In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.” It refers only to “unsecured creditors.” But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:
Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims!
. . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!
If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.
The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.
That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.
Super-priority Status for Derivatives Increases Rather Than Decreases Risk
Harvard Law Professor Mark Row maintains that the super-priority status of derivatives needs to be repealed. He writes:
. . . [D]erivatives counterparties, . . . unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors.
. . . [W]hen we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability.
In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.
Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it. When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run.
Putting the Brakes on the Wall Street End Game
Besides eliminating the super-priority of derivatives, here are some other ways to block the Wall Street asset grab:
(1) Restore the Glass-Steagall Act separating depository bankingfrom investment banking. Support Marcy Kaptur’s H.R. 129.
(2) Break up the giant derivatives banks. Support Bernie Sanders’ “too big to jail” legislation.
(3) Alternatively, nationalize the TBTFs, as advised in the New York Times by Gar Alperovitz. If taxpayer bailouts to save the TBTFs are unacceptable, depositor bailouts are even more unacceptable.
(4) Make derivatives illegal, as they were between 1936 and 1982 under the Commodities Exchange Act. They can be unwound by simply netting them out, declaring them null and void. As noted by Paul Craig Roberts, “the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system.”
(5) Support the Harkin-Whitehouse bill to impose a financial transactions tax on Wall Street trading. Among other uses, a tax on all trades might supplement the FDIC insurance fund to cover another derivatives disaster.
(5) Establish postal savings banks as government-guaranteed depositories for individual savings. Many countries have public savings banks, which became particularly popular after savings in private banks were wiped out in the banking crisis of the late 1990s.
(6) Establish publicly-owned banks to be depositories of public monies, following the lead of North Dakota, the only state to completely escape the 2008 banking crisis. North Dakota does not keep its revenues in Wall Street banks but deposits them in the state-owned Bank of North Dakota by law. The bank has a mandate to serve the public, and it does not gamble in derivatives.
A motivated state legislature could set up a publicly-owned bank very quickly. Having its own bank would allow the state to protect both its own revenues and those of its citizens while generating the credit needed to support local business and restore prosperity to Main Street.
For more information on the public bank option, see here. Learn more at thePublic Banking Institute conference June 2-4 in San Rafael, California, featuring Matt Taibbi, Birgitta Jonsdottir,Gar Alperovitz and others.
Source: Ellen Brown | Alternet
Don’t be surprised when the global elite confiscate money from your bank account one day. They are already very clearly telling you that they are going to do it. Dutch Finance Minister Jeroen Dijsselbloem is the president of the Eurogroup – an organization of eurozone finance ministers that was instrumental in putting together the Cyprus “deal” – and he has said publicly that what has just happened in Cyprus will serve as a blueprint for future bank bailouts. What that means is that when the chips are down, they are going to come after YOUR money. So why should anyone put a large amount of money in the bank at this point? Perhaps you can make one or two percent on your money if you shop around for a really good deal, but there is also a chance that 40 percent (or more) of your money will be confiscated if the bank fails. And considering the fact that there are vast numbers of banks all over the United States and Europe that are teetering on the verge of insolvency, why would anyone want to take such a risk? What the global elite have done is that they have messed around with the fundamental trust that people have in the banking system. In order for any financial system to work, people must have faith in the safety and security of that financial system. People put their money in the bank because they think that it will be safe there. If you take away that feeling of safety, you jeopardize the entire system.
So exactly how did the big banks in Cyprus get into so much trouble? Well, they have been doing exactly what hundreds of other large banks all over the U.S. and Europe have been doing. They have been gambling with our money. In particular, the big banks in Cyprus made huge bets on Greek sovereign debt which ended up failing.
But what happened in Cyprus is just the tip of the iceberg. All over the planet major financial institutions are being incredibly reckless with client money. They are leveraged to the hilt and they have transformed the global financial system into a gigantic casino.
If they win on their bets, they become fabulously wealthy.
If they lose on their bets, they know that the politicians won’t let the banks fail. They know that they will get bailed out one way or another.
And who pays?
Either our tax dollars are used to fund a government-sponsored bailout, or as we have just witnessed in Cyprus, money is directly confiscated from our bank accounts.
And then the game begins again.
People need to understand that the precedent that has just been set in Cyprus is a game changer.
The next time that a major bank fails in Greece or Italy or Spain (or in the United States for that matter), the precedent that has been set in Cyprus will be looked to as a “template” for how to handle the situation.
Eurogroup president Jeroen Dijsselbloem has even publicly admitted that what just happened in Cyprus will serve as a model for future bank bailouts. Just check out what he said a few days ago…
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders”
Dijsselbloem insists that this will cause people “to think about the risks” before they put their money somewhere…
“It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them.”
Well, as depositors in Cyprus just found out, there is a risk that you could lose 40 percent (and that is the best case scenario) of your money if you put it in the bank.
Why would anyone want to take that risk – especially in a nation that is already experiencing very serious financial troubles such as Greece, Italy or Spain?
As if that was not enough, Dijsselbloem later went in front of the Dutch parliament and publicly defended a wealth tax like the one that was just imposed in Cyprus.
Dijsselbloem is being widely criticized, and rightfully so. But at least he is being more honest that many other politicians. His predecessor as the head of the Eurogroup, Jean-Claude Juncker, once said that “you have to lie” to the people in order to keep the financial markets calm…
Mr. Dijsselbloem’s style contrasts with that of his predecessor, Jean-Claude Juncker, Luxembourg’s prime minister, who spoke in a low mumble at news conferences and was expert at sidestepping questions. Mr. Juncker once even advocated lying as a way to prevent financial markets from panicking—as they did Monday after Mr. Dijsselbloem’s comments.
“When it becomes serious, you have to lie,” Mr. Juncker said in April 2011. “If you have pre-indicated possible decisions, you are feeding speculation in the financial markets.”
But Dijsselbloem is certainly not the only one among the global elite that is admitting what is coming next. Just check out what Joerg Kraemer, the chief economist at Commerzbank, recently told Handelsblatt about what he believes should be done in Italy…
“A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product”
They are telling us what they plan to do.
They are telling us that they plan to raid all of our bank accounts when the global financial system fails.
And calling it a “haircut” does not change the fact of what it really is. The truth is that when they confiscate money from our bank accounts it is outright theft. Just check out what the Daily Mail had to say about the situation in Cyprus…
People who rob old ladies in the street, or hold up security vans, are branded as thieves. Yet when Germany presides over a heist of billions of pounds from private savers’ Cyprus bank accounts, to ‘save the euro’ for the hundredth time, this is claimed as high statesmanship.
It is nothing of the sort. The deal to secure a €10 billion German bailout of the bankrupt Mediterranean island is one of the nastiest and most immoral political acts of modern times.
It has struck fear into the hearts of hundreds of millions of European citizens, because it establishes a dire precedent.
And when you cause paralysis in the banking system, a once thriving economy can freeze up almost overnight. The following is an excerpt from a report from someone that is actually living over in Cyprus…
As it stands now, nowhere in Cyprus accepts credit or debit cards anymore for fear of not being paid, it is CASH ONLY. Businesses have stopped functioning because they cannot pay employees OR pay for the stock they receive because the banks are closed. If the banks remain closed, the economy will be destroyed and STOP COMPLETELY. Looting, robberies and theft are already on the rise. If the banks open now, there will be a massive run on the bank, and the banks will FAIL loosing all of its deposits, also causing an economic crash. TONIGHT there are demonstrations at most street corners and especially at the parliament building (just 2 miles from me).
Many are thinking that the ECB and EU are allowing Cyprus to fail as a test ground for new financial standards.
Just wanted all you guys to know the real story of whats going on here. Prayers are appreciated (although this is very interesting to watch) many of my local friends have lots of money in the banks.
Would similar things happen in the United States if there was a major banking crisis someday?
That is something to think about.
In any event, the problems in the rest of Europe continue to get even worse…
-The stock market in Greece is crashing. It is down by more than 10 percent over the past two days.
-The stock markets in Italy and Spain are experiencing huge declines as well. Banking stocks are being hit particularly hard.
-The Bank of Spain says that the Spanish economy will sink even deeper into recession this year.
-The latest numbers from the Spanish government show that Spain’s debt problem is rapidly getting worse…
“The central government’s interest bill surged 15 percent last year to 26 billion euros, while tax receipts slumped 21 percent. The cost of servicing debt represented 30 percent of the taxes collected at the end of December, up from 20 percent a year earlier.”
-The euro took quite a tumble on Thursday and the euro will likely continue to decline steadily in the weeks and months to come.
For a very long time I have been warning that the next major wave of the economic collapse is going to originate in Europe.
Hopefully people are starting to see what I am talking about.
As this point, the major banks in Europe are leveraged about 26 to 1, and that is close to the kind of leverage that Lehman Brothers had when it finally collapsed. As a whole, European banks are drowning in debt, they are taking risks that are almost incomprehensible and now faith in those banks has been greatly undermined by what has happened in Cyprus.
Anyone that cannot see a crisis coming in Europe simply does not understand the financial world. A moment of reckoning is rapidly approaching for Europe. The following is from a recent article by Graham Summers…
At the end of the day, the reason Europe hasn’t been fixed is because CAPITAL SIMPLY ISN’T THERE. Europe and its alleged backstops are out of money. This includes Germany, the ECB and the mega-bailout funds such as the ESM.
Germany has already committed to bailouts that equal 5% of its GDP. The single largest transfer payment ever made by one country to another was the Marshall Plan in which the US transferred an amount equal to 5% of its GDP. Germany WILL NOT exceed this. So don’t count on more money from Germany.
The ECB is chock full of garbage debts which have been pledged as collateral for loans. If anyone of significance defaults in Europe, the ECB is insolvent. Sure it can print more money, but once the BIG collateral call hits, money printing is useless because the amount of money the ECB would have to print would implode the system.
And then of course there are the mega bailout funds such as the ESM. The only problem here is that Spain and Italy make up 30% of the ESM’s supposed “funding.” That’s right, nearly one third of the mega-bailout fund’s capital will come from countries that are bankrupt themselves.
What could go wrong?
Right now, close to half of all money that is on deposit at banks in Europe is uninsured. As people move that uninsured money out of the banks, the amount of money that will be required to “fix the banks” will go up even higher.
It would be wise to try to avoid the big banks at this point – especially those with very large exposure to derivatives. Any financial institution that uses customer money to make reckless bets is not to be trusted.
If you can find a small local bank or credit union to do business with you will probably be better off.
And don’t think that this kind of thing can never happen in the United States.
One of the key players that was pushing the idea of a “wealth tax” in Cyprus was the IMF. And everyone knows that the IMF is heavily dominated by the United States. In fact, the headquarters of the IMF is located right in the heart of Washington D.C. not too far from the White House. When I worked in D.C. I would walk by the IMF headquarters quite a bit.
So if the United States thought that confiscating money from bank accounts was a great idea in Cyprus, why wouldn’t they implement such a thing here under similar circumstances?
The global elite are telling us what they plan to do, and the game has dramatically changed.
Move your money while you still can.
Unfortunately, it is already too late for the people of Cyprus.
Source: The Economic Collapse
Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed. As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point. A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.
We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.
Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about. Just look at the numbers that I have posted below.
The following is the global financial pyramid scheme by the numbers…
-$9,283,000,000,000 - The total amount of all bank deposits in the United States. The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits. In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.
-$10,012,800,000,000 - The total amount of mortgage debt in the United States. As you can see, you could take every penny out of every bank account in America and it still would not cover it.
-$10,409,500,000,000 - The M2 money supply in the United States. This is probably the most commonly used measure of the total amount of money in the U.S. economy.
-$15,094,000,000,000 - U.S. GDP. It is a measure of all economic activity in the United States for a single year.
-$16,749,269,587,407.53 - The size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 - The total amount of money that the global elite have stashed in offshore banks (that we know about).
-$50,230,844,000,000 - The total amount of government debt in the world.
-$56,280,790,000,000 - The total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.
-$61,000,000,000,000 - The combined total assets of the 50 largest banks in the world.
-$70,000,000,000,000 - The approximate size of total world GDP.
-$190,000,000,000,000 - The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.
-$212,525,587,000,000 - According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
-$600,000,000,000,000 to $1,500,000,000,000,000 - The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
Are you starting to get the picture?
Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.
What we witnessed back in 2008 was just a little “hiccup” in the system. It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.
Next time it won’t be so easy.
The next wave of the economic collapse is quickly approaching. A full-blown economic depression has already started in southern Europe. Unemployment is at record highs and economic activity is contracting rapidly.
The major offshore banking centers in Cyprus are on the verge of collapsing. It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen. And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.
And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.
The dominoes are starting to tumble, and the United States won’t be immune. In fact, the greatest financial problems that the United States has ever seen are on the horizon.
But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.
The mainstream media will provide you with all of the positive economic news that you could possibly want. They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery. You can listen to them if you want to.
But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.
There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer. At some point it is going to totally collapse. When that happens, will you be ready?
Source: The Economic Collapse
The head of the New York Fed wants Congress to grant the Central Bank extraordinary new powers to deal with future financial system emergencies like the bank run that followed Lehman Brothers collapse in September 2008. Here’s the story from the New York Times:
“[William] Dudley’s concern is about a little-noticed piece of the 2010 Dodd-Frank Act that actually reduced the central bank’s authority in one crucial area: its ability to provide emergency funding to strapped financial firms.
The Fed arrested the 2008 financial crisis by using this authority to create a series of unprecedented programs that offered emergency financing not just to American banks – its traditional flock – but also to foreign banks, and not just to banks but to other kinds of financial companies as well, and indeed to other kinds of companies entirely.” (“Equipping the Fed for a Future Crisis”, New York Times)
It’s true, congress did clip the Fed’s wings after the last great debacle by putting limits on the Fed’s authority to hose down the entire system, regulated or not, with trillions of dollars of taxpayer-funded bailouts. And congress should be applauded for that action, after all, why should the US government underwrite the high-risk trading activities of financial institutions which operate on mere slivers of capital? That’s crazy! If they go bust, tough luck. Here’s more from the Times:
“Congress responded to this performance by making it difficult to repeat. Dodd-Frank imposed new restrictions on the Fed’s ability to make emergency loans, or to keep money flowing, outside the banking industry. One basic reason was that Congress had never really intended to give the Fed such broad power in the first place.” (NYT)
Uh, huh. Is that hard to grasp? TARP was unpopular. The bailouts were unpopular. People don’t like the idea of handing over free money to crooked bankers every time they get themselves into trouble.
The author seems genuinely puzzled by the fact that our democratic system is not supposed to proffer unlimited “power of the purse” to the swinish agents of the robber class at the central bank. The system has gotten so convoluted that journalists cannot even recall earlier times when policy was set by the elected representatives of the people and the banks played a subordinate role. Today, that all sounds like sentimental gibberish about “America’s idyllic past”. Here’s more from the Times:
“Many – myself included – have drawn from the financial crisis the conclusion that government safety nets should be drawn tightly so that only a very few, very tightly regulated firms get as little liquidity support as possible,” Karen Shaw Petrou, a close watcher of financial regulation who drew my attention to Mr. Dudley’s speech, wrote to clients of her firm, Federal Financial Analytics.
A more inclusive policy, she continued, “will open the safety net, wide, wide open to all sorts of actors who, smiling sweetly, will rob us blind.” (NYT)
Ms. Petrou is a dreamer. The Fed does what it wants, when it wants”. It answers to no one, which is why their books still remain closed to public inspection despite the myriad legal challenges to pry them open.
Sure, the Fed will “rob us blind”; that’s their job, isn’t it? Let me jog your memory a bit: Do you remember the Repo 105 scandal? Think back to April 2010 when the New York Fed (which Dudley now heads) was directly involved in a cover up by the nation’s largest banks that were engaged in shady accounting activities to conceal the amount of debt on their balance sheets. According to the Wall Street Journal:
“Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York. A group of 18 banks….understated the debt levels used to fund securities trades by lowering them an average of 42 per cent at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.” (“Big Banks Mask Risk Levels”, Kate Kelly, Tom McGinty, Dan Fitzpatrick, Wall Street Journal)
The “repo 105″ flap was further complicated by suspicions that Lehman was assisted in its effort by the Federal Reserve Bank of New York which, at the time, was headed by former Secretary of the Treasury, Timothy Geithner. Here is a short recap of what transpired between the Geithner’s NY Fed and Lehman according to ex-regulator William Black and former NY governor Eliot Spitzer from an article on Huffington Post:
“The FRBNY [i.e., New York Fed] knew that Lehman was engaged in smoke and mirrors designed to overstate its liquidity and, therefore, was unwilling to lend as much money to Lehman…
The Fed’s behavior made it clear that officials didn’t believe they needed to do more with this information. The FRBNY remained willing to lend to an institution with misleading accounting and neither remedied the accounting nor notified other regulators who may have had the opportunity to do so…… We now know from Valukas and from former Treasury Secretary Paulson that the Treasury and the Fed knew that Lehman was massively overstating its on-book asset values.” (Time for the Truth” William Black and Eliot Spitzer, Huffington Post)
Yves Smith over at Naked Capitalism summed it up perfectly at the time:
“The NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties. This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large. And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets.” (Naked Capitalism)
Repeat: “Culpable”, “collusion”, “aiding and abetting Lehman in accounting fraud and Sarbox violations.” And these are the guys who want unlimited power to bailout anyone at anytime regardless of the cost?
Don’t make me laugh!
What Dudley really wants is the power to put out the fires which the serial arsonists at the Fed have started with their shabby, easy money policies and “light touch” regulation. They need to get their own house in order before they go asking congress for more favors.
Here’s a novel idea: Why not just fix the system? Why not create regulations that actually work, that increase stability and make the system safer?
Nah, that would cut into profits, so it’s a non-starter. Isn’t that what’s going on here; Dudley’s trying to shrug the costs onto taxpayers so he doesn’t ruffle feathers on Wall Street. It’s all about the bottom line. Here’s more from the Times:
“[Dudley] argued in his recent speech that it would make no sense to draw a line between banks and other kinds of financial firms if both were playing essentially the same role in the broader economy.
Both should be regulated, and both should be backstopped.
“If we believe that these activities provide essential credit intermediation services to the real economy that could not be easily replaced by other forms of intermediation, then the same logic that leads us to backstop commercial banking with a lender of last resort might lead us to backstop the banking activity taking place in the markets in a similar way,” he told the New York Bankers Association.” (NYT)
Hold on there, Dudley; “essential credit intermediation” can mean anything from issuing short-term loans to productive businesses to off-loading dodgy Collateral Debt Obligations (CDOs) to gullible investor groups. Are we going to throw a lifeline to every snakeoil salesman and scamster in the industry?
Yep. That’s the Dudley method. Bail ‘em all out and start over! What’s a few trillion among friends? It’s all funny money anyway, isn’t it? More from the Times:
“Banks and other financial companies increasingly draw money from sources that do not have similar backstops, including the sale of commercial paper to money market funds and complicated arrangements called “triparty repos” that basically allow financial firms to borrow money by pledging assets as collateral.
These are short-term loans that must be renewed regularly, often daily. As a result, panic among investors can almost instantly undermine financial stability, which is exactly what began to happen in 2007: Panic spread, financing disappeared, and the global financial system came perilously close to complete collapse.
There is broad agreement that something should be done to improve the stability of money-market funds and the triparty repo market. So far, nothing much has happened.” (NYT)
This is really rich. The author of this story knows exactly why “nothing much has happened” to make money markets safer. It’s because the big Wall Street banks–who are the Fed’s primary constituents–have fought any changes to the existing system tooth and nail. They don’t give a ratsass whether the markets crash or not. What they care about is boosting quarterly profits so they can add a few zeros onto the Xmas bonus check. Here’s the story from Bloomberg:
“Money-market fund companies have doubled lobbying efforts to convince regulators and lawmakers that they aren’t a threat to the financial system. The money may have been well-spent…
The companies are seeking to block new rules championed by Securities and Exchange Commission Chairman Mary Schapiro that are headed for a vote before a divided commission as soon as this month…
“If the industry blocks this plan and something else bad happens and people on Main Street lose money, they’ll be kicking themselves for not fixing this,” Douglas W. Diamond, a finance professor at the University of Chicago Booth School of Business, said in a telephone interview. “The current structure does potentially have systemic risk, and it’s the kind of thing that could happen very quickly given the situation in Europe.” (“Doubling Down to Block Money Market Reform”, Bloomberg)
And these are the guys that Dudley wants to save, these self-serving miscreants who’re doing everything in their power to make the system more less safe, more unstable, and more crisis-prone?
The reason the money markets are so vulnerable is NOT because there’s no fix, but because the big money is blocking even modest changes to the existing system. Wall Street would rather put the whole system at risk, then lose even one-thin dime in profits.
More from Dudley: “The sheer size of banking functions undertaken outside commercial banking entities – even now, after the crisis – suggests that this issue must not be ignored. Pretending the problem doesn’t exist, or dealing with it only ex post through emergency facilities, cannot be consistent with our financial stability objectives.”
In other words, the Fed has no idea of how leveraged this gigantic, unregulated shadow banking system really is. All they know is that it poses unseen risks that WILL lead to another disaster. So, rather than implement rules that could improve stability–as one might expect from the nation’s chief regulator–Dudley wants a blank check to spend whatever-it-takes to prop up this ghastly system.
The Obama administration has already declared war on Syria, even if it isn’t “official” yet. Consider the facts, all of them acts of war: The U.S. now recognizes a group of Syrian exiles to be the official government of Syria; the U.S. is providing direct support for rebels attacking the government; the U.S. has coordinated with NATO to place advanced missile systems — and 400 U.S. troops — on Syria’s border with Turkey; Obama has drawn a “red line” that, if Syria crosses, would result in U.S. direct military intervention. If any other country made similar moves toward the U.S., there would be no question that war had been declared.
All the strategic steps that led to the Iraq war are being repeated. Obama has assembled a Bush-style international “coalition of the willing” of nations to topple the Syrian government; 130 countries have put their names on paper in support of toppling the Assad government.
In reality, however, the core of the group is the U.S./Europe NATO alliance and the Gulf monarchies. The rest of the “coalition” are economic and political satellites of these main groups, who would sign onto to any military adventure that the rich nations demanded of them, since otherwise the poorer nations would have their military, financial, or political aid frozen.
Europe’s increased lust for blood is a relatively new phenomenon; the European divisions that erupted during the Iraq war and then the Libyan invasion seem to have been smoothed over. Now even Germany aims to directly join the war efforts, intending to send missiles and troops to the Turkish border as well.
But NATO is still a U.S.-dominated military alliance. Any NATO military action is in reality a U.S. led effort, since the European armies are miniscule in comparison, and lack much of the technological sophistication of U.S. weaponry. The advanced Russian missile systems that Syria is equipped with demand a direct U.S. military role to neutralize.
Like Bush, Obama is using his coalition of the willing to distract from the fact that he is circumventing the UN, and thus bringing the post WWII system of international conflict resolution — already on life support — closer to death.
Also like Bush, Obama strategically exploited the UN to weaken Syria with sanctions, and when further UN action was not possible — because of the objections of China and Russia —Obama threw aside the UN and opted for NATO, a U.S./European military alliance built specifically as a deterrent to the now-defunct Soviet Union.
Again like Bush, Obama has crafted a false motive for war. Obama has stolen Bush’s “weapons of mass destruction” but substituted “the use of chemical weapons” as a bogeyman worthy of military intervention. Obama’s bogeyman is as false as Bush’s was. The New York Times reports:
“…the effect of that statement [that Syria was planning to use chemical weapons] was somewhat undercut when France’s foreign minister, Laurent Fabius, asserted during a news conference that such reports were unconfirmed.”
This lack of confirmation hasn’t bothered the U.S. media, who remain content repeating as truth any report issued by U.S. intelligence, no matter the past lies that have cost countless deaths in Iraq and elsewhere.
Of course the U.S. government has zero legitimacy to hand pick a “replacement” government for Syria, since the U.S. is universally hated in the region after the destruction of Iraq, Afghanistan, Libya, and the ongoing drone wars against Pakistan and Yemen. No sane Syrian would invite the U.S. government to “liberate” their country.In fact, a coalition of Syrian opposition groups inside of Syria, the National Coordination Committee (NCC) — virtually ignored by the U.S. media — opposes military intervention, demanding the conflict be addressed through political means.A leader of the NCC is Hassan Abdul Azim, who correctly states:
“We refuse on principle any type of military foreign intervention because it threatens the freedom of our country.”Another prominent ongoing lie repeated by U.S. politicians and media is that the Syrian government is on the verge of collapse. This lie is effective in that it creates an urgency to “take action.” It also paints a picture of the conflict coming to an end that resonates well with Americans.The reality is that the Syrian western-backed rebels have staged daring high-profile attacks that have been largely repulsed by government counter-attacks. But in each instance the U.S. government has used these attacks as an excuse to ratchet up their support to the rebels and now to place U.S. missiles and troops on Syria’s border. Of course if the Syrian government does fall, Obama has absolutely no plan on how to “stabilize” the country, since the most effective rebel fighting force — the Al-Nusra Front — has been labeled a terrorist organization by the U.S. government.
Obama and his NATO and Gulf monarchy allies have created an extremely unstable situation in Syria. They have already torn the Syrian social fabric to shreds with their support of the rebels, but in so doing they’ve pushed many Syrians closer to supporting their government, who they see as a protector against the rebels that have used large scale ethnic-religious cleansing and other war crimes to subdue the population.
Thus, the Syrian government still retains a popular base, ensuring that the already bloody catastrophe will continue with no end in sight, especially since Obama has “regime change” as his goal and is encircling the country with missiles and U.S. and European troops. Iran and Russia will continue to bolster the Syrian government.Under these tense conditions a broader war can break out any moment. The U.S. can claim that the Syrian government is about to employ chemical weapons as an excuse to directly intervene. Or perhaps Turkey — a NATO member — will claim that Syria fired missiles into its territory, and thus Obama will act to “defend” its ally.When war “officially” breaks out, Iran might then increase its direct support for the Syrian government with troops —funneled through Iraq — giving the U.S. another excuse to “defend” itself, and pushing the conflict into Iran. Hezbollah in Lebanon or Israel may intervene too, since both have a direct interest in the outcome of the Syrian conflict. Any number of scenarios could play out that drag other nations into the war, including Russia, who is already supporting the Syrian government. Many of these scenarios have already begun on the proxy level and need only a shove to ensure they explode into a full-scale regional war.
A nation under attack creates a feeding frenzy logic from those countries looking to opportunistically exploit the situation. This proxy war in Syria is on the brink of a much larger disaster, with the potential to annihilate the Middle East through a new round of war and barbarism.
Who said the filthy rich are good for nothing? Their antics are very entertaining! The Nouveau Riche have always been notorious headline-providers, and the newest crop of Russian oligarchs make the robber barons of previous generations look timid and colorless. As money ages, it becomes anaemic; divided and subdivided by careful lawyers into a maze of corporate entities. New money is still good fun; they pull their stunts right in public, and they don’t pull their punches. These hometown heroes fill the vacuum left by the maharajas and sheiks in a way that our drab bureaucrats never could; they parade their Humvee Jeeps through the Moscow crouds, as sure and proud as the Indian kings who once rode their battle elephants in the jungle.
They are more powerful and less restrained in their choice of action than ever were Scorsese’s Mafia dons. Brutal, unscrupulous, overriding, often overreaching, these are characters made for a Shakespearean drama. They are lawless; they freely trample upon other people until somebody finally tramples upon them. They are full-bloodied villains or generous benefactors, or both. Their habit of using London as their litigation headquarters has given their other habits an international audience.
Recently two mighty tycoons, Berezovsky and Abramovich, jousted in a London court for the prize of billions — and incidentally disclosed how they stripped the Russian public of its most valuable assets during Yeltsin’s privatization regime. These courtroom warriors do not flinch at revealing their base crimes to achieve victory; in this case another Neoliberal myth has been destroyed, and another dark chapter in Russian history has been illuminated.
The looting of a country is heavy fare; the public hungered for some light farce. The Polonsky vs. Lebedev case came to the fore, publicized internationally via the London court system. This is the hilarious story of a media mogul and a real estate baron who go full smackdown on live TV. Only the mighty pen of Nikolai Gogol, the mid-19th century Russian author of The Squabble (You can read the plot here) could have done it justice; he might have called it Why Alexander Lebedevich Punched Sergei Polonovich, but you’ll have to bear with my humble efforts.
BelleNews gives us a blow by blow description of the live smackdown action:
- In front of an astonished studio audience, Alexander Lebedev (the Russian mogul) rains a series of blows onto the head of SergeiPolonsky (the real-estate baron), knocking him off his chair. This is during a TV debate on the global economic crisis.
- Images of the dramatic scene, which have been posted on YouTube, show Lebedev losing control and standing over Polonsky in a threatening manner.
- Polonsky appears to attempt to calm him down and Lebedev takes his seat once more.
- After few seconds, without warning, as Polonsky gently pats him on the arm, Lebedev again decides it’s time to let his fists do the talking.
- Lebedev suddenly hits Polonsky several times on the side of the head, sending him sprawling to the floor.
- Polonsky stands back up, seemingly unharmed, and the two men stare hard at each other as studio flunkies defuse the situation.
Note: Alexander Lebedev is one of the richest men in the world, with a fortune that’s estimated to be in the region of $3.1 billion.
In fact, Polonsky and Lebedev are two mid-sized Russian tycoons; neither of them could buy Minnesota cash on the nail. They could have become great pals, toasting each other’s successes in turn; for both are given to real estate development, both love swimming, both wear casual more often than formal, both are rather vain, and both are facing a sharp decline in their fortunes. But instead they have come to blows, for they are doomed to be opposing characters. Which is the protagonist and which the antagonist? None.
Sergei Polonsky is forty, a young man as tycoons go, the first post-Soviet generation of Russian businessmen. He is still big and broad like the Blue Beret commando he once was, but years of soft living have robbed him of his waist; now he looks more like a jolly, well-fed dolphin. His lady friend is a prominent businesswoman by her own right, and a swimming champion.
Alexander Lebedev is 12 years older; his was the generation that privatised the USSR. He is a shape-shifter; he has modernized his appearance over the years from a hard-muscled, disciplined, business-suit-wearing ex-KGB-man into a metrosexual guitar player with an alluring haircut, light shirts and blue jeans. He traded in his old Soviet-era wife for a newer, more camera-friendly model.
Lebedev lives in downtown Moscow, in a former Scout Youth Club built in glorious Stalinesque imperial style with columns and portico, and transformed – after its privatisation – into a minor manor, with an Olympic-size swimming pool where he spends much of his time. He escapes the Moscow autumnal gloom at his Cote d’Azure villa and in his London mansion.
Polonsky lives in a futuristic penthouse, perched like a ship’s bridge atop a skyscraper with a 360° view, high above Moscow. He designed and built the skyscraper and his own apartment himself, being an architect by education and profession. He spends his weekends floating in a converted barge, moored just beyond the city limits, in the company of a tame racoon, doingchi kung – Chinese meditation practice - and voraciously reading arbitrarily-chosen books. In winter he drives a slim, high-tech sled pulled by snow-white blue-eyed huskies; in summer he glides through the deeps on a sea-bob, or hang-glides over blissful hills.
Lebedev built a resort in Crimea; he lavished his generosity on the city, restoring the historic Chekhov theatre, but he prefers to spend his time in London, hobnobbing with Harry Potter’s creator, Ms Rowling, Sir Elton John and other worthies. He plays guitar, and supports DDT, a Russian rock group. He also owns a quality British newspaper, The Independent, as well as a tabloid, the Evening Standard, and the Russian Novaya Gazeta.
Polonsky, in contrast, has built himself a fortress of solitude, a stone and glass castle rising from the waves of a lonely island off the shores of Sihanoukville, not far from Alain Delon’s home in remote Cambodia. He meets with Sufi teachers, receives instructions from Zen monks and chi gung adepts. He is into esoteric knowledge and mystic experiences.
The two men are from very different cities and backgrounds. Lebedev grew up a child of privilege; his father was a professor of the prestigious Foreign Service School. As a young man he joined the KGB and the Communist Party. He graduated from his father’s school, proceeded into the KGB college, and then entered the diplomatic service. He was stationed at the Soviet Embassy in Kensington, London; his assignment: stop the money fleeing Russia. In eight years he learned the ropes, and with the fall of the USSR the gamekeeper turned poacher.
Lt.-Col. (KGB) Lebedev left the service in 1992 and used his professional insider knowledge of Soviet debts to make a fortune and direct fleeing money to safe havens. Not many Russians knew the banking system like he did. There was a lot of money that could be made by a person with the right connections: he bought cut-rate loans cheap and cashed them in at full value with a friendly Treasury official. He made a deal with Gazprom that made the Russian state two hundred millions poorer and himself and his collaborators that much richer. He befriended Victor Chernomyrdin, then Prime Minister, and Chernomyrdin channelled state funds into Lebedev’s recently-opened bank. Lebedev used his connections to capture positions in state-sponsored companies like Ilyushin and Aeroflot: the profits went to Lebedev, while the expenses went to the state.
Polonsky hailed from St Petersburg, of humble origin. He grew up as the USSR collapsed around him; he studied architecture, went into construction and building, hired Ukrainian builders while they were still inexpensive, and built himself into a real estate developer. He is proud of being a self-made man; he obtained nothing from the state, and never sought anything, he says. He did not privatise government factories, but instead established good connections with City Hall and catered to newly-prosperous Muscovites. He looks honest enough to buy a used car from, though such trustworthy guys do not become billionaires. People in the know say that he had to cut backroom deals with Mme Baturina, wife of the Moscow Mayor and one of the richest women in the world: no building was erected in Moscow without a nod from her.
Polonsky has tried to avoid politics; he professes a lack of knowledge and interest in things political. He is a builder, he says, no more. He puts his soul into huge projects spreading from Moscow to Switzerland and from London to Croatia. He is democratic in the Russian style: he mixes easily with all kinds of ordinary folks, but they’d better follow his orders or else.He is a petty tyrant, his (dismissed) employees say: he forbids texting during board meetings! Violators have their precious iPhones smashed against the wall (a feat I myself have only dreamed of). His ambitions lie in the spiritual sphere, and business often takes a back seat to his search for God.
Lebedev has a penchant for politics. He has tried on for size several political factions, varying from the ultra-nationalist Rodina (“Motherland”) to the socialist SR and to the ruling ER, being torn between political ambitions and the desire to make a fast buck. Sometimes the two go together.
In 1996, in the run-up to the fateful elections, Lebedev supported Boris Yeltsin, the then-president of Russia, a dissipated alcoholic who embezzled Russian national wealth and enriched the oligarchs. Lebedev’s bank was used by Yeltsin’s Treasury in order to channel state funds into piles of greenbacks all wrapped up for bribes. It was some of Lebedev’s cash that was seized by security in the infamous Case of the Xerox Paper Box, when an activist tried to carry out millions of dollars for Yeltsin’s bribe fund in a cardboard box. Lebedev did not shy away from this deed; he was rather proud of it, and even paid the dirt-digging magazine Kompromat(“Compromising Matters”) to produce a special issue containing a sanitised version of this, and other exploits.
Lebedev’s daring misdeeds inevitably attracted the attention of law enforcement, and a case against him was eventually drawn up by the State Attorney General. Lebedev, by his own boast, set the Attorney General up with two easy-going girls in a sauna, and filmed the frolics. The film has been broadcasted on a fellow oligarch’s private NTV channel and the Attorney General abruptly resigned.
Some people say that Lebedev was not responsible for the setup. If true, this speaks volumes. Might Mr. Lebedev think that bad publicity is much better than no publicity at all? The facts support the theory. Lebedev produced a book ominously entitled 666 or The Beast Is Born, full of prosaic smackdowns targeting nearly every public personality in Russia. He humbly refers to himself as the “ideal capitalist” and claims credit for these and other dashing criminal exploits.
Lebedev is always quick with an explanation as to why each crime was a good deed: it was either to save Russia from the clutches of the commies (he conveniently misplaces his own Party credentials), or to save the world from the KGB (again he is silent about his own history in the very same service). He openly despises Putin’s working class roots and rise to power. It galls him that they once had the same rank in the KGB. But the real reason behind Lebedev’s opposition is that Putin fearlessly prosecutes the oligarchs. Or is it “persecutes”?
Oligarchs have a persecution complex: any and all interference is unjust. They think of themselves as omnipotent, though they are only powerful, and they bristle against even the most minor efforts to curtail their power. Their money buys them power over life and death, but this power saps their mental health. They start to believe the hype offered by sycophants. They begin to reject trusted advisors. They end up alone and unhinged, pursued by the law. Too much power corrupts, and the Russian oligarchs have more power than any of Stalin’s satraps ever had.
Mr Putin does not approve of oligarchs meddling in politics. He does not punish them arbitrarily, nor does he rewrite the laws to target them. Putin’s Russia allows these tycoons to get away with many things, but it does draw the line at crime – sometimes. This is Putin’s great sacrilege; he holds the oligarchs accountable to the letter of the law. This level of independence comes as a great shock to them. They are getting whiplash trying to readjust after the total freedom of lapdog Yeltsin’s day. The oligarchs wistfully recall the days when they employed their powers over life and death with impunity, like viceroys of India in Clive’s time.
Alas, Mr Lebedev’s political ambitions have remained unfulfilled. He reduced his lofty goals to something more achievable, and decided to become the Mayor of Moscow. He failed. Worried now, he set his sights upon becoming the Mayor of Sochi (the Miami of Russia). Again, he failed. The sharks, sensing blood, began to circle. His dashing exploits belatedly began to attract the attention of the law, especially his alleged appropriation of $300 million in state bailout funds meant to shore up his bank. He accepted the money, but it soon became apparent that his bank’s coffers were empty, or rather stuffed with fictitious promissory notes. His dealings in the aircraft industry also have come under scrutiny and it appears that the state, the main shareholder, might have been swindled in a major way.
In response, the canny Mr Lebedev activated his long term insurance policy. If he were a Russian Jew, he would have claimed he was being attacked by authoritarian Russian anti-Semites; but Mr Lebedev is not a Russian Jew. Instead, Mr Lebedev claims he is being attacked by authoritarian KGB thugslike Mr Putin. This insurance was effective but expensive: for many years he had been forced to heavily subsidise the anti-Putin newspaper Novaya Gazeta, widely read in the central borough of Moscow and unheard of elsewhere. To influence the international set, he purchased two British newspapers and strenuously promoted his new image as a sort of Khodorkovsky: just another wealthy man victimized by Putin’s KGB thugs. He claimed that he was poisoned like Litvinenko, but he miraculously survived. The British were only too happy to cooperate with Lebedev’s propaganda campaigns; the establishment was (and is) willing to support any and all anti-Putin elements, including the Chechen separatists.
It was during his campaign for Moscow Mayor, that Mr Lebedev became aware of Mr Polonsky, who happened to be on good terms with the incumbent Mayor. At that time, Polonsky was busy erecting the tallest twin skyscrapers in Europe, the Federation Towers – the gem of Moscow City. Polonsky immediately became the next target for Lebedev’s hate: another low-caste self-made man, definitely not a pukka sahib. It was also an opportune moment for a quick and easy kill, because Polonsky’s star was falling fast.
Polonsky had gotten himself into trouble, as do all the oligarchs at one point or another. He was not thorough and he was not prudent. He rejected his trusted advisors and surrounded himself with yes-men. He believed his hunch instead of counting odds. He jumped into multimillion deals with a bow and a handshake, and his partners walked away with chunks of his empire. His dreams of samurai honour were shattered by modern Russian business pragmatism.
He relied upon his assistants, and they robbed him blind. The more he empowered them, the faster they would vamoose with his money. His vast capital (assessed at over three billion dollars at the peak) began to shrink precipitously; cash flow became a problem for him, he was over-extended and had difficulty completing his most ambitious projects. Ordinary people who invested in his projects had become justifiably angry.
It was at this moment that the cunning Lebedev unveiled his ingenuous device to break Polonsky. The media mogul spread a malicious (and apparently false) rumour that the foundations of Federation Towers had cracked. Polonsky was already on the defensive, now his back was against the wall. He invited Moscow journalists to come and look for themselves: they were allowed to roam freely some forty yards below the surface, trying to locate the crack, refusing to admit its absence. He offered a million roubles to anyone who could find it. Nobody found anything, but the rumour persisted, supported by Mr Lebedev and his newspapers.
Alone and unhinged, Polonsky began to claim that he himself invented the crack story in order to promote public awareness of the project. There were no buyers for this weird story. His projects continued to suffer setbacks, raiders continued to seize his developments, his companions continued to rob him blind. The crack story cracked his empire.
This is the backstory to the Oligarch Smackdown on live TV. It was ostensibly going to be about global economics. They had exchanged only a few words when Mr Polonsky brought up the painful subject of the crack. The whole world awaited Lebedev’s reply. He looked into the eyes of his victim. What did Mr Lebedev feel at that moment? Pride? Hatred? In any case, alone and unhinged, he rose and landed a few well-aimed jabs upon Polonsky’s jaw. The sitting ex-commando was knocked down, decisively proving the superiority of KGB training over that of Airborne Troopers. The programme was a global success; after delighting the viewers, who had been prepared for a dry recitation of global doom, it went on to become an all-time favourite on YouTube.
But the story did not end there. In face of millions who had watched the assault live, Lebedev denied he hit Polonsky. Standing just outside of the studio, Lebedev insisted stubbornly to the journalists: “I did not touch him; Polonsky assaulted me, because I am in opposition to Putin.” Yes, Lebedev is amazing: he is one man who is prepared to deny anything. Years ago, he had fought to ban gambling in St Petersburg, an ostensibly noble purpose. When it came out that his bank had heavily invested in the lotteries (the main competitor to gaming machines), Lebedev denied all motives of self-interest. Even after his own bank manager proved beyond the shadow of a doubt that the strategy was Lebedev’s own idea, he continued to deny all knowledge with a straight face. I wonder if even James Bond could equal this feat.
During the race for the Moscow City Hall, Lebedev bought a newspaper (theMoscow Correspondent) and turned it into a fighting machine. They soon printed a scurrilous rumour that Mr Putin was involved in an extra-marital affair. Lebedev could not imagine that Putin would react as he did. Usually quite complacent to rumours, accusations and attacks, the President became furious. Fearing Putin’s fury, Lebedev immediately shut down the newspaper, fired the editor and said on air that the baseless article was created by the current Mayor of Moscow and inserted by the editor in return for a bribe. This brazen lie cost the editor his career; Lebedev never recanted.
Since his televised assault, Lebedev has been asked many times why he did it. Some of his explanations are so off the wall that one has difficulty believing he actually offered them as true statements. The palm probably should go to “I thought that I would become a popular hero because I struck out against that hateful oligarch”. This is rich coming from him. Polonsky seems genuinely at a loss to explain Lebedev’s behaviour. Not only has Lebedev refused to apologise, he is continuing to deny he even did it. Is he claiming the insanity defence? More likely he is claiming his rights of oligarchic power: the impunity defence.
Polonsky has not benefited from his public humiliation; in fact, the story only further injured his already suffering business reputation, and a project he had planned to do in London collapsed soon afterwards. It was for this reason that he brought civil charges against Lebedev in a London court, and retired to his Cambodian island, posting his daily catch of barracudas on the Facebook.
Almost a year had passed before the exceedingly slow-grinding mills of Russian criminal justice charged Mr Lebedev, but eventually the media baron was charged with “hooliganism” and “assault”. His lawyers claim that Lebedev had felt threatened and was forced to defend himself; Lebedev (with a straight face) claims that he is being persecuted by the bloody Putin regime for his “love of freedom”. A bald-faced liar is always more entertaining than a talented ingénue, so we will not be too surprised if Mr Lebedev walks away with a slap on the wrist. Anyway, the bloody Putin regime is soft on the oligarchs. However, this Oligarch Smackdown is far from over. We await Mr Lebedev’s elevation to the voice of Russia’s conscience by his own British hacks!
Among the long list of items bundled by consensus reality merchants under the banner of ‘conspiracy theory’, is a world without cash – where technocrats rule over the populace, and everything and anything is exchanged via plastic and RFID chips.
In this sterile and controlled Orwellian hi-tech society, the idea of cash being passed from hand to hand would be as archaic as the thought of carrying around a rucksack of tally sticks today.
Still, despite the incredible penetration of credit and debit card transactions into economic aggregate, and the boom in internet shopping, few will comfortably admit that a cashless society is nearly upon us. In part, it’s a natural denial by many fueled by the idea of our society is indeed on a collision course with the sort of dystopic impersonal future like that depicted in the 1970′s sci-fi film classic, ‘Logan’s Run’.
Cashless money is here, and growing rapidly.
Over the years, futurists and commentators alike seemed to agree that a cashless society would be a slow creep, and cash would automatically phase itself in simply by virtue of the sheer volume of electronic transactions that would gradually make paper less available and more costly to redeem and exchange. This is still true for the most part. What few counted on, however, was how the final push would take place, and why. Some will be surprised by these new emerging mechanisms, and the political and sinister implications they will ultimately lead to.
What’s the time frame on all this? Difficult to say, but what is certain is that the initial phases are already in motion…
Introduction of Parallel Currencies
There has been a lot made about the ‘cashless society’ in media, but this cannot fully happen until there is a cashless currency.
Every revolution needs a good crisis in order to germinate its seed. The cashless revolution is no different. It should be abundantly clear by now that the global financial meltdown has been engineered at every juncture of its unfolding by the very private central banks who expand and contract the money supply. A dollar or euro collapse will trigger a global economic crisis, which is a prime opportunity to introduce the next phase.
In the summer of 2012, at the height of the European Central Bank (ECB) ritualistic raping of the Greek economy, financial expert Max Keiser, alongside Mexican billionaire Hugo Salinas Price, traveled to Athens to promote the idea of a silver Drachma as a parallel currency to the ever-failing euro. In theory and in practice, this parallel currency was ‘sound money’ for individual Greeks and would allow them to retain some say in their financial destiny, and also allow them to accumulate real wealth. It should have caught on. But this great idea did not go down well with media moguls and technocratic elites loyal to their overlords in the ECB, Wall Street and the City of London. Still, too many people remain unaware of how money is created, entered into circulation and how their private central banks control inflation, and Greece is no different.
Watch this clip from Greek television:
The US dollar is pure fiat, but it does have a theoretical backer. It is an oil-backed currency – and for better of for worse, it’s on its way to losing its long-lived status as the world’s reserve currency. There are signals that China is moving towards a gold-backed currency and has already agreed to buy the majority of its oil supply from Russia off of the US dollar peg. This could mean two things: the US could be forced to fight a war to maintain dollar supremacy, or the dollar will begin to drop as the top dog. This shift will open up a window of opportunity for money masters to insert not only a brand new global currency, but also its universal cashless attributes as well.
Common sense and free market wisdom would expect to see a sound money option replace the current fiat disaster, but as we saw in Greece, a great solution was not taken up and straddled with the dysfunctional euro, that society will continue to pay the cost of that reality.
The euro crisis was a great opportunity to throw out the euro in favour of something that could create wealth, rather than debt. As the fiat currencies continue to slide downhill, globalist are preparing their solution behind closed doors.
Enter the Cashless Currency…
It’s arguable that we approaching the cusp of that US Dollar collapse, and perhaps a Euro implosion on the back end of it. Risks of hyper inflation are very real here, but if you control the money supply might already have a ready-made solution waiting in the wings, you will not be worrying about the rift, only waiting for the chaos to ensue so as to maximise your own booty from the crisis.
Many believed that the global currency would be the SDR unit, akaSpecial Drawing Rights, implemented in 2001 as a supplementary foreign exchange reserve asset maintained by the International Monetary Fund (IMF). SDRs were not considered a full-fledged currency, but rather a claim to currency held by IMF member countries for which they may be exchanged for dollars, euros, yen or other central bankers’ fiat notes.
With the SDR confined to the upper tier of the international money launderette, a new product is still needed to dovetail with designs of a global cashless society.
Among the many worries Ben Bernanke listed in his speech at the New York Economic Club last week was the emergence of Bitcoin. But don’t believe for a second that these digital parallel currencies are not being watched over and even steered by the money masters. Couple this latest trend with done deals by most of the world’s largest mobile networks this month to allow people to pay via a mobile ‘wallet’, and you now have the initial enabler for a new global electronic currency.
These new parallel cashless currencies could very quickly end up in pole position for supremacy when the old fiat notes fade away as a result of the next planned economic dollar and euro crisis.
Both Bitcoin and Ven appear on their surface to be independent parallel digital money systems, but the reality is much different. In April 2011, Ven announced the first commodity trade priced in Ven for gold production between Europe and South America. Both of these so-called ‘digital alternatives’ are being backed and promoted through some of the world’s biggest and most long-standing corporate dynasties, including Rothschild owned Reuters as an example, which should be of interest to any activist who believes that a digitally controlled global currency is a dangerous path to tread down.
The Electronic Deutsche Mark
Much is made of Germany’s prominent financial position within the EU, with a popular talking point being that, “Germany is carrying the majority of the load in ‘bailing out’ countries such as Greece in the south”. If the Euro is ‘heading south’ as many a financial commentator are claiming, then how would a country like Germany – or even the US Federal Reserve for that matter, hedge their bets with an impending currency collapse looming just over the horizon?
Economics professor Miles Kimball from the University of Michigan thinks he knows the answer:
“In short, for a smooth transition, a reintroduced mark needs to be an electronic mark. I recently made the case for the electronic dollar in a previous Quartz column, “E-Money: How paper currency is holding the US recovery back.” The trouble with paper money is that the rate of interest people earn on holding paper money puts a floor on the interest rate they are willing to accept in doing any other lending. For the US, I proposed making the electronic dollar the “unit of account” or economic yardstick for prices and other economic values, and having the Federal Reserve control the exchange rate between electronic dollars and paper dollars to make paper dollars gradually fall in value relative to electronic dollars during periods of time when the Fed wants room to make the interest rate negative.
In the case of Germany, there would be no need to reintroduce a paper mark along with the electronic mark, since the euro itself could continue in its current role as a “medium of exchange” for making purchases in Germany, alongside the electronic mark. A “crawling peg” exchange rate could be used to let the electronic mark gradually go up in value relative to the euro, without causing a huge rush into the mark, since with no paper mark other than the euro itself, interest rates in Germany could be close to zero when measured in euros, which would make them strongly negative in terms of marks.”
A dollar or euro crash could be the perfect storm for the introduction of a major global digital currencies, and this will do nothing but fast-track our entry into the new cashless society.
This past year’s Summer Olympic was a beta testing exercise for a number of new programs. We witnessed troops deployed en mass for the first time to marshal the international sporting event and new facial recognition technology tested to monitor its attendees. One of the chief sponsors of London 2012 Olympic was VISA, used the event as a springboard to launch its new ‘contactless payment’ technology, acclimatising the international public to making routine payments via smartphones. VISA now predicts that this new method will carry 50 per cent of its transaction volume by the year 2020.
Mastercard has also rolled out its own version called Paypass, andBarclaycard has already implemented its own mobile phone payment chip in 2011. It conceivable here, that a bank like Barclays could one day takeover a major mobile service provider in order to streamline the endless profits it could accrue from monopolising cashless payment facilities for its customers. A recent edition of Marketing Week further explains how this is program is being rolled out:
“Barclays launched Pingit this year, a mobile payment service that allows customers to send and receive money with a mobile phone number, which has sparked The Payments Council to work on a similar project. And the three leading mobile operators in the UK – EE, Vodafone and O2 – are working on a joint project under the name Weve, one of the aims of which is to develop standardised technology for ‘digital wallets’ on mobile.
These industry innovations reflect the changing attitude and behaviour by consumers to cashless payments. Barry Clark, account director at Future Foundation, which identified the trend towards a cashless society in its recent report into the changing face of payments, explains that this move towards digital is a “banking nirvana” for brands, since replacing cash with electronic payments takes high costs out of the system.”
These mobile enablers will effectively cover the small services and contractor’s market for the cashless society. In addition, digital payment terminals like iZettle and Square (created by Twitter co-founder Jack Dorsey), have brought in most small traders, including taxi drivers, plumbers etc, and street side retailers – meaning that the barrier for entry into the new cashless society has been effectively dissolved.
The Socialist ‘Oyster’
The darker aspect of a cashless society, is one which few are debating or discussing, but is actually the most pivotal in terms of scial engineering and transforming communities and societies. In London, the electronic touch payment Oyster Cardwas introduced in 2003, initially for public transport, and since that time the card has been co-opted to be used for other functions, as the UK beta tests the idea of an all-in-one cashless lifestyle solution.
Ironically, and alongside biometric chipping now in India, it’s the United States, supposedly the birthplace of modern capitalism, who is beta testing its own socialist technocracy. As the ranks of the poor and unemployed grow and dollar inflation rises in America, more and more people are dependent on traditional ‘Food Stamp’entitlements in order to feed their families. The US has now introduced its own socialist ‘Oyster’ to replace the old Food Stamp program. It’s called the ‘EBT’, which stands for “Electronic Benefit Transfer“, as a means of transferring money from the central government to people living below the poverty line. Advocate Mike Adams for Natural News describes it another way:
“EBT benefits have more than doubled during the Obama administration’s last four years, creating tens of millions of new dependents who now vote based almost entirely on who gives them the most handouts.
The purchase of vitamins is specifically prohibited by the EBT program. This is done as a way to keep EBT recipients sick and diseased while suffering from nutritional deficiencies, which is precisely what the federal government wants.
EBT cards create high-profit handouts to corporations, too: Pharmaceutical companies and the sick-care industry; Big Government which gets re-elected based on entitlement handouts; global banks which earn a percentage off every swipe; and even the processed junk food industry which preys upon nutritional ignorance of the poor.
In fact, for every dollar’s worth of food handed out to EBT recipients under the program, at least 50 cents is driven right into the profit coffers of wealthy corporations.”
Adams has pointed out the endgame here. Where collectivist technocrats are concerned, a global digital currency is not only a means for a centrally controlled economy, but also a centrally controlled society. And as Adams also pointed out, they can even control what you eat.
There’s also the small matter of the Verichip, or ‘class 2′ implantable medical devise, an RFID chip already set to be implemented through Obamacare. It will transmit medical records, bank accounts, keyless entry and much more. The technology could be a $100 Trillion industry over the coming decade.
Bottom line: We’ve got a big problem when the state can – and will cut-off your electronic financial lifeline should you fall foul of the system. No negotiations, no gray areas – and definitely no place for a free individual in this type of globalist system.
Social Networks Gradually Supplanting Real Communities
In 2011 Facebook launched its own virtual currency, which was taken up immediately by the games developer industry. Facebook created it’s own internal digital market overnight. If customers didn’t like it, they had two choices – jump ship, or stay in the biggest market place. That’s a lot of power to wield, and you can wield it if you have the big numbers.
A severe lack of choice in the world of online communities has unwittingly(or not) positioned Facebook to play the roles of not only data collector, but also as banker, retailer, archivist and governor.
As 2012 comes to a close, many people have certainly become, in one way or another, sans border citizens of the Facebook Nation. In the future, one corporation or cartel’s success in capturing a near global monopoly of membership to a particular online platform might give it the ability to dictate a digital economic mandate to both producers and consumer.
The digital data industry now claims in a recent study byfast.MAP, that consumer confidence in sharing personal information has risen. But the reality is that most people do not know which data is being used and to who it is being shared or sold to. Most users are unknowingly trading “access” to networks, as well convenient speed of registration – for data privacy. We do this on a daily basis now.
It’s a question of speculation at this point how deeply the new digital currencies will be integrated into social networking giants like Facebook, or Second Life - where users are already buying virtual property with virtual currency, but few can deny that the potential for consolidation in the early 21st century is already there.
History Will Repeat Itself
Whenever the status quo is seen as a failure, the architects of society will rarely allow the whole show to come to a grinding halt, for fear that new and non-centrally controlled organic systems of organisation will emerge. The ruling establishment will spare no opportunity to tell society this, over and over, making people truly believe that it is in their best interest to adopt whatever alternative is handed down to them. This is why, when faced with a crisis, society will almost always seek to implement a parallel alternatives, rather than rethink the whole system.
In 2008, the public had an opportunity to collapse the predatory banking system that has been trading insolvent and gambling on thin air. But the very same ruling establishment who engineered the crisis to begin with, masterfully presented their own solution as the remedy by establishing the precedent of the state bailing out any gambling losses incurred by the banking community.
In the end society relented, and with help of pro-banking political leadership on both sides of the Atlantic, they adopted the pre-packaged belief that a cluster of bloated and corrupt financial institutions were simply too big to fail. Aside from being a massive redistribution of wealth upwards into the hands of the speculative elite classes, this was merely a test by the establishment to see how far they could go in robbing the public, pushing up inflation, hoovering up real assets, robbing pension funds and enslaving taxpayers to generations of debt the bankers created – all in one swoop.
It has long been the dream of collectivists and technocratic elites to eliminate the semi-unregulated cash economy and black markets in order to maximise taxation and to fully control markets. If the cashless society is ushered in, they will have near complete control over the lives of individual people.
The financial collapse which began in 2007-2008 was merely the opening gambit of the elite criminal class, a mere warm-up for things to come. With the next collapse we may see a centrally controlled global digital currency gaining its final foothold.
The cashless society is already here. The question now is – how far will society allow it to penetrate and completely control each and every aspect of their day to day lives?
Source: Patrick Henningsen | 21stCenturyWire
Almost a year has passed since we last took note of Turkey’s increasing clout in three key areas of neo-Ottoman expansion: the Balkans, the Arab world, and the predominantly Muslim regions of the former Soviet Union. Each has played a significant part in reshaping the geopolitics of the Greater Middle East over the past decade. This complex project, which remains under-reported in the Western media and denied or ignored by policy-makers in Washington, is going well for Prime Minister Rejep Tayyip Erdoğan and his AKP (Justice and Development Party).
On the external front, Ankara’s decision to support the uprising against Bashar al-Assad’s regime in Syria has changed the equation in the region. Until last spring, Erdoğan’s team was advising Bashar to follow the path of political and economic reform in order to avoid descent into violent anarchy. Within months, however, Turkey has become a key player in Washington’s regime-change strategy by not only providing operational bases and supply channels to the rebels, but by simultaneously confronting Iran over Syria. The war of words between them is escalating. Earlier this week, Iranian Chief of Staff General Hassan Firousabadi accused Turkey of assisting the “war-waging goals of America. The AKP government has reinforced Turkey’s old position as a key U.S. regional partner. It is skillfully pursuing its distinct regional objectives, which in the long run are bound to collide with those of the U.S., while appearing to act at the behest of Washington and revamping its Cold War role as a reliable NATO-“Western” outpost in the region.
This newly gained credit has enabled Erdoğan to make a series of problematic moves with impunity, the most notable being Turkey’s growing support for Hamas in the Palestinian Authority and its treatment of Iraq as a state with de facto limited sovereignty. In a highly publicized symbolic gesture, on July 24 Erdoğan met Hamas leader Khaled Mashaal at his official residence to break the daily fast during the holy Muslim month of Ramadan. Ties between Turkey and Hamas, which rules the Gaza Strip, have blossomed since Turkey’s alliance with Israel collapsed following a raid by Israeli troops on a Turkish aid ship bound for Gaza in 2010. At the same time, Ankara’s links with the more moderate Fatah movement, which rules the West Bank, are at a standstill; Turkey wants Hamas to prevail in the Palestinian power struggle.
In northern Iraq, Turkey has developed close relations with the Kurdish leadership in Kirkuk. It has made significant investments in the autonomous Iraqi Kurdish region as a means of exerting political influence and thus preempting demands for full independence, which could have serious implications for the Kurdish minority in eastern Turkey. In an audacious display of assertiveness, Turkish Foreign Minister Ahmet Davutoglu visited the Kurdish-ruled northern Iraq earlier this month without notifying the government in Baghdad, let alone seeking its approval. Turning the putative Kurdish statelet in Iraq into its client is a major coup for the government in Ankara. The partnership is based on the common interest of denying the Marxist PKK guerrillas a foothold on either side of the border. In a joint statement, Turkey and Iraqi Kurdistan warned the PKK that they would act jointly to counter any attempt to exploit the power vacuum in Syria. Another far-reaching albeit unstated common goal is to provide Iraq’s Kurds with a potential northwestern route for their oil and gas exports, which Al Maliki’s central government would not be able to control. The net effect is likely to be further weakening of an already unstable Iraq in the aftermath of U.S. withdrawal; yet Washington appears unperturbed by Turkey’s gambit. It is apparently unaware of the fact that, in Ankara’s worldview, “nothing can stand in the way of its dream of becoming the ultimate energy bridge between East and West.”
The Obama Administration has been equally indifferent to Prime Minister Erdoğan’s trouble-making in the Balkans. Most recently, his provocative statement last month that Bosnia and Herzegovina is in the “care” of his country has caused no reaction in Washington. “Bosnia and Herzegovina is entrusted to us,” stated Erdoğan during a meeting of Justice and Development Party (AK Party) provincial heads held in Ankara on July 11,recalling the alleged statement of the late Bosnian Muslim leader, Alija Izetbegović, whom Erdoğan visited on his deathbed in Sarajevo. “He whispered in my ear these phrases: ‘Bosnia is entrusted to you [Turkey]. These places are what remain of the Ottoman Empire’,” said Erdoğan. He went on to describe Izetbegović as “a legendary hero and captain,” and to declare that Turkey would “put this trust in God with high precision.”
The notion of Bosnia and Herzegovina being given as a ‘trust’ to Turkey in the name of its Ottoman legacy reflects an earlier statement by the outgoing leader of the Islamic community in Bosnia, Efendi Mustafa Cerić, who told Erdoğan that “Turkey is our Mother. That’s how it was always, and it will remain like that.” Erdoğan’s latest outburst was immediately welcomed by the leader of the biggest Muslim party in Bosnia and Herzegovina, Sulejman Tihić.
The notion that Bosnia has been bequeathed by its fundamentalist Muslim leader to the Turkish state is unsurprisingly anathema to the non-Muslim majority of Bosnia’s citizens. “Bosnia and Herzegovina is not a land to be inherited,” said Igor Radojičić, the Bosnian Serb Parliament speaker. Bosnian Croat leader Dragan Čović expressed puzzlement that Izetbegović could imagine Bosnia was his to give away as a trust. Analysts outside Bosnia also expressed outrage. Serbian historian Čedomir Antić, called the statement “an unprecedented provocation” that should be “officially renounced by Bosnia, Croatia and Serbia”. Professor Darko Tanasković, Serbia’s former ambassador to Turkey, was not surprised, however. The statement represents a political reality, he said, that Turkey sees the Balkans as a priority in its ambitious foreign policy.
Three months earlier the leader of the Islamic Community in Montenegro (Islamska zajednica Crne Gore, IZCG),Reis Rifat Fejzić, signed an agreement with the authorities in Podgorica on the status of the Muslim minority there. The Agreement stipulates that any disputes within the Islamic Community will be referred for arbitration to the Directorate of Religious Affairs of the Turkish Republic (Diyanet İşleri Başkanlığı). This is a remarkable development: the Republic of Montegnegro—a sovereign, non-Muslim Balkan state—has formally granted decision-making powers in matters affecting some of its citizens to an institution of another sovereign and nominally still secular state. Imam Fejzić’s explanation added an interesting twist to the story. Some disputes among Roman Catholics are referred to the Vatican, he said, so it is normal for Muslim disputes to be referred to Ankara. In other words, the Turkish state is to assume the role of an Islamic Vatican for the Muslim millets of the former Ottoman Empire. The Montenegrin precedent is the model Ankara will seek to apply elsewhere. Turkish politicians have already taken an active role in mediating between the rival factions of the Muslim religious and political establishment in Serbia’s Sanjak region.
The U.S. is sympathetic to Turkey’s Balkan ambitions not only because they seem to fit in with a Western strategy of long standing, but also because Turkey is seen as a counterweight to Iran’s influence in the region. As John Schindler, the author of the seminal book Unholy Terror pointed out recently, the close relationship between leading circles in Sarajevo and Tehran harks back to before the Bosnian war. During the war the Clinton Administration aided and abetted Iranian deliveries of arms to the Bosnian Muslim side, and the SDA has always had a soft spot for Tehran. Now, however, with a potential war with Iran looming, Schindler says,the U.S. and its European allies, who have done so much to help the Bosnian Muslims for a generation, have had enough. As reported by the Sarajevo daily Dnevni avaz, last week Patrick Moon and Nigel Casey, the American and British ambassadors to BiH, jointly read the riot act to Sadik Ahmetović, the country’s powerful security minister, telling him that the SDA and Sarajevo must sever their secret ties—espionage, political, financial—with Tehran:
Sarajevo officially has been given a warning to reset its course in a European and Western direction as war with Iran looms. Hard decisions will have to be made by the SDA. They have been repeatedly deferred for nearly two decades but can be avoided no longer. If the Bosnian Muslims opt to stick with Iran as tensions rise, the ramifications for them and all Europe may be dire indeed.
Bosnia’s Muslims, ever mindful of the need for foreign support in their disputes with the country’s Serbs and Croats, will likely opt for even closer links with Ankara to compensate for an eventual weakening of the Iranian connection —and they will do so with Washington’s approval. Yet again Turkey will strengthen its position in the Balkans while relying on the Western powers to do its field work.
At home, the parallel process of re-Islamization of the Turkish state and society is well-nigh-irreversible. The Army has been decisively neutralized as a political factor. Last February, Erdogan declared that it is not the goal of the AKP government to raise atheist generations, and he certainly has been true to his word. Earlier this month, Turkey’s Board of Higher Education appointed Islamic scholar Suleyman Necati Akcesme as its secretary-general. His duties will include appointing professors and rectors, as well as overseeing universities. Akcesme will occupy a position of direct influence over Turkey’s higher education —unimaginable for an imam in the old Kemalist setup. The influence of the shadowy Gülen Movement, a fundamentalist sect calling for a New Islamic Age based on the “Turkish-Islamic Synthesis,” is becoming all-pervasive, with rich businessmen and senior civil servants donating an average of 10 percent of their income to the cemaat. According to the August 8 issue of Der Spiegel,
Gülen’s influence in Turkey was enhanced when … the AKP won the Turkish parliamentary election in 2002. Observers believe that the two camps entered into a strategic partnership at first, with Gülen providing the AKP with votes while Erdogan protected the cemaat. According to information obtained by US diplomats, almost a fifth of the AKP’s members of parliament were members of the Gülen movement in 2004, including the justice and culture ministers. Many civil servants act at the behest of the “Gülen brothers,” says a former senior member… In 2006, former police chief Adil Serdar Sacan estimated that the Fethullahcis held more than 80 percent of senior positions in the Turkish police force . . .
Sharia-inspired legislation is affecting the society at large. Turkey’s recent laws and taxes on alcohol sales are more rigorous than those in Egypt or Tunisia before last year’s revolutions. Employers are now authorized to fire any employer who comes to work having had a drink, as opposed to being drunk. Having a single glass of raki, wine or beer with lunch—perfectly common in the business community until a few months ago—may now abruptly end a career. More troublingly, Turkey now leads the world in “honor killings” of girls, with a murder rate five times that of Pakistan. As Turkish affairs expert Barry Rubin has noted, many Turks are astounded by Obama’s policy of favoring the current regime in Ankara: “the regime has thrown hundreds of people in prison without trial or evidence… and it is turning Turkey into a repressive police state,” yet the Department of State and the White House remain indifferent. Turkey’s secularists feel abandoned and betrayed.
Turkey’s shift from Kemalism via post-Kemalism to anti-Kemalism is a process of historic significance for the Greater Middle East. In 2005 senior State Department official Daniel Fried declared, absurdly, that Erdoğan’s AKP was simply the Islamic equivalent of a West European Christian Democratic party and that Turkey remains a staunch ally of the United States. The diagnosis was evidently mistaken seven years ago. Today it amounts to an unforgivable act of willful self-deception.
In the meantime Secretary of State Hillary Clinton prepares for discussions in Istanbul on August 11 that will focus on forming a “common operational picture” with the Turks “to guide a democratic transition in post-Assad Syria.”
In Negative Territory…
“Every major part of the global economy is slowing, and slowing rapidly….Right now, we seem to be in a synchronized global slowdown, and that is very worrisome.” – Mohamed El-Erian, Pimco.
Growing troubles in the eurozone, a slowdown in China and a jobs report that was weaker than the most-pessimistic forecast, sent stocks plunging on Friday. The Dow Jones Industrial Average lost 275 points on the day while the S&P 500 and the NASDAQ followed the DJIA into the red. All the gains of 2012 have now been erased leaving all the major indices in negative territory.
The global selloff was preceded on Thursday by a revision of first quarter GDP which was slashed from 2.2 percent to 1.9 percent. The US economy is neither growing nor adding jobs. The signs of stagnation–which have spread from manufacturing, to consumer confidence, to GDP, and now to jobs– has ended all talk of a “recovery” and dampened Obama’s prospects for re-election in November.
Payrolls increased by just 69,000 in May, far below the 150,000 that analysts had expected. The unemployment rate rose to 8.2 percent from 8.1 percent while revised estimates show that fewer jobs were created in the last 3 months than originally stated. The grim report suggests that the Obama economic recovery has run out of steam just as many economists had predicted. Obama’s unwillingness to follow the advice of top economics advisor, Christina Romer–who recommended a $1.8 trillion stimulus package, instead of the $787 billion that the administration settled on–has probably cost him the election. Obama’s future depends on the condition of the economy, and the economy stinks.
In Europe, troubles in Spain and Greece have touched-off a bank run that’s pushed yields on risk-free assets, like US Treasuries and German bund, to record lows. The German 2-year bund (Schatz) dipped into negative territory on Friday while yields on the benchmark 10-year Treasury declined to 1.44 percent. The yield on the Swiss 10-year has plunged to an astonishing 0.48% is “the lowest ever recorded anywhere.”
Jittery investors are now lending money to the US and German governments’ knowing they’ll get less back in return. (in inflation adjusted terms.) This is the very definition of panic. And their fear is not without foundation, after all, Europe’s wholesale funding market is broken, Spain’s banking system is undercapitalized and teetering, the bank runs are intensifying, and policymakers are unable to agree on a course of action. Political paralysis has made a bad situation worse. Here’s a chart that shows the amount of liquidity the ECB has given to Greece, Spain and Italy via the Target2 program. Target fill the hole that’s been created by capital flight. This is what a modern-day bank run looks like.
The European Commission and the ECB have been unable to stop the bank runs because there is no euro-wide deposit insurance. So, when depositors begin to doubt their country’s future in the EZ, they withdraw their savings and move it to a safer location, like Germany. Here’s more from Reuters:
“Spaniards alarmed by the dire state of their banks moved money abroad in March at a faster rate than at any time since records began in 1990, official figures showed.
The 66.2 billion euros net capital flight occurred before the nationalisation of Spain’s fourth biggest lender, Bankia in May due to massive losses from a burst property bubble….
The European Central Bank stepped up pressure on Thursday for a joint guarantee on bank deposits across the euro zone, saying Europe needed new tools to fight bank runs as the bloc’s debt crisis drives investors to flee risk.” (Reuters)
The eurozone is not sufficiently integrated, fiscally or politically, to deal with the problems it now faces. It does not have a centralized bond market that collectivizes the debts of the member states in order to keep borrowing costs low. Nor is there a mechanism for fiscal transfers to help level the playing field so that account imbalances do not become unmanageable and destructive. EZ managers have rejected the traditional methods for integration and, instead, settled on punitive austerity measures that are designed to purge large deficits through internal devaluation. The process has created record unemployment, severe recession, and widespread social unrest. Still, Brussels persists with the same policy ignoring the fact that it has only deepened the crisis.
The EZ troubles are not difficult to grasp or remedy, in fact, former economic advisor to Barack Obama, Austan Goolsbee explained the problem in an article in Thursday’s Wall Street Journal. Here’s an excerpt:
“At root, the euro-zone problem remains the locking together of very different economies into a monetary union without a way to adjust….Normally, exchange-rate adjustments would reduce this gap…. But without an exchange-rate safety valve you need an alternate way to rebalance economies. Moving, inflating, struggling, or subsidizing are your only choices…(Either) Southern Europe can struggle through the problem—grinding down wages through high unemployment and structural labor-market reforms ….(or) Northern Europe could decide…, that it is willing to permanently subsidize euro-zone countries with low productivity growth. That could be through explicit subsidies or through bailouts and broad-based guarantees.” –A Fiscal Union Won’t Fix the Euro Crisis –The only practical choices are more geographic mobility, inflation, or subsidies” Austan Goolsbee, Wall Street Journal)
There it is in a nutshell. The problem is not particularly hard to understand or to fix, but if it’s ignored or if deficit zealots (like Angela Merkel) feel as though they can apply their own nonsensical remedies (austerity), then the bank runs will gain pace, a wider panic will ensue, and the monetary union will be torn apart, which is what’s happening now.
Goolsbee’s article also provides an interesting breakdown of how fiscal transfers work in the US:
“Last year, the Economist compiled census data from 1990 to 2009 for all 50 U.S. states on the amount of federal spending in each state minus the amount the state’s residents pay in federal taxes. Over 20 years, states like Minnesota and Delaware annually paid in about 10% more of their state GDP than they got back. On the other side, for the last 20 years New Mexico, Mississippi and West Virginia have received annual subsidies of more than 12% of state GDP. While not a perfect measure of subsidy, it conveys the basic point well. These are big. Greece’s entire 2011 deficit, for example, was 9.1% of GDP.”
The reason the US is able to successfully use one currency–despite the fact that some states are more productive and competitive than others– is because the weaker states are subsidized via Pentagon contracts, unemployment benefits, federal infrastructure programs, food stamps etc. These “fiscal transfers” are necessary to make the US-currency union work. The same rule applies to Europe, but EU leaders reject the idea saying that fiscal transfers are tantamount to “financing other governments” which is banned under the Stability and Growth Pact. This is idiocy in the extreme. The fact is, economists and experts have repeatedly explained what needs to be done to make the EZ a viable currency union, but EZ leaders refuse to make the changes. Their obstinance has thrust the 17-member monetary union to brink of annihilation.
In China, the evidence of a slowdown is also beginning to mount. The recession in the eurozone has taken a toll on Chinese exports which has hurt manufacturing and retail sales. (China’s PMI slipped to 50.4 from 53.3 a month earlier.) As the slump in the eurozone deepens, China’s economy will cool even more forcing policymakers to lower reserve requirements while boosting stimulus to increase investment by the state-owned enterprises. The recent signs of capital flight from China has experts worried that the boom-times may be over and that China may be headed for a hard landing. Here’s a clip from economist Tim Duy on the topic:
“…the exodus of cash could indicate that the Chinese story is coming to a close – and that will have significant consequences for the global economy. It is another signal that emerging markets will not be supporting global demand anytime soon. I think .. this story is slipping under the radar while we all have our eyes focused on the farce in Europe. But it could be the real game changer in the global economy.” (“Capital flees China”, Tim Duy, economists view)
China’s industrial production and electricity use are falling fast, while the number of non-performing loans has ballooned to new highs in the last year. Efforts to stimulate the economy have also fallen short as businesses continue to reduce their borrowing to see if demand picks up later in the year. New bank loans have dropped 8% y-o-y, while consumer credit has slowed to a trickle. Here’s more from the Wall Street Journal:
“The lack of confidence is due to the overhang from the last blowout. All of that investment in industrial capacity and real estate is now coming on line. Companies and local governments are finding it difficult to make their new assets generate enough revenue to service the debt. Inventories are piling up, and China is seeing capital flight for the first time in decades….
The worry is that China has gone more than a decade without a painful slowdown. During that time, the government held down interest rates at artificially low levels to encourage investment. Such conditions often precede particularly long and painful contractions.” (“China Is Stimulused Out”, Wall Street Journal)
China, the US, and the eurozone are all running out of gas at the same time. If shares continue to tumble as they have in May, the Federal Reserve will resume its Quantitative Easing (QE3) program to prop up stock prices. But liquidity injections alone will not provide the jolt the real economy needs to increase activity, add jobs or grow. Absent another round of fiscal stimulus, the economy will continue to drift sideways or dip back into recession.
Why isn’t the U.S. economy in a depression right now? The number one reason is because the federal government has stolen more than five trillion dollars from future generations since Barack Obama was elected and has used that money to pump up our grossly inflated standard of living. Whether the federal government spends money wisely or foolishly, the truth is that the vast majority of it still ends up in the pockets of the American people who then use it to buy the things they need for their daily lives. If the U.S. government had not borrowed and spent an extra five trillion dollars that we did not have over the past several years, we would be in the middle of a rip-roaring economic depression right now. So any talk that Barack Obama is “improving the economy” is a total farce. It is a five trillion dollar lie. The reality is that Barack Obama and the U.S. Congress have been stealing trillions of dollars from future generations in order to make things tolerable in the present. If the federal government adopted a balanced budget next year, the debt-fueled prosperity that we are currently enjoying would start disappearing very rapidly and all hell would break loose in America.
At this point, the U.S. national debt is over 15.7 trillion dollars.
When Ronald Reagan took office it was less than a trillion dollars.
If you were to divide the national debt up equally, it would come to more than $50,000 for every man, woman and child in the United States.
So the share of the national debt for an average family of four would be about $200,000.
When the government borrows and spends money that it does not have, that increases the amount of dollars in circulation and it causes GDP to go up.
That is one of the reasons why our politicians like to borrow and spend money that we do not have. It makes the economic statistics look good. They can point to those economic statistics as a reason to send them back for another term.
This is a major flaw in our system. Most of our politicians do not care about how they are raping future generations financially. Most of them just care about getting elected again.
If you will notice carefully, neither Mitt Romney nor Barack Obama are promising to balance the budget any time soon. Like so many politicians in the past, they promise to do it “eventually”, but “eventually” never arrives.
According to a recent article in the Washington Times, Mitt Romney declared during a recent campaign appearance that he has no plans to balance the federal budget in his first year….
“My job is to get America back on track to have a balanced budget. Now I’m not going to cut $1 trillion in the first year”
Why would he say that?
Why wouldn’t he want to balance the budget?
He went on to explain that….
“The reason,” he explained, “is taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink [and] would put a lot of people out of work.”
Romney is right about this. Taking a trillion dollars out of a 15 trillion dollar economy would plunge us into an economic nightmare.
And that would make him look bad.
Of course if Obama wins the election we can just expect more of the same from him as well.
For example, just check out what White House Chief of Staff Jack Lew had to say about balancing the budget recently….
“The time for austerity is not today,” Lew told NBC News “Meet the Press.” “If we were to put in austerity measures right now, it would take the economy in the wrong way.”
Why is the time for austerity not today?
It is because the 2012 election is coming up and Obama wants the economic statistics to look good.
But can you blame our politicians for being cowardly?
Just look at what is happening in Greece. After several years of austerity they are in the midst of a full-blown economic depression and they still have not balanced their budget.
Do we want to end up like Greece?
Most Americans do not realize this, but the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.
So why haven’t we collapsed yet?
Well, because we continue to borrow larger and larger amounts of money.
It took from the founding of America until 1995 for the federal government to accumulate 5 trillion dollars of debt.
Under Obama, we have accumulated more than 5 trillion dollars of new debt in just over 3 years.
Amazingly, Obama has added more to the national debt than George W. Bush did during his entire 8 year term.
And let there be no mistake – George W. Bush was a wild spender. A fiscal conservative he most certainly was not.
But Barack Obama does not seem troubled by any of this.
Barack Obama is prancing about the countryside touting his great “economic plan”, but the truth is that the only reason the economy has not totally collapsed is because he is stealing 150 million dollars an hour from our children and our grandchildren.
Sadly, most Americans don’t understand that the current level of prosperity that we are enjoying is a grand illusion. Most Americans still expect things to return to the way that they used to be, and they are increasingly becoming angry that it is taking so long to get back there.
In fact, a whole host of recent surveys have shown that Americans are very dissatisfied with the direction the economy is heading in….
Four recent surveys have found that on average only 28% of Americans are satisfied with the condition of the country, while 70% are dissatisfied. Three recent surveys have found that between 69% and 83% of Americans believe that the country is still in recession (it isn’t), and only half believe that a recovery is under way.
What they don’t realize is that if we were not massively ripping off our kids and our grandkids things would be much, much worse.
Thomas Jefferson understood that government borrowing is essentially the same as theft from future generations.
He once made the following statement….
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
What we are doing to our children and our grandchildren is so immoral that it is hard to put into words.
We are running up trillions upon trillions of dollars of debt in their name just so that our lives can be more comfortable right now.
How could we be so selfish?
The sad thing is that even with all of this reckless spending our economy is still not in great shape.
-Today, approximately 48 percent of all Americans are currently either considered to be “low income” or are living in poverty.
-Back in 1960, social welfare benefits made up approximately 10 percent of all salaries and wages. In the year 2000, social welfare benefits made up approximately 21 percent of all salaries and wages. Today, social welfare benefits make up approximately 35 percent of all salaries and wages.
-The United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.
-Every year now, we see millions of Americans fall out of the middle class. In 2010, 2.6 million more Americansdescended into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959.
-At this point, approximately 22 percent of all American children are living in poverty.
-When Barack Obama took office, there were 32 million Americans on food stamps. Now, there are more than 46 million Americans on food stamps.
So how much worse would things be if a trillion dollars of federal spending was suddenly removed from the economy?
Are you starting to get the picture?
As bad as things are right now, they are about to get a whole lot worse.
So why can’t we just keep on borrowing and spending forever?
Well, just like Greece found out, debt always catches up with you eventually.
During fiscal 2011, the U.S. government spent over 454 billion dollars just on interest on the national debt.
But just like we are seeing in Europe, if confidence in U.S. government debt starts to disappear the U.S. government could end up facing much higher interest rates to borrow money.
If the average rate on U.S. government debt only rose to 7 percent (in the past it has actually been much higher than that), then the U.S. government would be spending about 1.1 trillion dollars a year just on interest on the national debt.
So if we were spending 1.1 trillion dollars just on interest, that would be close to half of all the revenue the federal government brings in.
Right now, the Federal Reserve is manipulating the system in a desperate attempt to keep interest rates down. During 2011, the Federal Reserve bought up approximately 61 percent of all government debt issued by the U.S. Treasury Department.
But most Americans have no idea how fragile our financial system is.
Most Americans just assume that we will always be the greatest economy on the planet and that there is nothing to be worried about.
Sadly, one way or another this debt bubble is going to burst and then our debt-fueled false prosperity is going to disappear.
Most Americans are not going to understand what is happening and they are going to go absolutely nuts.
Source: The Economic Collapse
After being immersed in the world of alternative economic analysis for several years, it sometimes becomes easy to forget that most people do not track forex markets, or debt to GDP ratio, or true unemployment, or hunch over IMF white-papers highlighting subsections which expose the trappings of the globalist ideology. Sometimes, you just assume the average person knows what the heck you are talking about. This is, of course, a mistake. However, it is a mistake that is borne from the inadequacy of our age and our culture, and is not necessarily a product of weak character, either of the analyst, or the casual reader.
The great frustration of being actively involved in the Liberty Movement is the fact that many people are rarely on the same page (or even the same book) during political and economic discussion. Where we see the nature of the false left/right paradigm, they see “free democracy”. Where we see a tidal wave of destructive debt, they see a “responsible government” printing and spending in order to protect our “best interests”. Where we see totalitarianism, they see “safety”. Where we see dollar devaluation, they see dollar strength and longevity. Ultimately, because the average unaware citizen is stricken by the disease of normalcy bias and living within the doldrums of a statistical fantasy world, they simply have no point of reference by which to grasp the truth when exposed to it. It’s like trying to explain the concept of ‘color’ to a man who has been blind since birth.
Americans in particular are prone to reactionary dismissal when exposed to facts that disrupt their misconceptions. Our culture has experienced a particularly prosperous age, not necessarily free from all trouble, but generally spared from widespread mass tragedy for a generous length of time. This tends to breed within societies an overt and unreasonable expectation of ease. It generates apathy, and laziness. A crushing blubberous slothful cynicism subservient to the establishment and the status quo. Even the most striking of truths struggle to penetrate this smoky forcefield of duplicitous funk.
In recent articles, I have outlined the very immediate dangers of several potential economic events that are likely to take place this year, including the exit of peripheral countries from the European Union, the conflict between austerity and socialist spending in France and Germany, the developing bilateral trade agreements between China and numerous other countries which cut out their reliance on the U.S. dollar, and the likelihood that the Federal Reserve will announce QE3 before the end of 2012. All of these elements are leading in one very particular direction: the end of the Greenback as the world reserve currency.
In response to these assertions I have received letters from some people (some of them indignant) questioning how it would be even remotely possible that the dollar could be replaced at all. The concept is so outside their narrow world view that many cannot fathom it.
To be sure, the question is a viable one. How could the dollar be unseated? That said, a few hours of light research would easily produce the answer, but this tends to be too much work for the fly-by-night financial skeptic. Sometimes, the job of the alternative analyst is to make the obvious even more obvious.
So, let’s begin…
The Dollar A Safe Haven?
This ongoing lunacy is based on multiple biases. For some, the dollar represents America, and a collapse of the currency would suggest a failure of the republic, and thus, a failure by them as individual Americans who live vicariously through the exploits of their government. By extension, it becomes “patriotic” to defend the dollar’s honor and deny any information that might suggest it is on a downward spiral.
Others see how the investment world clings to the dollar as a kind of panic room; a protected place where one’s saving will be insulated from crisis. However, just because a majority of day trading investors are gullible enough to overlook the Greenback’s pitfalls does not mean those dangerous weaknesses disappear.
There is only one factor that shields the dollar from implosion, and that is its position as the world reserve currency. Without this exalted status, the currency’s value vanishes. Backed by nothing but massive and unpayable debt, it sits frighteningly idle, like a time bomb, waiting for the moment of ignition.
The horrifying nature of the dollar is that it is only valuable so long as foreign investors believe that we will pay back the considerable debts that we (the American taxpayer at the behest of our criminally run Treasury) owe, and that we will not hyperinflate in the process. If they EVER begin to see their purchases of dollars and treasuries as a gamble instead of an investment, the façade falls away. Yet again this year Congress and the Executive Branch are “at odds” over the expansion of the debt ceiling, which has been raised to levels beyond the 100% of GDP mark:
Barack Obama has made claims that increases in the debt ceiling are “normal”, and that most presidents are prone to hiking the barrier every once in a while. Yet, back in 2006, when George W. Bush increased debt limits, Obama had this to say:
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills…Instead of reducing the deficit, as some people claimed, the fiscal policies of this administration and its allies in Congress will add more than $600 million in debt for each of the next five years…Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”
For once, Barack and I agree on something. Too bad the man changes his rhetoric whenever it’s to his advantage.
Today, Obama now asserts that raising the debt ceiling is not an opening for more government spending, but an allowance for the government to pay bills it has already accrued. This is disingenuous and hypocritical prattle. Obama is well aware as are many in Congress that as long as the Federal Government is able to raise the debt ceiling whenever it suits them, they can increase spending with wild abandon. It’s like handing someone a credit card with no maximum limit. For most men, the temptation would be irresistible. Therefore, one can predict with 100% certainty that U.S. spending will never truly be reduced, and that our national debt will mount in tandem until we self destruct.
How has this trend been able to continue for so long? Our private central bank has created the fiat machine by which all economic depravity is possible. Currently, the Federal Reserve is the number one holder of U.S. debt. The Federal Reserve creates its own capital. It prints its wealth from thin air. The dollar, thus, has become its own lynchpin. The secretive institution which has never been subject to a full audit is now monetizing endless debt mechanisms with paper promises. What value would any intelligent investor put on such a fraudulent economic system?
The epic dysfunction of the dollar is rooted in its reliance on perception rather than tangible wealth or strong fundamentals. It is, indeed, like any other fiat unit, with all the inevitable pitfalls built into its structure.
Ironically, the value of the Dollar Index is measured not by its intrinsic buying power, or its historical buying power, but its arbitrary buying power in comparison with other collapsing fiat currencies.
The argument I hear most often when pointing out the calamitous path of the dollar is that it is the go-to safe haven in response to the crisis in Europe. What the financially inept don’t seem to grasp is that the shifting of savings back and forth between the euro and the dollar is just as irrelevant to our currency’s survival as it is to Europe’s. BOTH currencies are in decline, and this is evident by the growing inflationary pressures on both sides of the Atlantic. Ask any consumer in Greece, Spain, France, or the UK how shelf prices have changed in the past four years, and they will say the exact same thing as any consumer in the U.S.; costs have gone way up. Therefore, it makes sense to compare the dollar’s value not to the euro, or to the Yen, but something more practical, like the dollar of the past….
In 1972, just as Nixon was removing the dollar from the last vestiges of the gold standard, a new car cost an average of $4500. A home cost around $40,000. A gallon of gas was .36 cents. A loaf of bread was .25 cents. A visit to the doctor’s office was $25. Wages were certainly lower, but they kept much better pace with the prices of the era. Today, the gap between wages and inflation is insurmountable. The average family is unable to keep up with the flashflood of rising prices.
According to the historic buying power of the dollar, the currency is a poor safe haven investment. With the advent of bailout efforts and debt monetization through quantitative easing, its devaluation has been expedited dramatically. The Fed has left the door open for what I believe will be a final destructive round of publicly announced QE, weakening the dollar to near death:
The question then arises; why do foreign countries continue to buy in on the greenback?
The Dollar Dump Has Already Begun
One of my favorite arguments by those defending the dollar is the assertion that no foreign country would dare to dump the currency because they are all too dependent on U.S. trade. To answer the question above, the reality is that foreign countries ARE already calmly and quietly dumping the dollar as a global trade instrument.
To those people who consistently claim that the dollar will never be dropped, my response is, it already has been dropped! China, in tandem with other BRIC nations, has been covertly removing the greenback as the primary trade unit through bilateral deals since 2010. First with Russia, and now with the whole of the ASEAN trading bloc and numerous other markets, including Japan. China in particular has been preparing for this eventuality since 2005, when they introduced the first Yuan denominated bonds. The bonds were considered a strange novelty back then, especially because China had so much surplus savings that it seemed outlandish for them to take on treasury debt. Today, the move makes a whole lot more sense. China and the BRIC nations today openly call for a worldwide shift away from the dollar:
With the global proliferation of the Yuan, and the conversion of the Chinese economy away from dependence on exports (especially to the West) towards a more consumer based system, the Chinese have effectively decoupled from their reliance on U.S. markets. Would a collapse in the U.S. hurt China’s economy? Yes. Would they still survive? Oh yes. Far better than America would, at least…
In 2008, I warned of this development and was attacked on all sides by more mainstream economists and Keynesian proponents who stated that such a development was impossible. Today, it’s common knowledge that our primary creditors are “diversifying” away from the dollar, though MSM talking heads and those who parrot them still claim that this is not a threat to our economy.
To be clear, the true threat to the dollar’s supremacy is not only due to the constant printing by the private Federal Reserve (though that is a nightmare in the making), but the loss of faith in our currency as a whole. The Fed does not need to throw dollars from helicopters to annihilate our currency; all they have to do is create doubt in its viability.
The bottom line? A dollar collapse is not “theory” but undeniable fact in motion at this moment, driven by concrete actions on the part of the very nations that have until recently propped up our debt obligations. It is only a matter of time before the dollar diminishes and fades away. All signs point to a loss of reserve status in the near term.
What Will Replace The Dollar?
My next favorite argument in defense of the Greenback is the assertion that there is “no currency in a position to take the dollar’s place if it falls”. First of all, this is based on a very naïve assumption that the dollar will not fall unless there is another currency to replace it. I’m not sure who made that rule up, but the dollar is perfectly able to be flushed without a replacement in the wings. Economic collapse does not follow logical guidelines or the personal pet peeves of random man-child economists.
Though, to be fair, and to educate those unaware, there IS a replacement already conveniently ready to roll forward. The IMF has for a couple of years now openly called for the retirement of the dollar as the world reserve currency, to be supplanted by the elitist organization’s very own “Special Drawing Rights” (SDR’s):
The SDR is a paper mechanism created in the early 1970’s to replace gold as the primary means of international trade between foreign governments. Today, it has morphed into a basket of currencies which is recognized by almost every country in the world and is in a prime position to take the dollar’s place in the event that it loses reserve status. This is not theory. This is cold hard reality. For those who claim that the SDR is not considered a “real currency”, they should probably warn the U.S. Post Office, which now uses conversion tables that denominate costs in SDR’s:
So, now that we know a replacement for the dollar is ready to go, the next obvious question would be:
Why would global elites destroy a useful monetary tool like the dollar? Why kill the goose that “lays the golden eggs”?
People who ask this question are simply unable to see outside the fiscal box they have been placed in. For global bankers, a paper currency is not important. It is expendable. Like a layer of snake skin; as the snake grows, it sheds the old and dawns the new.
At bottom, men who promote the philosophies of globalization greatly desire the exaltation of a global currency. The dollar, though a creation of a central bank, is still a semi-sovereign monetary unit. It is an element that is getting in the way of the application of the global currency dynamic. I find it rather convenient (at least for those who subscribe too globalism) that the dollar is now in the midst of a perfect storm of decline just as the IMF is ready to introduce its latest fiat concoction in the form of the SDR. I find the blind faith in the dollar’s lifespan to be rife with delusion. It is not a matter of opinion or desire, but a matter of fact that currencies in such tenuous positions fall, and are in the end replaced. I believe that the evidence shows that this is not random chance, but a deliberate process, leading towards the globalist ideal; total centralization of the world under an unaccountable governing body which operates a global monetary system utterly devoid of transparency and responsibility.
The dollar was a median step towards a newer and more corrupt ideal. Its time is nearly over. This is open, it is admitted, and it is being activated as you read this. The speed at which this disaster occurs is really dependent on the speed at which our government along with our central bank decides to expedite doubt. Doubt in a currency is a furious omen, costing not just investors, but an entire society. America is at the very edge of such a moment. The naysayers can scratch and bark all they like, but the financial life of a country serves no person’s emphatic hope. It burns like a fire. Left unwatched and unchecked, it grows uncontrollable and wild, until finally, there is nothing left to fuel its hunger, and it finally chokes in a haze of confusion and dread…
Source: Brandon Smith | Alt-Market
“We are being asked to take even larger doses of a medicine that has proven to be deadly and to undertake commitments that do not solve the problem, but only temporarily postpone the foretold death of our economy.” – Hieronymos II, head of Greece’s Orthodox Church
While EU banks have borrowed more than $600 billion at rock bottom rates (1 percent) for up to 3 years with no-strings-attached, eurozone finance ministers are threatening to push member-state Greece into default over a paltry 325 million euros. A German-led coalition within the Eurogroup has set a 6-day deadline for Greece to agree to additional budget cuts or the struggling country will be denied 130 billion euro loan. Absent the bailout, the Greek government will run out of money sometime in late March and default. This appears to be what many in Berlin secretly seek.
Aside from the 325 million euros of cuts, Greek coalition party leaders will also be forced to make a written commitment that the terms of the agreement will be followed whether general elections are held or not. The troika (The European Commission, the IMF, and the ECB) wants to be sure that it is repaid regardless of a change in government.
Naturally, these developments have infuriated the Greek people. It’s no longer uncommon to see German flags set ablaze at demonstrations in Athens or posters of Merkel in full Nazi regalia. This latest humiliation will only add to the seething resentment that is fueling the massive labor strikes and sporadic street violence across the country. George Karatzaferis, leader of the LAOS party, (who has already said he will oppose the additional cuts) urged other countries in the European Union to challenge what he described as Germany’s domination of the union.
“We can get by without being under the German jackboot,” Karatzaferis said in a press conference following the announcement. “Like all Greeks, I am very irritated …. by this humiliation. They have stolen our pride. I cannot tolerate this. I cannot allow it, even if I have to starve.” (“Greek coalition party to oppose austerity measures”, AP)
Greece has already withstood five consecutive years of economic contraction with no sign of improvement. Unemployment has soared to a new high of 20.9 percent, the debt-to-GDP ratio is rising, and capital continues to flee the country. All of the troika’s so-called “rescue” efforts have failed. The country remains mired in a semi-permanent slump brought on by austerity measures. Greece is in the middle of a policy-generated depression.
On Thursday, all three Greek coalition party leaders agreed to accept deeper cuts to public spending in order to win approval for 130 billion bailout. The new austerity measures are a straightforward attack on working people and retirees. As The Athens News notes, it is “the most violent devaluation of labour pay during peacetime.” The provisions include “a 22 percent cut to the minimum wage, new restraints on collective bargaining, severe cutbacks on social insurance, and a 22-40 percent cut to real wages and bonuses. Also, 150,000 public workers will be sacked, and 400 million euros will be cut from public investment programs. The social safety net is being gutted while the banks are raking in billions on the carry trade–the purchasing of high-yield government debt with money they borrowed from the ECB.
Working people and pensioners are being asked to shoulder a disproportionate amount of the burden for a crisis that was precipitated by financial elites and their political lackeys. The Troika wants Greece to cut the minimum wage to less than 600 euros a month (poverty level) and abolish holiday allowances altogether. They’re also demanding that supplementary pensions be cut by 35 percent. This same war on working people is being waged in every country hit by the crisis. The agents of big finance have replaced democratically-elected leaders in Greece and Italy and launched a full-blown assault on organized labor. Here’s an excerpt from an article by Peter Schwarz titled “The looting of the Greek working class”:
“What the financial aristocracy is doing to Greece is what they intend for the whole of Europe. A social counter-revolution is taking place which was barely conceivable a few years ago. Broad layers of the population are being condemned to poverty, unemployment, sickness and even death to secure the profit demands of the international financial aristocracy.” (“The looting of the Greek working class”, World Socialist Web Site)
Greece is also being asked to surrender its sovereignty by allowing an EU budget commissioner to oversee public spending. The new commissar will see that future tax revenues will be used to pay off foreign lenders “first and foremost” before providing money for vital social services. In the event of a national emergency, lenders and bondholders will be paid before funds are allocated to help disaster victims. This is what “greater eurozone-integration” looks like in real time.
Greece’s deep structural reforms and privatizations are supposed to “increase competitiveness and growth” and to “bring the fiscal deficit to a sustainable position”, but, of course, it’s all a pipedream. The Greek economy is in worse shape now than it was two years ago when the bailouts began. And, as Der Speigel notes, the latest bailout package “will not save the country…it will only delay a Greek insolvency — and serve to create new hardships for the country’s population…”
Here’s more from the same article:
“If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut…..
Of course, things wouldn’t stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam — in other words, a kind of Marshall Plan.” (“It’s Time To End the Greek Rescue Farce”, Speigel Online)
But EZ policymakers and central bankers don’t want “a comprehensive debt haircut”, because they’re afraid that the speculative bets made by financial institutions (CDS and sovereign bonds) may cause losses that will crash the banking system. So, they’ve put their agents in positions of power to extract as much wealth as possible from working people without precipitating a default. It’s all part of the calculation.
25 of 27 countries in the EU have also agreed to a balanced budget provision that will limit the ability of national parliaments to conduct counter-cyclical fiscal policy or reduce soaring unemployment by expanding government deficits. The so called “debt brakes”–which are strongly supported by German chancellor Angela Merkel– will lead to additional cuts in social spending and welfare while–at the same time–paving the way for deeper and more protracted recessions.
Meanwhile, the banks are held to an entirely different standard than EZ member states. Banks that are unable to procure funding via the capital markets (because no one trusts the condition of their balance sheets) are given “limitless” loans on collateral that wouldn’t fetch a bid at a flea market.
When the banks tapped into the ECB’s deep pockets for 489 billion euros in late December, they were not required to cut staff, slash bonuses, lay off workers, curtail health care or pension benefits, or appoint a budget czar to oversee how the money was spent. They were given carte blanche, even though the money they borrowed hasn’t been used to extend credit to consumers and businesses (as it was supposed to), and even though the loans merely conceal the vast losses on their stockpile of toxic bonds. This is how the ECB perpetuates the illusion of “solvency” in the eurozone. It’s all a fraud.
So, why does Greece have to grovel for $130 billion loan when the banks can just snap their fingers and get as much money as they want? And why does the IMF have one policy for Europe and another for China? This is from the Wall Street Journal:
“China should be prepared to sharply stimulate its economy if Europe’s growth falls more than anticipated, the International Monetary Fund said, adding to expectations that Beijing could turn to spending if conditions significantly worsen.
In its China economic outlook report released on Monday, the IMF urged China to run a deficit of 2% of GDP rather than looking to reduce the country’s deficit as planned, given the uncertainty in the global economy.
If Europe’s problems turned out to be worse than expected, China should hit the fiscal gas pedal harder. In that case, “China should respond with a significant fiscal package” of about 3% of GDP, the IMF said…
However, the IMF warned that Beijing should execute any fresh stimulus through its budget rather than the banking system. China used a four trillion yuan, or about $635 billion, stimulus package in 2008 to help blunt the impact of the financial crisis, in large part through bank lending.” (“IMF Urges Beijing to Prepare Stimulus”, Wall Street Journal)
So, it’s thin gruel and hairshirts for Greece, Portugal, Spain, Italy and Ireland, but lavish doses of fiscal stimulus for China? Why is that? And notice how the IMF even stipulates HOW China’s stimulus should be implemented–not through the “banking system” (monetary stimulus ala Helicopter Ben), but the old fashion way; Keynesian fiscal stimulus mainlined into the central bloodstream via the budget.
But doesn’t this just go-to-show that Troika policymakers really know that all this austerity bunkum is just nonsense?
When I first began the process of launching the Alternative Market Project, the idea and scope were rooted in analytical papers I had written years before on aspects of centralization versus decentralization, and globalization versus localization. Back then, I saw these conflicting economic systems as mutually generative. That is to say, the further we as a society are pushed towards collectivist or feudalist economic structures, the more we naturally or unconsciously gravitate towards independent and open markets. The problem today is that independent markets have been artificially and quite deliberately removed from the public view. As I have said in the past, centralization is a powerful tool for elitists, because it allows them to remove all choice from a system until the only options left to the people are those that the establishment desires. Though we deeply long for free and vibrant trade unhindered by corporate oligarchy, we are told that such a thing does not exist, and that we must make due with the corrupt ramshackle economy we have been given. I say, this is simply not so…
The great lie that drives the fiat global financial locomotive forward is the assumption that there is no other way of doing things. Many in America believe that the U.S. dollar (a paper time-bomb ready to explode) is the only currency we have at our disposal. Many believe that the corporate trickle down dynamic is the only practical method for creating jobs. Numerous others have adopted the notion that global interdependency is a natural extension of “progress”, and that anyone who dares to contradict this fallacy is an “isolationist” or “extremist”. Much of our culture has been conditioned to support and defend centralization as necessary and inevitable primarily because they have never lived under any other system. Globalism has not made the world smaller; it has made our minds smaller.
By limiting choice, we limit ingenuity and imagination. By narrowing focus, we lose sight of the much bigger picture. This is the very purpose of the feudal framework; to erase individual and sovereign strength, stifle all new or honorable philosophies, and ensure the masses remain completely reliant on the establishment for their survival, forever tied to the rotting umbilical cord of a parasitic parent government.
Perhaps the only ray of sunshine to be seen through the storm clouds of the current economic crisis is the exposure of globalism as an inherently flawed methodology. The ongoing implosion in the EU has reached a tipping point, as far as I am concerned, and the parade of absurdity involved in the unionization and “harmonization” of Europe is now center stage; its full frontal economic nudity under the hot white lights of the unforgiving financial microscope.
With the latest S&P downgrade of multiple EU nations, including France, Italy, Austria, and Spain, there can be no doubt that interdependency has led to ruin. Despite French president Nicholas Sarkozy’s insistence that the S&P downgrade “changes nothing”, the fact is, the EU has just been dealt a death blow. Higher borrowing costs tend to spark a violent cycle of credit decay in countries with extreme debt to GDP ratios. Even if France slides through the barrage relatively unscathed, smaller peripheral countries orbiting the EU will not. Greece, for instance, has just announced that talks surrounding the repayment of treasury bonds held by starry eyed investors have fallen apart:
This means that instead of the 50% “haircut” which buyers of Greek debt were already facing, markets may instead be saddled with a full-on 100% default.
Other smaller EU nations that have been propped up by the flow of funds from the European Financial Stability Facility (EFSF) may soon be in for a surprise as well. S&P has also announced a downgrade of the EFSF itself:
Only AAA rated countries have the ability to support the fund and its guarantees. After the downgrades of France and Austria, the number of AAA rated countries in the EU has dwindled to four, led by Germany. To be clear, Germany does not have the capacity to carry the EFSF and the bailouts of multiple nations upon its shoulders, leaving the fund to flounder, and eventually, self destruct.
The EU experiment is over. It may take some time for the world to recognize it, but it has indeed failed.
Across the ocean, the situation has not improved. The news of the European downgrade came right on the heals of an announcement by Barack Obama that the government must raise the U.S. national debt limit yet again, by no less than $1.2 Trillion! Sadly, the negative effects of America’s own recent credit troubles have only been subdued by the more immediate turmoil in Europe. It is simply a matter of time before attentions turn back to the frail American debt issue:
This debt limit increase should be viewed with quite a bit of vitriol by the American public, especially when one understands that a considerable amount of taxpayer dollars (the precise amount is still not fully known) went into bailout funds for the EU which are now in jeopardy of being derailed. If American taxpayers are going to foot the bill for the corruption of banks and governments, then we might as well foot the bill here at home, however, because of the sick rationale of globalism and interdependency, we are instead paying for the corruption of banks and governments across the Atlantic while our traitorous president demands even more money to be swiftly misallocated.
Madness? No. This is not madness. This is hardcore fraud, and economic subjugation. This, my friends, is financial warfare, and right now, we are losing…
While some may applaud the fall of the EU as a victory, I would recommend looking a few moves ahead of the game to see where we are really going. Yes, the EU is a perfect example of the feebleness of centralization, but it is also an expendable piece on the grand globalist chess board, just like the U.S. dollar. Already, IMF mascots like Christine Lagarde and MSM pundits have begun suggesting that the EU is failing not because of centralization, but because the union is not centralized ENOUGH! Only a few months ago, Angela Merkel of Germany obstructed the institution of EU Bonds because the move would collectivize the debts of EU members and remove elements of sovereign control. I guarantee that policies of national sovereignty like those in Germany will soon become the scapegoat for collapse of Europe in the near future.
The purpose behind a European disaster is not to break up the EU, but to consolidate power even further. Indeed, plans have already been suggested by centralists which involve a “reformation” of more powerful European nations into a tighter and more totalitarian framework. The Council On Foreign Relations, a globalist think tank and political puppeteer group, of course agrees with this plan, and has promoted the concept on numerous occasions:
The Financial Times’ Wolfgang Münchau argues that the split of the eurozone from the larger EU was inevitable and essential. The summit demonstrated that a “monetary union cannot coexist with a group of permanent non-members in a unified legal framework,” he writes. For the eurozone to survive, the greater EU must be reconstituted or destroyed, Münchau explains. Indeed, Britain’s decision not to take part in the fiscal union is paving the way for a new Europe unhindered by half-hearted British engagement, says Der Spiegel’s Roland Nelles. He contends that Europe is “on the path towards becoming a federal country.”
As we have discussed many times over the years, the subversive and sometimes subtle debasement of the dollar is in fact a deliberate program designed by international financiers to force the American public to accept loss of sovereignty and centralize economic authority into the hands of an elite few. The situation in Europe is no different in this regard. Both cultures are being strong-armed through the removal of options and funneled into a waiting net like so much oblivious trout. So, the question must be asked; how do we fight back?
Could a political groundswell be used to supplant corrupt leadership and stall the coming avalanche? No. Even with a clean sweep of all branches of government and the election of a presidential candidate with considerable economic insight (like Ron Paul), the damage has already been done. Would a complete shutdown of the Federal Reserve and a repudiation of all debts accrued through its underhanded financial practices make a dent? A good start, but still not enough. What about a complete reversal of current spend and borrow practices by our government and a fast track plan for the reconstruction of America’s industrial base? That would be great, but American industry took decades to dismantle, and it will take decades to rebuild, so again, no dice in the short to medium term.
The fact is, the U.S. is going to see some very hard economic years ahead, regardless of any top down political solution. Those who are waiting and hoping for a knight in shining armor to ride into Washington D.C. and save them are going to be sorely disappointed. Those who shrug off the threat of fiscal breakdown as a “long term” affair will likely find time quickly slipping away while they clamor for bureaucracy to finally work in their favor. As a movement keenly aware of the threat at hand and the culprits behind it, the Liberty Movement should be doing far more than it is now to stem the tide, and that work begins with decentralization.
Decentralization is an activist strategy which does not rely on top down intervention, but instead, focuses on concrete bottom up community building and organization without the hindrances of traditional power structures. In terms of economics, it means a complete break with the corrupt system and the institution of our own free markets. This process is only as difficult as we make it for ourselves.
The essentials of an independent life are food, water, shelter, property, trade, and safety. The means to attain these essentials have been relegated to instruments which central banks and other elitist entities administer and control. However, that control is and always has been an illusion, an illusion we could walk away from anytime we wish. This is done through localizing the production of essentials. Changing the way we look at trade is the key. A few simple rules, if followed in a determined fashion, make this change a reality:
1) Provide Essentials For Yourself Whenever Possible: Some essentials can be covered even when you are alone. If you have access to property, can grow your own food, and have water collection capability, then you are far ahead of the average American in many respects. With modern technology, including space and energy saving methods, self sustainability is possible even in urban surroundings. The goal here is to do for yourself whatever you can, whenever you can, making you less vulnerable to mainstream economic chaos. The more insulated you are, the better equipped you will be to help build or participate in an alternative market.
2) Network Or Die: Some essentials cannot be provided by one’s self. Organization and networking in order to construct mutually beneficial trade groups is not only necessary, but inevitable in the face of economic collapse. One way or another, every American who wishes to survive will one day have to get up off their couches, leave their houses, and begin working with other people. Either they will see the wisdom in preempting collapse and start networking now, or, they will start networking after collapse out of desperation. Better to start now, and save ourselves the heartache…
3) Trade Skills, Not Dollars: Use paper currency while it still has some value, but simultaneously, wean yourself off of it through barter of goods and services. See how many essentials you can fully provide without the use of dollars and without purchases through corporate chains. Think of this as going financially “off-grid”. What systems do you depend on that ultimately harm you? How many of those systems can you decouple from now? Private trade makes independent living attainable by localizing your means of procurement to your own two hands, instead of to a paycheck doled out by a corporation.
4) Use Commodities, Dump Dollars: Precious metals are the only practical currency exchange available for broad use in a decentralized market. Fiat coupons, digital currencies, sticks and shells, etc., will not work. The inherent rarity of PM’s, combined with their tangibility, and inability to be artificially reproduced, makes them the ideal currency alternative to fiat. Digital currencies, reliant on an internet which may not exist in the manner we know it today, are a tremendous waste of time. Any trade dependent on a system outside of local control is not free trade. Metals place true free trade, at a local level, within reach. Even in a highly developed barter market, currency will play an important role, and PM’s should not be discounted.
5) Become Your Own Industry: As decentralization takes root in a local economy, the need for jobs and for goods will not disappear. In fact, it will become a priority. Entrepreneurship will be the engine that drives any legitimate resurgence of the U.S. economy, but this business mindset will have to take on a localized focus. I have heard it argued that America will never be able to rebuild if trade and industry are reduced to local efforts. On the contrary, thousands of cities and counties acting at a local level to reintroduce micro-industrial economies would far surpass the limited and centralized bumblings of the corporate industrial framework. The more insulated and self contained each community becomes, the stronger the whole of the country will be in the long term. The next industrial revolution, if there ever is another, will come about through city, county, and state centric industries designed to feed the prosperity of the residents within those communities, instead of siphoning away wealth and diminishing available essentials as the modern corporate system is engineered to do.
6) Internalize State Commerce: When enough citizens within each state finally wake up to the dangers of municipal default, federal encroachment on state lands and resources, and the weakness of interdependency on federal subsidies, they will begin to look for ways to plug the fiscal leaks they have ignored for so long. Decentralization truly finds its home within the structure of the states, and the powers afforded them through the 10th Amendment. At bottom, states have the ability legally as well as economically to become the ultimate decentralized systems, being that they are Constitutionally mandated to take such measures anyway. Resource rich states will likely be the first to undertake decentralization in the midst of economic collapse. Oil, minerals, farm capacity, timber, coal, etc, should be the solid ground upon which states and their citizens set foundation, and states should utilize these resources with the intent to enrich their citizens FIRST, through increased employment and local independent business incentives. This would be a far cry from the corporate pirate ship plundering that goes on in states today, and far more financially sound.
While there are numerous concerns and great tribulations to be confronted and solved in our age of bedlam, from the rise of police states, to political treason, to expanding wars abroad, first and foremost, we must surmount the problem of economic collapse, or all else will be lost. Economic collapse is the trigger by which all other tyranny is made viable. It is the rationalization that will be used to convince the public that the loss of freedom is a “crucial tradeoff” for increased safety. The more centralized we as a nation become, the more centralized the world becomes, the less likely we will be to weather the tidal wave of collapse. The more decentralized we become, the more localized and independent our communities, the less we will be affected by destabilization, the more successful we will be as a people, the less rationalization the government will have to diminish our freedoms, and the greater leverage we will have if they try to diminish them anyway.
The path is clear; we decentralize, we localize, and we do it now, or, we lose our country, our cultural identity, and our legacy. If all other options have been stolen away from us, then we must have the courage to create our own…
Source: Brandon Smith | Alt-Market
Ratings agency Standard & Poor’s has downgraded the government debt of France, Austria, Italy and Spain, but maintained Germany’s at the coveted “AAA” level.
The cuts, which eliminated France and Austria’s triple-A status, deal a heavy blow to the currency union’s ability to fight off a worsening debt crisis. In total, S&P cut its ratings on nine eurozone countries.
France and Austria both dropped one notch to AA+. Italy was lowered by two notches to BBB+ from A, and Spain fell to A from AA-. Portugal and Cyprus also dropped two notches. The agency also cut ratings on Malta, Slovakia and Slovenia.
The downgrades come as crucial talks on cutting Greece’s massive debt pile appeared close to collapse Friday.
Speaking on France-2 television, Finance Minister Francois Baroin confirmed that France had been lowered by one notch. That would mean a rating of AA+, the same rating the United States has had since S&P downgraded it last August.
Baroin said France had received a change to its rating “like most of the eurozone,” referring to the 17 European nations that use the euro currency.
A credit downgrade escalates the threats to Europe’s fragile financial system. It increases the costs at which the affected countries — some of which are already struggling with heavy debt loads and low growth — borrow money.
Baroin said the downgrade was “bad news” but not “a catastrophe.”
“You have to be relative, you have keep your cool,” he said. “It’s necessary not to frighten the French people about it.”
S&P had warned 15 European nations in December that they were at risk for a credit downgrade.
Earlier Friday, as rumors of a looming downgrade swirled around the financial markets, the euro hit its lowest level in more than a year and borrowing costs for European nations rose. Stock markets in Europe and the U.S. fell.
The fears of a downgrade brought a sour end to a mildly encouraging week for Europe’s heavily indebted nations and were a stark reminder that the 17-country eurozone’s debt crisis is far from over.
Earlier Friday, Italy had capped a strong week for government debt auctions, seeing its borrowing costs drop for a second day in a row as it successfully raised as much as €4.75 billion ($6.05 billion).
Spain and Italy completed successful bond auctions on Thursday, and European Central Bank president Mario Draghi noted “tentative signs of stabilization” in the region’s economy.
Credit downgrades will drive up the cost of European government debt as investors demand more compensation for holding bonds now deemed to be riskier. Higher borrowing costs puts more financial pressure on countries already contending with heavy debt burdens.
In Greece, negotiations Friday to get investors to take a voluntary cut on their Greek bond holdings appeared close to collapse, raising the specter of a potentially disastrous default by the country that kicked off Europe’s financial troubles more than two years ago.
The deal, known as the Private Sector Involvement, aims to reduce Greece’s debt by €100 billion ($127.8 billion) by swapping private creditors’ bonds with new ones of a lower value, and is a key part of a €130 billion ($166 billion) international bailout. Without it, the country could suffer a catastrophic bankruptcy that would send shock waves through the global economy.
Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos met Thursday and Friday with representatives of the Institute of International Finance, a global body representing the private bondholders. Finance ministry officials from the eurozone also met in Brussels Thursday night.
“Unfortunately, despite the efforts of Greece’s leadership, the proposal put forward … which involves an unprecedented 50% nominal reduction of Greece’s sovereign bonds in private investors’ hands and up to €100 billion of debt forgiveness — has not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt,” the IIF said in a statement.
“Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach,” it said.
Friday’s Italian auction saw investors demanding an interest rate of 4.83% to lend Italy three-year money, down from an average rate of 5.62% in the previous auction and far lower than the 7.89% in November, when the country’s financial crisis was most acute.
While Italy paid a slightly higher rate for bonds maturing in 2018, which were also sold in Friday’s auction, demand was between 1.2% and 2.2% higher than what was on offer.
The results were not as strong as those of bond auctions the previous day, when Italy raised €12 billion ($15 billion) and Spain saw huge demand for its own debt sale.
“Overall, it underscores that while all the auctions in the eurozone have been battle victories, the war is a long way from being resolved (either way),” said Marc Ostwald, strategist at Monument Securities. “These euro area auctions will continue to present themselves as market risk events for a very protracted period.”
Italy’s €1.9 trillion ($2.42 trillion) in government debt and heavy borrowing needs this year have made it a focal point of the European debt crisis.
Italy has passed austerity measures and is on a structural reform course that Premier Mario Monti claims should bring down Italy’s high bond yields, which he says are no longer warranted.
Analysts have said the successful recent bond auctions were at least in part the work of the ECB, which has inundated banks with cheap loans, giving them ready cash that at least some appear to be using to buy higher-yielding short-term government bonds.
Some 523 banks took €489 billion in credit for up to three years at a current interest cost of 1%.
2012 is shaping up to be a very tough year for the global economy. All over the world there are signs that economic activity is significantly slowing down. Many of these signs are detailed later on in this article. But most people don’t understand what is happening because they don’t put all of the pieces together. If you just look at one or two pieces of data, it may not seem that impressive. But when you examine all of the pieces of evidence that we are on the verge of a devastating global recession all at once, it paints a very frightening picture. Asia is slowing down, Europe is slowing down and there are lots of trouble signs for the U.S. economy. It has gotten to a point where the global debt crisis is almost ready to boil over, and nobody is quite sure what is going to happen next. The last global recession was absolutely nightmarish, and we should all hope that we don’t see another one like that any time soon. Unfortunately, things do not look good at this point.
The following are 22 signs that we are on the verge of a devastating global recession….
#1 On Thursday it was announced that U.S. jobless claims had soared to a six-week high.
#2 Hostess Brands, the maker of Twinkies and Wonder Bread, has filed for bankruptcy protection.
#3 Sears recently announced that somewhere between 100 and 120 Sears and Kmart stores will be closing, and Sears stock has fallen nearly 60% in just the past year.
#5 Richard Bove, an analyst at Rochdale Securities, is projecting that the global financial industry will lose approximately 150,000 jobs over the next 12 to 18 months.
#6 Investors are pulling money out of the stock market at a rapid pace right now. In fact, as an article posted on CNBC recently noted, investors pulled more money out of mutual funds than they put into mutual funds for 9 weeks in a row. Are there some people out there that are quietly repositioning their money for tough times ahead?….
Investors yanked money out of U.S. equity mutual funds for a ninth-consecutive week despite a bullish 2012 outlook from Wall Street and a December rally that’s carried over into the New Year.
#7 There are signs that the Chinese economy is seriously slowing down. The following comes from a recent article in the Guardian….
Growth had slowed to an annual rate of 1.5% in the second and third quarters of 2011, below the “stall speed” that historically led to recession.
#8 The Bank of Japan says that the economic recovery in that country “has paused“.
#9 Manufacturing activity in the euro zone has fallen for five months in a row.
#11 According to a recent article by Bloomberg, it is being projected that the French economy is heading into a recession….
The French economy will shrink this quarter and next, suggesting the nation is in a recession as investment and consumer spending stagnate, national statistics office Insee said.
#12 There are a multitude of statistics that indicate that the UK economy is definitely slowing down.
#13 The credit ratings of Italy, Spain, Portugal, France and Austria all just got downgraded.
#14 It is being reported that the Spanish economy contracted during the 4th quarter of 2011.
#16 According to a recent article in the Telegraph, the Italian government is forecasting that there will be a recession for the Italian economy in 2012….
The Italian government predicts GDP will contract 0.4pc next year, but many economists fear the figure is optimistic.
“We can say without mincing words that we have already slipped into recession,” said Intesa Sanpaolo analyst Paolo Mameli. “We expect GDP to keep contracting for the next 3-4 quarters.”
#17 Italy’s youth unemployment rate has hit the highest level ever.
#18 The unemployment rate in Greece for those under the age of 24 is now at39 percent.
#19 Greece is already experiencing a full-blown economic depression. About a third of the country is now living in poverty and extreme medicine shortages are being reported. Things have gotten so bad that entire families are being ripped apart. According to the Daily Mail, hundreds of Greek children are being abandoned because the economy has gotten so bad that their parents simply cannot afford to take care of them anymore. The note that one mother left with her child was absolutely heartbreaking….
One mother, it said, ran away after handing over her two-year-old daughter Natasha.
Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’
#20 In Greece, large numbers of people are simply giving up on life. Sadly, the number of suicides in Greece has increased by 40 percent in just the past year.
#21 In many European countries, the money supply continues to contract rapidly. The following comes from a recent article in the Telegraph….
Simon Ward from Henderson Global Investors said “narrow” M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.
While real M1 deposits are still holding up in the German bloc, the rate of fall over the last six months (annualised) has been 20.7pc in Greece, 16.3pc in Portugal, 11.8pc in Ireland, and 8.1pc in Spain, and 6.7pc in Italy. The pace of decline in Italy has been accelerating, partly due to capital flight. “This rate of contraction is greater than in early 2008 and implies an even deeper recession, both for Italy and the whole periphery,” said Mr Ward.
#22 The major industrialized nations of the world must roll over trillions upon trillions of dollars in debt during 2012. At a time when credit is becoming much tighter, this is going to be quite a challenge. The following list compiled by Bloomberg shows the amount of debt that some large nations must roll over in 2012….
Japan: 3,000 billion
U.S.: 2,783 billion
Italy: 428 billion
France: 367 billion
Germany: 285 billion
Canada: 221 billion
Brazil: 169 billion
U.K.: 165 billion
China: 121 billion
India: 57 billion
Russia: 13 billion
Keep in mind that those numbers do not include any new borrowing. Those are just old debts that must be refinanced.
As I mentioned at the top of this article, things do not look good.
The last thing that we need is another devastating global recession.
As I wrote about yesterday, the U.S. economy is in the midst of a nightmarish long-term decline. The last major global recession helped to significantly accelerate that decline.
So what will happen if this next global recession is worse than the last one?
Sadly, the people that will get hurt the most by another recession will not be the wealthy.
The people that will get hurt the most will be the poor and the middle class.
So what should all of us be doing about this?
We should use the time during this “calm before the storm” to prepare for the hard times that are coming.
As always, let us hope for the best and let us prepare for the worst.
But things certainly do not look promising for the global economy in 2012.
Source: The Economic Collapse
7,600,000,000,000 Dollars of Debt Must Be Rolled Over In 2012…
When it comes to government debt, it is not just new debt that is the problem. Every single year, governments around the world must “roll over” gigantic mountains of debt that come due. That means that the actual borrowing that takes place each year is far greater than the yearly budget deficits that you see talked about on television. In 2012, a total of 7,600,000,000,000 dollars of debt must be rolled over by the G-7 nations, Brazil, Russia, India and China. When you add in interest payments, that number rises to over $8 trillion. And that does not even include any new borrowing that all of those nations will do in 2012. This is a debt bomb that could devastate the entire global economy at any time. Everything will be fine as long as global lenders are willing to lend these countries gigantic mountains of very cheap money. But if that changes, and there are already a multitude of signs that a massive global credit crunch has begun, it will mean a complete and total financial nightmare for the entire world.
The following list compiled by Bloomberg shows the amount of debt that these various nations must roll over in 2012….
Japan: 3,000 billion
U.S.: 2,783 billion
Italy: 428 billion
France: 367 billion
Germany: 285 billion
Canada: 221 billion
Brazil: 169 billion
U.K.: 165 billion
China: 121 billion
India: 57 billion
Russia: 13 billion
Up until recently, these powerful nations have been able to easily roll over their debts each year because lenders have been willing to shower them with gigantic quantities of very cheap money.
But in 2011 bond yields for many European nations really started to soar. When the cost of borrowing goes up, that puts a lot more pressure on the finances of nations that are already very deep in debt.
According to Bloomberg, it is being projected that borrowing costs for G-7 nations will rise very rapidly in 2012 as well….
Borrowing costs for G-7 nations will rise as much as 39 percent from 2011, based on forecasts of 10-year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys.
Rising borrowing costs are a major reason why Italy is on the verge of financial collapse right now.
During 2012, Italy must refinance approximately $428 billion of government debt. If the rest of the world is not willing to buy that much Italian debt at current interest rates, that it going to create a major crisis.
Of course the European Central Bank could intervene even more than it has been, but there is a limit to what the ECB can do under current agreements.
The truth is that the European Central Bank has already spent over 274 billion dollars buying up the government bonds of troubled European nations such as Greece, Italy, Portugal and Ireland in an attempt to control the rise of bond yields.
But even with such unprecedented intervention, bond yields have still risen substantially.
Germany and other northern European nations are adamantly against the ECB directly funding the deficit spending of profligate southern European nations. Germany has insisted that troubled nations such as Greece and Italy deal with their debt problems by implementing brutal austerity programs.
But all of this austerity will almost certainly bring on a major recession. The following analysis comes from a recent article by Ambrose Evans-Pritchard….
The European Central Bank has guaranteed trouble by letting M3 money contract. Fiscal tightening into the downward slide will make matters worse. A credit crunch as banks shrink loan books by €1 trillion to meet capital ratios will do the rest. All policy levers are set on deep recession, and deep recession is what Europe will get.
And a deep recession will only make the debt problems of European nations even worse.
But Europe is not the only one in trouble.
Japan is also on the verge of complete and total financial collapse. The government of Japan spends more than twice as much as it brings in, and public debt has risen to 237 percent of GDP.
Up until now, the Japanese government has gotten away with this because the Japanese people are great savers and they have been willing to lend huge mountains of money to the Japanese government for very little return.
But there are signs that the situation in changing, and if interest rates on Japanese debt go up even just a few percentage points it is going to be a total nightmare for Japan.
There is simply way too much debt all over the world. Greece thought that they would be able to borrow cheap money forever, but now look at them. The yield on 2 year Greek bonds is now up to 134%.
All of these nations that are gobbling up cheap money now should take note that this supply of cheap money will not last forever.
Unfortunately, our world has gotten completely and totally addicted to debt. The following comes from a recent article by John Mauldin….
Total debt-to-GDP levels in the 18 core countries of the Organisation for Economic Co-operation and Development (OECD) rose from 160 percent in 1980 to 321 percent in 2010. Disaggregated and adjusted for inflation, these numbers mean that the debt of nonfinancial corporations increased by 300 percent, the debt of governments increased by 425 percent, and the debt of private households increased by 600 percent.
Of course the biggest debt of all is the national debt of the United States. As ofthis moment, the U.S. national debt is $15,222,940,045,451.09, and the debt recently surpassed the 100 percent of GDP mark.
So why haven’t things collapsed already?
Well, it is because the U.S. can still borrow massive amounts of cheap money.
Right now, the average interest rate on U.S. debt is approximately 2.18 percent.
That is very, very low and it will not last forever. When it rises we will be in a heap of trouble.
And in future years our debt is projected to rise to absolutely insane levels. The following chart comes from a GAO report that was just released. To be honest, the projections that the GAO report uses are so optimistic that they are beyond ridiculous. But even using those ridiculously rosy financial estimates, U.S. government debt is still projected to skyrocket to absolutely unprecedented heights in future years….
Once again, please keep in mind that the GAO chart above is based on projections that are unbelievably optimistic.
We are in a massive amount of trouble my friends.
At this point, we owe the Chinese nearly a trillion dollars. They are running out of things to do with all the money they have gotten from us. Recently it came out that the Chinese actually want to buy Yahoo.
We are mortgaging our future, and for what?
We have been so incredibly foolish.
So what is the solution?
How will our “leaders” solve our debt problems?
Well, world famous investor Kyle Bass recently said that a senior member of the Obama administration told him that “we are just going to kill the dollar“.
That doesn’t sound good.
So are we really going to print our way out of trouble?
Or will our financial system just simply collapse under the weight of so much debt at some point?
If our system does collapse, people are going to want something new. Unfortunately, a growing number of Americans seem to think that socialism is the answer. According to a new Pew Research Center poll, Americans between the ages of 18 and 29 actually have a more favorable view of socialism than they do of capitalism right now.
That is very sad. The truth is that America has already been marching towards socialism for many decades. The federal government just keeps taking more of our money and just keeps spending more of our money. The following chart below shows how federal receipts have risen as a percentage of GDP over the last 60 years….
If there is a massive global financial collapse, another solution that will inevitably be put forward is for the world to adopt a global currency.
The seeds for this have been planted for many, many years. In dozens of books, television shows and movies about the future a “global currency” plays a major role.
Sadly, more than 40 percent of all Americans believe that we will see a global currency by the year 2050. The following comes from a recent article in Wired Magazine….
But does this mean we don’t see a global currency in our future? For many, the answer is no. A recent Pew Research poll reveals that 41 percent of Americans expect it by 2050. Maybe the idea has been planted in our heads by leftist utopians and science fiction authors: a system of “credits” is used in everything from Star Wars, Star Trek, and Babylon 5 to the Foundation book series. Yet the idea has also been touted by economics titans like John Maynard Keynes.
Let us hope that the United States never is part of a global currency, because that would be the end of our national sovereignty.
But one thing is for sure – the world will never be the same after this debt crisis plays out.
Enjoy the prosperity of today while you can, because there is no way that it can last.
A massive financial collapse is coming, and it is going to shake the entire globe.
Sadly, most people simply do not care about the debt bomb that is hanging over the nations of the world, and the coming crisis is going to devastate their lives without any warning.
Source: The American Dream