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November 2006: beginning of the phase of impact of the global systemic crisis
Announcement GEAB N°8 - October 16, 2006
Following these last months developments and the central part played by the United States in the current global system, LEAP/E2020 announces in its October edition of GEAB (GlobalEurope Anticipation Bulletin N°8) that the phase of impact will begin in November 2006 and that this phase's catalyst will be the mid-term elections of the United States Congress which is the cross point of the main fracture lines of the current global system...
Last May, in the Global Europe Anticipation Bulletin N°5, LEAP/E2020 had detailed the four phases of the global systemic crisis, indicating that the phase known as of acceleration would start in June and would be spread out over a period of a maximum six months at which stage, the explosive phase of the crisis, the “impact phase”, would start.
Following these last months developments and the central part played by the United States in the current global system, LEAP/E2020 announces in its October edition of GEAB (GlobalEurope Anticipation Bulletin N°8) that the phase of impact will begin in November 2006 and that this phase's catalyst will be the mid-term elections of the United States Congress (1) which is the cross point of the main fracture lines of the current global system.
The phase of acceleration consisted of the generalized realization that the global system that we have been familiar with for several decades is changing radically and permanently as the following, now largely recognized, trends for the whole planet illustrate (2): aggravation of the nuclear crises with North Korea and Iran, general lack of power of the United States on all major crises of these last months, including the Israeli-Palestinian conflict (3), civil war in Iraq and American stagnation up until at least 2010 (4), growing feeling of the defeat of the West to progress in Afghanistan (5), collapse of the United States real estate market (6), increasing volatility of the “hedge funds” system (7), starting recession of the US economy (8), aggravation of trade deficits and American payments (9), on-going weakening of the Dollar (10), increasing debt of American households (11).
Chart 1 - Federal Funds Rate - Red Squares Denote Periods when the Fed Funds - Source: NoSpinForecast
The phase of impact which succeeds the phase of acceleration constitutes a period when a series of brutal crises starts affecting by contamination the total system. This explosive phase of the crisis, which will last six months to one year, will affect directly and very strongly financial players and markets, the owners of investment schemes with fixed incomes in dollars, pension's funds and the strategic relations between the United States on the one side, and Europe and Asia on the other.
According to our analyses, its impact will be much stronger in the financial sector than our forecasts of the first half of 2006 suggested, because the mobilization of this sector in the United States (together with its communication relays) in order to preserve the control of the Republican Party in the American Congress, led to “euphorise” the American public opinion and the immense majority of the players in this sector, enabling the leaders of this party to claim a good economic assessment (the only campaign topic at their disposal since summer 2006) (12). The using of this side of the global system for electoral ends thus prevented the majority of the players from correctly anticipating the ruptures to come and as such will considerably increase the explosive potential of the impact phase in this sector, since the operators will be caught “on the wrong foot”.
At the center of the « euphoria » process of US voters, one will find the business bank Goldman Sachs in particular. The latter, whose former president, Henry Paulson became the US Finance Minister a few months ago, is at the origin of a technical decision that led to an artificial collapse of oil rates in the past weeks. Indeed Goldman Sachs abruptly changed the composition of his GSCI indicator (Goldman Sachs Commodity Index), a reference on Chigaco's raw materials market, thus compelling traders to sell more than 100 billion US dollars of “future” oil contracts between August and September 2006.
Chart 2 – Unleaded gas - Nymex - source AT-Bourse
Moreover, the prominent influence of this business bank (one that became the most important global « hedge funds ») is also present in the “Working Group on Financial Markets”, (often called « Plunge Protection Team »), created by the Executive Order 12631 (13), with the objective “to maintain the confidence of investors”, and which, under the direction of people named there by G. W. Bush, and headed by Henry Paulson, is in a position to activate all influential Wall Street or Chicago players.
In this October issue dedicated “The impact phase of the Global Systemic Crisis”, LEAP/E2020 analyzes the detail of this “euphoria” process of the players by breaking down the mechanisms used to convince American voters and world financial operators that the future is radiant, whereas all the objective indicators are sounding alarms (14) in terms of American growth, employment (15), inflation, strategic risks control, etc…
In addition, the LEAP/E2020 team tries to anticipate the development mode and the consequences of the impact phase on sectors or operators particularly exposed, such as the operators and financial markets, the owners of American investment funds with fixed incomes, the operators involved in real estate industry and in financing the real estate market and pension funds.
Chart 3 – Median sales price - Single family homes
LEAP/E2020 also attempted to anticipate the role of “hedge funds” in the explosive process of the impact phase, which will transform their “risks mutualisation” into a “risk systemic contagion”. On this subject, LEAP/E2020 sounds the alarm on the entire American financial sector and in particular on the main “hedge funds”, which investment banks such as Goldman Sachs or Lehman Brothers as well as the main American « primary dealers » authorised by the United States Federal Reserve have become.
According to the LEAP/E2020 team, the time has come when the motivations of the US Fed in stopping the M3 publication last March will be revealed ; and the consequences of this strategy will « catch on the wrong foot » who naively chose to share the general euphoria built up in the perspective of the US November election. From then on, as explained in GEAB N°8, a brand new story starts. That of the impact phase of the global systemic crisis.
_
Notes:
(1) Cf analysis in GEAB N°7: “American legislative Elections - November 2006: Towards a politico-institutional blocking in Washington, with important political , economic, and commercial consequences”
(2) Whereas in the first quarter of 2006, when LEAP/E2020 produced its first projections on the subject, the large majority of the players involved and public opinions worldwide were convinced of the opposite trends, and even denied that those which are obvious today could simply appear in the future.
(3) Even the Israeli public opinion has become very critical towards the incapacity of the United States in the region, as explained in Gideon Levy's article « The Mystery of America » , published in Haaretz, 09/10/2006
(4) This is what the American leader of combined forces, General Peter J. Schoomaker, has just declared. Source CBS News, 11/10/2006
(5) 89% of the Europeans probed via GlobalEurometre estimate that NATO is losing the war in Afghanistan.
(6) On this subject, it is interesting to keep in mind the projection of the current President of the American Federal Reserve who declared one year ago that “there was no real estate bubble which could explode” (source Washington Post , 27/10/2005).
(7) Even China has joined the voices worrying about the increasing risks caused by the out-of-control development of hedge funds. Source West Australian/Daily Telegraph, 29/09/2006
(8) Read the note on US employment from the Center for Economic and Policy Research (CEPR, 06/10/2006)
(9) Source Roubini Global Economics services, RGE, 12/10/2006
(10) This issue of Global Europe Anticipation Bulletin explains in particular why the downward trend of the Dollar is currently temporarily stabilized because of the proximity of the American election
(11) Beyond the continuously increasing personal debt since the saving rate continues to be negative, USA Today calculated that, by incorporating the national debt, each American household has now a debt of more than US$500,000. Source USA Today, 24/05/2006
(12) It is very useful to observe that the topics of G.W. Bush public interventions, as recorded by the Republican Party website, moved away from “the fight against terrorism” towards “the good health of the economy”. Source: Speech of September 2006, Speech of October 2006, Republican Party
(13) Source: Federal Register, US National Files, 11/1998, Executive Order 12631/Working Group one Financial Markets
(14) For example, the 9/10/2006 issue of Chicago Tribune titles its business page with the increasing recession risks. It is the case of a great number of American regional media which are very sensitive to the direct consequences of the real estate collapse.
(15) Read the note on the US employment from the Center for Economic and Policy Research (CEPR, 06/10/2006)
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Interview with M. Klare: Iraqi Resistance marks 'turning point' of U.S. empire
By: David Cohen, Chris Vernon on: 09.11.2006 15:08 (703 reads)
An Interview with Michael Klare
Posted by Dave Cohen on Monday November 06, 2006
by Dave Cohen
I asked Klare about Venezuela, Hugo Chavez, Bolivia and geopolitical issues in South America but he declined to answer, stating that he does not watch events in that region closely. In a follow-up phone interview, I requested further clarifications and asked some additional questions. I am DC and Michael Klare is indicated by MK. I have paraphrased his remarks on the phone. These are summarized by notes inserted in the text. Some links have been added where appropriate.
DC: You have written "Beware Empires In Decline", referring to the United States. Generally speaking, what do the historical precedents tell us about the geopolitical behavior of such empires, particularly as regards what you have termed "senseless, self-destructive acts"? Also, please touch on why you think America is indeed in decline.
MK: The establishment and maintenance of an empire is an immensely energy-demanding enterprise. It takes enormous energy and resources to conquer foreign nations, maintain overseas garrisons, suppress rebellions, administer colonies, pay the salaries of soldiers and imperial bureaucrats, key fleets at sea, and so on. Every empire that ever was has struggled with this dilemma, and every empire that ever was collapsed sooner or later when the expense of maintaining the empire exceeded the revenues obtained from possessing the empire. For the United States, I believe, Iraq represents that turning point: before the United States entered Iraq, it was the dominant world power and possessed the strength to exercise hegemony in almost every corner of the globe; but the Bush administration vastly miscalculated the costs of occupying Iraq (now estimated at $1-$2 trillion) and that misjudgment will so deplete the US Treasury that American will never be able to undertake such a costly imperial undertaking again — not without bankrupting the country and reducing us all to beggars. This having been said, the reality of our altered circumstances may not penetrate the thinking of our top officials, who may falsely believe that we still enjoy our pre-Iraq preponderance of wealth and power, and so undertake Iraq-like adventures abroad that will cripple this nation forever.
DC: Moving on to specific cases, let's talk about Iraq. Skipping over the reasons for the war itself, which have been thoroughly discussed, tell us what you see happening in Iraq going forward. There is apparently a civil war now in progress between the Shia' and Sunnis. You've said that something like the Dayton Accords (agreed to for Bosnia in 1995) is necessary now, Baghdad must become a neutral, international city and the Sunnis must have a share of the oil revenues. Do you think there is any chance that all or some of this will actually happen? Doesn't history tell us that such civil wars, once started, take many years, if not decades, to get resolved? Already, there is a significant refugee problem. How do the Kurds fit into the picture? Finally, the United States can not remain engaged at current troop levels in Iraq forever. What do you think will happen there?
MK: Well, it is obviously risky for anyone to make predictions about Iraq today, given the volatility of the situation there and the failure of all previous efforts to establish order in the country. However, let me begin by saying that Iraq was an invented country — it was invented by the British during and after World War I to facilitate their exploitation of the oil in the region. They created the fictitious "Kingdom of Iraq" by patching together three provinces of the former Ottoman Empire, Mosul in the (mostly Kurdish) north, Baghdad in the (mostly) Sunni center, and Basra in the (mostly) Shiite south, and by parachuting in a fake king from what later became Saudi Arabia. To keep this patchwork together, the British relied on bribery and sheer force — the same tactics employed by Saddam Hussein when the British were forced out. So the United States faces an existential choice: copy the British and Hussein, and use force and bribery to keep this mess together, or find some way to allow it to revert to its original condition with a minimum of bloodshed. I favor the latter as the most realistic option. This will not be easy, I know, but the other choice is now untenable. I think that once it becomes clear that Iraq will devolve into three states with an internationalized Baghdad and some provision for dividing up the oil revenues fairly (as I propose) — and that American forces will begin leaving — the various elites will sit down together and work out a modus operandi for making this happen. I think that this formula will also make possible the deployment of an international peacekeeping force under UN auspices that all sides can respect, instead of a US-dominated force that is a flashpoint for so much violence.
Note on Iraq: Refugees are pouring out of Iraq into Syria, Jordan and the other surrounding countries. When I asked Klare about the view that this exodus would destabilize those countries, he emphasized that many of Iraq's "best and brightest" were the ones fleeing the situation. The loss of Iraq's educated, professional classes leaves the poor at the mercy of the "thugs and crooks" taking advantage of the political chaos there.
DC: Shifting over to Iran, you are on the record as saying that you expect a military action — specifically a "Shock & Awe" bombing strike --- in 2007. Do you still believe that will occur? Such an action would seem to imply that America has learned no lessons from Iraq, yet the fallout from such an action could be disastrous, especially in its effect on the oil supply & price. What do you think the consequences would be? Would there be spillover to Iraq and, if yes, what form might that take? Similar questions apply to Saudi Arabia and the other Gulf states.
MK: Yes, I do believe that the US will conduct air and missile strikes against Iran in 2007, unless Ahmadinejad capitulates to Western demands and abandons uranium enrichment, which I don't see happening. I think Bush did learn something from Iraq: If you're going to invade a country because of suspicious WMD behavior, FIRST EXHAUST ALL DIPLOMATIC OPTIONS before your resort to force, so you can claim you had no choice in the matter. Bush was criticized because he rushed into Iraq before allowing the diplomatic process to run its course, making America look like a trigger-happy cowboy state and sparking anti-Americanism around the world. This time, he will not act until the Europeans say "We've tried eveything, and nothing worked," and UN sanctions haved proved to have zero impact. Then he can say to Congress and the public: "Look, I did it their way. I exercized Job-like patience. But the national security of America is at stake here, and I can wait no longer." In the meantime, he will fill up the Strategic Petroleum Reserve to deal with an oil crisis and station more U.S. forces in the Gulf to deal with various imaginable forms of Iranian retaliation. I still think there will be chaos, but I don't think that this will deter Bush from going ahead with an attack on Iran.
Note on the fallout of an attack on Iran:
Klare assumed that any U.S. bombing attack would include plans to take out Iran's conventional missile batteries, thus hampering their ability to disrupt shipping in the Strait of Hormuz.
The Persian Gulf and the Strait of Hormuz
Klare therefore anticipated an asymmetric Iranian response—for example, mining the Strait and attempts to sow chaos in all the Shiite regions of the Middle East, including Southern Iraq and Saudi Arabia. This would lead to U.S. countermeasures and further escalation of conflicts in the region.
DC: In the last few months, there has been a steep decline in the oil price, partly attributed to the lifting of the "risk premium" regarding fears of major supply disruptions in the Middle East or other regions. Yet, it would seem in your view that the risks have not gone away and, in fact, the geopolitical situation is deteriorating, not getting better. How do terrorist acts against oil & natural gas production facilities — for example, Ras Tanura in Saudi Arabia — affect the risks? Please comment on the oil price decreases and how you calculate the current geopolitical risk premium on price.
MK: Well, the fear premium was half driven by a possible war with Iran and half driven by fears of another hurricane season like 2005, with Katrina and Rita. Obviously, neither of these occurred. Had either occurred, the premium would have been justified. So what is the probability that we will go through another year with (a) no major crisis in the Middle East and (b) no big hurricanes? I can't imagine it's very low. And the fact is, there is very little spare capacity in the international oil equation, while demand is rising steadily. So we have to assume that from now on we will remain just one major crisis or hurricance away from another spike in prices; and if we get both of those together, we'll have a super-spike.
Note on Terrorism: I asked Klare about the geopolitical importance of terrorist attacks against oil production facilities. He emphasized that the word "terrorism" is a bit of a misnomer in many cases. In fact there is a wide spectrum of such groups running the gamut from ideologically motivated jihadist terrorists to quasi-criminal organizations to political reformers, any of whom might carry out such attacks. For example, FARC and ELN in Columbia often act like criminal organizations using blackmail. Seeking "protection money", these groups threaten to blow-up oil pipelines unless they are paid off. In Iraq, Klare spoke of so-called "insurgents" working with oil facilities security organizations in a kind of "revolving door" arrangement whereby the people blowing up the pipelines are sometimes the same people protecting them. Again, this resembles organized crime more than it does jihadist terrorism. On the other hand, MEND, operating in Nigeria's Niger delta, may lie closer to the political reform part of the spectrum.
Klare observed that Osama Bin-Laden's original organization has been largely broken up. Al-Qaeda is now decentralized and not as "professional" as before. Nevertheless, Klare expects continued attacks or threats on oil production facilities like Ras Tanura by terrorist groups.
DC: Tell us your thoughts on China — a large and rapidly growing consumer of the world's oil & gas — and Russia — now the world's largest oil producer and, via Gazprom, the preeminent gas reserves holder & supplier. What is the strategic geopolitical relationship between these two countries? Do you see "Energy Blocs" coming about in the future? If yes, what would these look like? For example, you noted that Japan has cast its lot with American energy interests. Please comment.
MK: There is no doubt that China will need a great deal of energy in the years ahead, and that it will be competing with the United States for access to overseas supplies of oil and gas, especially in Africa, the Middle East, and Central Asia. I think that the Chinese would like to compete with the USA on something approaching equal terms, as one big consumer vs. another - with each side brandishing their giant energy corporations - but I fear that Beijing has become paranoid that the USA is out to limit their access to global sources of supply and so they see themselves being pushed willy-nilly into Russia's embrace. This, at least, is the lesson I think they took from the Unocal fiasco, which I think was a terrible mistake because it suggested that the USA will not allow China to compete with us on equal terms in the global energy market, leaving them no choice but to rely increasingly on Russia and other friendly states like Iran, and to try to seek advantage in places like Sudan, Kazakhstan, Venezuela, and Nigeria, where they see an opening. So yes, I do see "energy blocs" emerging, and I do not think it is a healthy development for world affairs, insofar as it could so easily lead to military blocs, as in the period before World War I.
Note on Japan: In the context of "Energy Blocs", Klare brought up the recent experience of Japan, whose Inpex Holding Inc. had invested $2 billion toward developing Iran's Azedegan field. After signing on in 2004, Inpex could not attract any investment partners from the EU. Under additional pressure from the United States, Inpex was unable to proceed with its Azedegan plans, which finally resulted in Iran cancelling the contract as reported by Rigzone, who also tell us that "Japan is Iran's largest foreign oil customer, purchasing 581,000 barrels of crude a day last year, or 14% of Japan's total oil imports." Before the action, Bloomberg had reported that:
Japan, which imports almost all its oil, needs the $2.5 billion Azedegan project to help boost overseas oil assets to 40 percent of imports by 2030. Iran is trying to ward off sanctions demanded by the U.S. for its nuclear development program and may strengthen ties with countries such as China and Russia by allowing greater access to the oilfield, said energy researcher Tomomichi Akuta.
"China and Russia are freer to act against what the U.S. says, while it's hard for Japan to," Akuta at UFJ Institute Ltd. said by phone today. "From Iran's point of view, countries such as China have more credibility when it comes to implementing oil projects under the current circumstances."
Now, there is talk that Japan will turn to Iraq and Indonesia to try to meet its future supply needs.
DC: Nigerian production has been subject to large disruptions for some time now through the operations of MEND in the Niger Delta. Angola is increasingly an important oil exporter, especially to China. Overall, the Gulf of Guinea is now, and will remain for some years to come, a key regional production center for light sweet crude oil. Will the West intervene militarily in West Africa? Would this bring it into open conflict with Chinese interests there and elsewhere in Africa?
MK: Bear in mind that "military intervention" typically occurs along a spectrum, beginning with the transfer of arms, followed by the deployment of military instructors and advisers, then the use of special forces attached to local irregular forces (e.g., the Northern Alliance in Afghanistan), and only then, in the final stages, regular combat troops. It may be some time (if ever) before the USA reaches this final stage in Africa, but it has already commenced the early stages (arms transfers and instructors) and there have been reports of US special forces operating against extremist Islamic groups in the Sahara region, so I would say that the process of intervention in Africa is well under way. The Chinese are also engaged in indirect forms of intervention, most notably in Sudan, where they have assisted the northern government in its efforts to suppress the SPLA in the oil regions in the south. I do not believe that this will ever lead to a direct clash between US and Chinese forces, but I certainly anticipate other forms of friction between the USA and China in Africa. Indeed, this has already begun: for example, the US has sought to isolate the Sudanese government at the UN Security Council, while China has resisted such efforts.
DC: Finally, will you comment on the likelihood of fossil fuel resource wars in the future? Here, I have in mind actual military conflict. Perhaps you could also touch on some regions I haven't mentioned above such as the FSU countries in and around the Caspian Basin, the South China Sea, etc.
MK: I assume you're distinguishing here between civil wars over the allocation of resource rents, like those now under way in Iraq and Nigeria, and full-scale war between the major powers over access to oil-producing areas. Wars of the first kind are happening now, and I would expect more of them in the future. As for the second, I think we have to consider the problem of "unintended escalation." I do not think that any of the major powers will deliberately choose to provoke a war over oil, as when Japan invaded the Dutch East Indies in 1941 (and bombed Pearl Harbor as a preemptive move against likely American retaliation), but I do think that they may engage in provocative behavior that could lead to accidental escalation under conditions of panic, confusion, and over-reaction (as in the circumstances that triggered World War I). A possible flashpoint for such a scenario is the East China Sea, where both China and Japan have deployed military ships/planes in a disputed energy zone and employed them in a threatening manner, risking potential panic fire and escalation to actual war - a situation that could get out of hand quickly and lead to full-scale war. So yes, in this sense, I think war over oil and gas is entirely possible.
I wish to thank Michael Klare for taking time to talk to The Oil Drum. Clearly, geopolitical events have the power to trump more pedestrian supply & demand calculations in the future.
http://www.theoildrum.com/story/2006/11/1/154940/816
ASPO-USA: Geopolitical Implications of Peak Oil Theory
Klare's presentation at ASPO-USA is summarized by Chris Vernon on Sunday November 05, 2006 at
Klare opened by stating that peak oil theory has two points:
Once peak oil is reached, global oil production will reach its maximum sustainable output and then begin an irreversible decline.
The second aspect of peak oil theory doesn’t get as much attention as it disserves, it is that the first half of the oil produced in any oil province or globally is the easy to get oil, putting off until later the hard to get oil.
Going on to describe the characteristics of this “easy oil” as, close to the surface, in large reservoirs, on land, close to home and safe. See Pennsylvania, the first great oil province of the world followed by Oklahoma and Texas.
Conversely the hard to get oil is deep underground, dispersed in small pockets, far off shore, hard to get at technically, expensive to produce, in remote areas, environmentally sensitive and unsafe.
It is this second point Klare wanted to stress – the idea that the easy oil is gone, leaving us with the hard oil.
The presentation was peppered with lists, those lists we’ve just seen and the following lists describing where most of the world’s remaining oil remains and the challenges these countries face.
Most of the remaining oil is in: Saudi Arabia, Iran, Iraq, Kuwait United Arab Emirates, Angola, Nigeria, Libya, Algeria, Sudan, Russia, Kazakhstan, Azerbaijan and Venezuela. A lot depends on whose OPEC reserve numbers you find most compelling and how you regard tar sand but Klare stated that the rest of the world after those countries has only 9% of the world’s remaining oil. That’s how much easy, safe oil we have left and not all of that is all that easy anymore when you consider ultra deepwater Gulf of Mexico and polar.
Making some observations regarding the countries listed above, Klare stated that some three quarters of remaining oil is in predominantly Muslim countries. Additionally most of the remaining oil is in countries that are unstable, corrupt, divided along ethnic or political lines, hostile to the US and ruled by dictators or fragile authoritarian regimes. Many of these problems are at least partially exacerbated by the presence of oil.
...as the world increasingly depends on these countries in the years ahead these countries will become increasing violent, unstable and dangerous. The pursuit of oil itself is a source of violence because it divides factions against each other.
Take Iraq, the driving force of violence is the fact that the Kurds and the Shiites want control over the oil revenues exclusively for themselves, freezing out the Sunnis. The Kurds already have effective control of oil production in the northern zone. The Shiites are ramming through the parliament effective control over oil production in the south. This will exclude the Sunnis from any oil revenue whatsoever so it’s hardly surprising therefore that the Sunnis are the driving force behind the insurgency in Iraq.
There is no prospect of peace in Iraq so long as this process proceeds. This is the engine driving the violence today that’s putting American soldiers at risk.
Klare continued by covering the US foreign policy of securing access to oil by military means adding he was more worried about the prospects for violence over oil than the prospects for scarcity and higher prices.
The US military is becoming nothing else than a global oil protection service on behalf of the big oil corporations – that is what putting on the uniform of the armed services is being reduced to.
Klare concluded by stressing that we must not make our dependence on oil a cause for risking human life in warfare. This should be the key concern for the young people who may be coerced to join the military.
Although Klare didn’t mention it specifically, the other critical factor of “hard oil” is the falling ERoEI (Energy Return on Energy Invested). Whether it’s through increased military activity or that the oil is just several km under a hurricane threatened Gulf of Mexico it’s clear ERoEI and therefore the net energy available from the remaining oil will be less that its volume might suggest. Cry Wolf recently reported back from the Boston conference breakout session on ERoEI.
Perhaps we spend too long looking at the geology of the peak oil and the idealised situations in the US or the North Sea. Hubbert’s curve, which seems to do so well at modelling the performance of easy oil provinces, is a factor of geology. The Hubbert down slope does not take into account the geopolitics Klare focuses on.
Taking a moment to consider the geopolitical challenges facing the extraction of the second half of the worlds oil it seems highly unlikely that future global oil extraction rates are going to live up to their theoretical geological/logistical potential.
http://uk.theoildrum.com/story/2006/11/2/1789/66426
Bush’s Chernobyl Economy; hard times are on the way
By: By MIKE WHITNEY on: 10.11.2006 01:11 (437 reads)
11/08/06 "Information Clearing House" — — In the next few months, a financial crisis will arise somewhere in the world which will jolt the American economy and trigger a swift and precipitous decline in the value of the dollar.
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This is not speculation; it will happen and there is nothing that the Bush administration can do to stop it.
All of the traditional supports for the dollar have been removed by the shrinking economy, a massive $800 billion account deficit, dramatic increases in the money supply, and the reckless manipulation of interest rates.
Now, the noose is tightening. Our foreign trade partners can see that we are drowning in red ink and are refusing to buy back our debt in the form of US Treasuries. This is a death sentence for the dollar. It means that in a matter of months the once-mighty greenback will crash through the floor and free-fall through open space.
Mike Swanson of the WallStreetWindow explains the worrisome details related to last month’s trade deficit:
“Just a few days ago the US Treasury reported that the net capital inflows from the rest of the world into the US fell for a 6th month in a row. Private (purchases) from abroad fell to $34.7 billion in August and from $72.9 billion in July. Asian central banks made up for the shortfall. If they hadn’t the current account deficit would have exploded. The NY Times quoted Ashraf Laidi, a currency analyst at MG Financial Group as saying, “foreign central banks saved the dollar from disaster. The stability of the bond market is at the mercy of Asian purchases of US Treasuries.”
Swanson poses an interesting theory, but it can’t be verified since we the Fed stopped printing the M-3 (which would provide the relevant facts about the current cash inflows) and since China and Japan have slowed their purchases of UST Bonds.
Jim Willie of GoldenJackass.com, offers an entirely different theory in his recent article “Spent Dollar Momentum”. Willie opines:
“Behind the scenes are the many illicit London-based firms busily buying US Treasury Bonds with freshly-printed money from the Dept of the Treasury. Their tracks are covered by the blackout on the money supply statistic. (M-3) An isolated US government with a well-oiled printing press as the primary support device makes for a dangerous currency situation.”
Willie’s “conspiracy theory” jives nicely with the US Treasury’s figures on the “Foreign Financing of US Government Debt” (June 2006) Surprisingly, between 2005 and 2006 our friends in the United Kingdom purchased an additional $142 billion of USD bringing their stockpile of dollars to $201.4?!?
Why?
Why would UK investors suddenly stock up on dollars when everyone else in the currency market is bemoaning the greenback’s systemic problems?
Could it be that banks in the UK are just hiding the paper trail for friends in America who want to forestall a collapse in the dollar until after the election?
Of course, there could be another explanation for the irregular activity in cash inflows, (purchase of US Treasuries) that is, that we’re still living in a "faith-based" Wonderland where our overseas trading partners are more than willing to buy an endless supply of worthless paper from a well-meaning Goliath who is busy spreading democracy to the "great unwashed" in developing world.
This is an utter fiction. The world is backing away from the dollar and whether one accepts the conspiracy theories or not, it’s clear that the Federal Reserve is trying to cover its tracks and conceal its shadowy maneuverings.
There is nothing accidental about the crisis we'll soon be facing. Officials at the Federal Reserve and the US Treasury are fully aware of the devastating effects of massive trade deficits, increasing the money supply, and self-serving interest rates manipulations. They have set the country on the path to ruin as part of a broader scheme for remaking the global-system according to well-known precedents. In truth, the plan to modify the present system has a long history; going back to the 1980s when many of the same actors in government today were in positions of power in the Reagan administration. For the last 6 years they have been patching together their strategy; producing record deficits, unfunded tax cuts, mammoth government expansion, and doubling the money supply.
How can anyone argue that they did not understand the implications of their actions?
Did Greenspan know that by lowering interest rates in 2001 to 1.5% that he would sluice trillions of dollars into the real estate market producing the largest equity bubble in history? And, if he didn't know, then how is it that the Fed provides the statistics which state precisely how large the housing bubble really is?
Didn’t Greenspan read the charts and graphs put out by his own organization?
And why did Greenspan support the shaky “no down payment”, “interest-only” loans and ARMs which allowed “high-risk” people to qualify for mortgages when the Fed knew, according to their own figures, that when interest rates went up, foreclosures would skyrocket?
Of course he knew; they all knew. How could they NOT know? They produce the facts and figures themselves! It’s all part of a madcap scheme to shift wealth to the top 1% and drive a wooden stake into the heart of the middle class. When Greenspan saw that doomsday was approaching, he got “cold feet” and bailed out. Now the scholarly Bernancke is left to supervise the economic meltdown and face the public scorn.
Trouble Ahead
Currently, the U.S. economy is held together by the slimmest of threads; literally duct-taped together by massaging all of the crucial economic numbers, pumping as much cheap fiat-currency into the system, and by "increasingly-suspicious" maneuverings in the futures markets. After the elections, they’ll be no reason to conceal the rot at the heart of the system. After all, we are not facing an unforeseen catastrophe, but a planned demolition intended to increase the disparity between rich and poor to such an extent, that democracy, as we know it, will no longer be possible.
Nothing is more repugnant to America’s ruling elite than the notion that every man, however broke and insignificant, can participate in our system of government.
The Federal Reserve's bloody fingerprints are all over our present dilemma. The privately-owned Fed has never operated in the public interest. By doubling the money supply in the last 7 years and keeping interest rates artificially low, the Fed has generated a $10 trillion housing bubble while, at the same time, ignoring a $800 billion trade deficit which is sucking up American assets and crushing American industry at an unprecedented rate.
This massive expansion of debt has increased the likelihood that an unexpected event, like a bank failure or a teetering hedge fund, will cause a major disruption in the markets sending tremors through the global system. Even if nothing explosive happens, the faltering real estate market will continue to swoon, consumer spending will dry up, and the fragile economy will crash to earth. In fact, this is taking place right now; retail sales are anemic, residential housing dropped a whopping 17% in the last 3 months, and economic growth shrunk to a measly 1.6% in the third quarter. The only thing keeping the economy from collapsing entirely is the sudden drop in oil prices which “conveniently” coincided with the midterm balloting.
This won’t last. According to industry analyst Matthew Simmons the world production of oil may have already peaked setting the stage for a leveling-off period before the inevitable decline. Simmons has data to show that “world supply of oil has declined to 83.98 million barrels per day in the second quarter after hitting 84.35 million bpd in the forth quarter of 2005.” Oil production is going backwards not forwards.
No one believes the price of oil is going down any time soon. As energy prices rise and the housing market falls; consumer spending, which added $825 billion from home equity into last year’s economy, will continue shrivel. Thus, the Fed will have to make the tough-choice of whether to loosen the purse strings and lower interest rates to keep the economy sputtering along or ratchet up rates to attract more foreign investment. (Keep in mind that the real estate market is already in retreat, even though, the full force of the Fed’s interest rate increases won’t be felt for up to 6 to 12 months after they have been raised. The worst is yet to come)
Most economists believe that Fed Chairman Bernancke will be forced to lower rates sometime in 2007 to try to stimulate the economy and to affect a “soft landing” in the housing market, but don’t count on it.
I believe the Fed is more likely to either keep rates the same or raise them to outpace the anticipated increases in Europe and Asia. The reason for this is simple; it presently takes nearly $2.5 billion per day to cover our current account deficit. To continue to attract foreign capital, US Treasuries must offer a higher rate of return than their foreign competitors. Now that the economies in Europe and Asia are growing; naturally their interest rates are going up accordingly.(to slow inflation) That means that the only way that America can continue to expand its debt, through the exchange of fiat currency for resources and manufactured goods, is by raising the return on Treasuries. And, that is probably what Bernanke will do, even though it will skewer the struggling American worker and further damage the US economy.
The secret of running the global economic system is to control the issuance of currency and, thereby, be in a position to expand one’s own debt as one sees fit. The Federal Reserve must preserve its “dollar hegemony” if it wants to maintain the greenback as the world’s reserve currency. To achieve that, the dollar must stay one step ahead of its competitors (higher rates) and prove that it is on solid financial footing. This is impossible now that the US economy is contracting, so Washington has decided to do the next best thing; corner the oil market. By controlling Middle East oil US policy-makers believe that they can force foreign nations to accept the debt-plagued greenback regardless of the faltering US economy. It is no different than any other extortion racket.
If the plan succeeds the dollar will remain the de-facto international currency. But it is difficult task and the escalating violence in Iraq suggests that the results are far from certain.
Corporate Colonization
“Free Trade” is the Holy Grail of neoliberalism. It is essentially a public relations scam intended to disguise the shifting of wealth, jobs and resources from either the middle class or the public sector to the corporate and banking establishments’. Despite the zealous cheerleading of Thomas Friedman and his ilk; the basic facts have been thoroughly examined and are not in dispute. Free trade has been a dead loss for everyone except the people for whom it was originally designed; the wealthiest and most powerful men on the planet. It has served them quite well.
For example, “since NAFTA went into effect in 1994, the US has lost over $4 trillion to foreigners through its trade deficit”…”During that 11.5 year period , foreign ownership of US assets skyrocketed an amazing 400% from $3 trillion to over $12 trillion”… “Foreign interests now own 46% of US Treasury debt, 26% of corporate bonds, and 13% of US corporate equities. Now nearly 100% of on-going borrowings by the government are funded by foreign interests.”…”Foreign interests also control a majority of US domestic industries such as movies, music, publishing, metal ore mining, cement production, engine and power plant production, rubber and plastics and are major owners of US industries such as pharmaceuticals, chemical manufacturing, industrial machinery manufacturing, motor vehicles, and electronic equipment and components…In addition, the US has lost 3 million manufacturing jobs over the last decade, real wage growth after inflation has been essentially zero,” and personal debt has never been higher. (Data from Thomas Heffner EconomyInCrisis.org)
Since 1980, 13,730 major companies have been sold to foreign corporations. We no longer produce what we need to sustain ourselves.
These facts may have a mind-numbing affect on the reader, but they make a point which is simple and unavoidable. The country is being colonized by corporate predators and its main assets are being sold off to the highest bidder. This rampant carpet-bagging is taking place in full view of the American public which still clings to the spurious idea that “free trade” is generally beneficial for all. It is not, and we are about to experience its full-effects as America’s “straw-house” economy topples from its loss of manufacturing-capacity and its staggering account imbalances.
“Foreign investors now own 46% of US Treasury debt” over $3 trillion dollars! The Federal Reserve and their corporate she-wolves are planning to prolong the hemorrhaging of US wealth as long as possible extracting every last farthing from the prostrate corpse of the waning republic.
Now, we are at the brink. Energy prices will go higher after the elections, manufacturing will continue to flag, and the housing Zeppelin is drifting towards the high-tension wires. To make matters worse, the American consumer; the “engine for global economic growth”, is drowning in a sea of personal debt.
There’s no place to go but down.
Every part of this bleak picture was anticipated by its architects. That’s why they hastily slapped together the requisite legislation for a modern-day police state. After passing the Military Commissions Act of 2006 (which allows the president the arrest whomever he chooses without charges) and overturning the Posse Comitatus Act (the president is now free to deploy the military within America against US citizens) the Bush administration is as ready as they can be. Apparently, they feel like they can manage the public’s shock and outrage with detention camps and water cannons.
We’ll see.
In any event, the trap has been set and any minor disruption in the hedge funds or derivatives markets will put the economy into a violent tailspin forcing our "Unitary” president to activate his plans for the new world order.
Battle Stations; Battle Stations
Last week an article by Ambrose Evans-Pritchard appeared in the UK Telegraph, where he stated:
“(Treasury Secretary) Paulson re-activated the secretive support team to prevent markets meltdown. Judging by their body language, the US authorities believe that the roaring bull-market is just a sucker’s rally before the inevitable storm hits….the plunge protection team is a shadowy body with powers to support stock-index, currency, and credit futures in a crash. Otherwise known as the working group on financial markets, it was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987”….Paulson has set up “a command center at the US Treasury that will track global markets and serve as an operations base in the next crisis.” (Members include the heads at Treasury, Federal Reserve and Securities and Exchange Commission)
Evans-Pritchard adds: “Mr. Paulson has asked the team to examine ‘systemic risk posed by hedge funds and derivatives, and the government’s ability to respond to a financial crisis…We need to be vigilant and make sure we are thinking through all of the various risks and that we are being very careful here. Do we have enough liquidity in the system?’”
And, finally, Evans-Pritchard queries: (Do) Mr. Paulson and Mr. Cox (SEC) know something that we do not: whether other hedge funds are in the same sinking boat as Amaranth Advisors and Vega Management, keel-hauled by bets on natural gas and bonds? Or whether currency traders with record short positions on the Japanese Yen and Swiss Franc are about to learn the perils of the Carry Trade, a high-stakes game of chicken where you bet against fundamentals with high leverage to make a quick profit. Everybody knows it will blow up if the dollar goes into free fall”.
So what is Paulson anticipating?
Gabriel Kolko offers us a clue in a counterpunch article “Why a Global Economic Deluge Looms”:
“The entire global financial structure is becoming uncontrollable in crucial ways its nominal leaders never expected. Instability is its hallmark…Contradictions now wrack the world’s financial system, and if we are to believe the institutions and personalities who have been in the forefront of the defense of capitalism, it may well be on the verge of serious crisis.”
Deregulation and reduced market transparency have created a plethora of financial instruments which are relatively untested and extraordinarily volatile. By eliminating the “rules of the game” market-savvy investors have raked in the profits but reshaped the economic landscape in a way that no one can predict what the ultimate outcome will be. Hedge funds are now loaded with over-leveraged debt-instruments that promise a generous return in an up-tempo market, but certain doom in an economic downturn. Now, that all the arrows are pointed towards recession the devastating effects of this new “liberalized” system will be felt throughout the global economy.
No one knows what is in store for these high-risk hedge funds which have only been in existence for a short time and which Americans have dumped trillions of their hard-earned savings. As Kolko says, “The credit derivative market was almost non-existent in 2001, grew fairly slowly until 2004, and went into the stratosphere, reaching $17.3 trillion by the end of 2005.”
Is it any wonder why the main players at the Fed, the Treasury and the SEC are feeling a bit jittery?
Any shock to the markets could set off a system-wide cataclysm. Just this week, for example, Taiwan was bracing for a stock market crash following the surprise indictment of first-lady Wu Shu-chen. Even relatively small incidents like this on the other side of the world create the potential for contagion that can spread rapidly in this new world of globalized markets. The danger is even greater when those markets are built on a foundation of sand.
Hank Paulson was doubtless selected as Treasury Secretary as the best possible “industry-insider” to oversee the unwinding of America’s humongous account imbalances and flimsy “deregulated” markets. His job is to ensure that, at the end of the day, US banking giants, the Federal Reserve, and western elites still control the global economic system and that the dollar reigns supreme. Whatever happens to the American middle class in the process is of no consequence.
But Paulson faces a daunting task from this point on; fudging the numbers only works won’t work forever. So far, the greenback has benefited from the manipulation of oil prices, but that will soon end. (Better “fill ‘er up” now) The US economy is a shriveled shadow of its former self; housing and manufacturing are in a shambles and growth depends entirely on the expansion of debt. As GDP begins to nosedive, foreign investment will dry up, capital will flee to more promising markets in Asia and Europe, and the American people will totter into a barren world of soaring unemployment, hyper-inflation, and 1930s-type deprivation.
The country is now facing a Chernobyl-type meltdown and the prospects for changing direction appear to be minimal. The foundation blocks for sound economic growth and prosperity have been replaced by a misguided faith in military adventurism and police state repression. The results are plain to see.
We are now more vulnerable to a seismic economic event than anytime since the Great Depression. The corporatists and the money-lenders have absconded with the nation’s wealth; gutting the manufacturing sector, creating enormous equity bubbles, and raffling off our vital industries to foreign investors. At the same time, the Bush administration has sown dragons-teeth around the world leaving the US with precious few friends to throw us a lifeline when ship starts taking on water.
Hard times are on the way; only this time it’ll be detention centers instead of soup kitchens.
http://www.informationclearinghouse.info/article15545.htm
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Kick these zionist-nazi bastards out AND THE WORLD WILL BE MUCH SAFER!
by CANUKISTAN_VIEW on 10.11.2006 02:07
WHAT IS INTERESTING TO NOTE IS THAT THE USA REPUBLICAN SENATORS that went for election were only 14 out of 54 and they lost ALMOST 50% OF THOSE POSITIONS. Therefore the key issue here is that if 40 of the republican’s senators would have gone for election THEN THE REPUBLICANS WOULD HAVE LOST PERHAPS 20 OUT OF THE 40 SENATORS THEY HAD instead of loosing the 6 out of 14 that went for the election.
THIS IS WHY THE REPUBLICAN NEOCONS - NEOTHEO - ZIONAZIS ARE NOW RUNNING FOR COVERING because in the next election the Republican party will be reduced to a minority and insignificant party . USA people will keep pressing on as more USA people will be financially busted in the weeks, months and years ahead. What is interesting to note here is that the media distorted Greenspan statement at the annual Charles Schwab Impact conference in Washington by saying “economic downturn likety temporarily”, “only brief slump”, “slump will not worsen”, etc. HE SAID:“The economy is obviously going through a significant slowing period, which is more than likely temporary,. If he wouldn’t have his BEST he may have said that in USA economic history THERE IS NO ONE SINGLE SOFT LANDING!
Thus the republicans as a whole are now in the pot like the frog feeling the waters warmer and warmer but still refusing to jump out until is too late and get cooked alive!. It is urgent for the USA patriotic and social movements to KEEP THE PRESSURE ON THE DEMOCRATS AND TO IMPEACH BUSH AND CHENNY. Until then the USA and the world are in danger as ever. Remember the new Defense Secretary is an old well known nazi and far from being an academic angel. There are many links between Oklahoma explosion, McVeight, republicans’ politicians and former senator working in a Oklahoma University. This new appointee was CIA director under Bush Sr. i.e. he is another nazi like Bush family have been for generations. The former CIA director William Cassey died suddenly while he, admiral Poindexter, Oliver North and Reagan were under investigations for selling guns to IRAN and selling drugs to California kids TO FINANCE THE CONTRA-WAR AGAISNT ORTEGA IN NICARAGUA. And former Democrat Texas Governor Anny Richards was asking WHERE WAS GEORGE BUSH AS VICE-PRESIDENT? This new Defense Secretary works for the Bush family rather than the USA government! Reagan was a republican, a right wing, but never a nazi or a pro zionist, he was not a member of the Rockefeller Trilateral Commission, he was not a Skull and Bones! But curiously his Vice-President Bush Sr. was all that and what a bizarre coincidence that Bush business partner ALMOST KILLED REAGAN just after 69 days in power! SO ARABS DO NOT EXPECT ANY THING BETTER FROM USA UNTIL BUSH AND HIS ZIONIST-NAZI TEAM ARE OUT OF THE WHITE HOUSE and out of the Republican and Democratic parties!
The hope that USA people will keep the pressure on is supported by the fact that the USA economy is sinking infallibly, their monumental debt is getting bigger; the economic unbalances will get worse; the real estate market bubble is already loosing air; the illegal wars are lost; the US dollar destiny is to finally collapse when USA officially will publicly admits that they cannot serve the debt anymore. All price commodities will keep going up as their prices are still reflecting year 1929 when adjusted for inflation; this means the INFLATION DUE TO A WEAKENING DOLLAR will accelerate as the democrats will prefer to cut interest rate and save consumers rather than protect the dollar and tax cuts; either way they are doomed anyway!. May be USA will be like Germany in 1923 when a wheel barrel full of Deutsch Mark could buy just a newspaper in the morning as the next day a lot more marks were required!
The USA DEMOCRATS must understand one thing very clearly: THE MAJORITY OF USA PEOPLE VOTED AGAINST BUSH, HIS ZIONAZI TEAM AND HIS WRONG POLICIES – BUT BECAUSE THERE WERE NO OTHER VIABLE POLITICAL ALTERNATIVE IN THE USA - THESE VOTES WENT TO THE DEMOCRATS AS THE ONLY ALTERNATIVE!
This means, the democrats elected, the policies, the thinking and the financiers have not changed one iota! Therefore, the USA patriots and social movements must keep the pressure on the democrats to keep these corrupted politicians away from compromising with Bush regime. For instance democrats senators Dianne Feinstein and Hilary Clinton were yesterday approving an illegal war and on false pretense and lies. What are they saying now? Do you believe them? According to the USA Constitution ONLY THE SENATE can declare war! AND SURE THEY DID! Both, republicans and democrats! So don’t tell us now that there fooled by Bush like Diane a member of the senate Intelligence committee! Many Jane and Joe knew it was just a war for oil but these whore Senators couldn’t figured that out? Pathetical and compulsive liars! The point is USA people MUST ENSURE THOSE WHO BETRAYED AND DESTROYED THEIR COUNTRY WILL PAY FOR THEIR CRIME!
CHEERS FROM CANADA - PEACE -PEACE MORE THAN EVER!
Unfortunately, the fact remains more Zionists gott in the Congress after this election
by cosmo on 10.11.2006 05:34
proving that there is no cure for the US without a total revolt and total dismantling of its corrupted system along with its drivers.
The Dollar's Full-System Meltdown: 'Phase of impact will begin in Nov. 2006’By: Mike Whitney on: 01.11.2006 16:30 (1314 reads)
Daughty goes on to say: “So a lot of the hubbub is obviously being caused by some approaching upheaval, perhaps reflected in something sent to me by Phil S., which is the Global Europe Anticipation Bulletin No8 which reminded us that last May they predicted that the economy would have a ‘phase of acceleration’ that would begin in June, and it “would be spread out over a period of a maximum of 6 months’, which it subsequently did. They said then, and are saying again now, that a ‘phase of impact will begin in November 2006’, and that this impact phase would be the ‘explosive phase of the crisis’.
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The Dollar's Full-System Meltdown: 'Phase of impact will begin in Nov. 2006’
By Mike Whitney
10/30/06 "Information Clearing House" — — The U.S. Dollar is kaput. Confidence in the currency is eroding by the day.
A report in The Sydney Morning Herald stated, “Australia’s Treasurer Peter Costello has called on East Asia’s central bankers to ‘telegraph’ their intentions to diversify out of American investments and ensure an ‘orderly adjustment’….Central banks in China, Japan, Taiwan, South Korea, and Hong Kong have channeled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down interest rates,’ said Costello, but ‘the strategy has changed.’”
See IRAQ-WAR.RU: 21.10.2006 Australia seeks orderly $US withdrawal
By: John Garnaut Economics Correspondent http://www.iraq-war.ru/article/106322
Indeed, the strategy has changed. The world has come to its senses and is moving away from the green slip of paper that is currently mired in $8.3 trillion of debt.
See IRAQ-WAR.RU: 01.11.2006 UAE considers cut in dollar reserves By: FT http://www.iraq-war.ru/article/107404
01.11.2006 Syria switches to the Euro due to US sanctions By: Roee Nahmias http://www.iraq-war.ru/article/107402
16.10.2006 Russia Diversification Talk Hurts Dollar, Bodes Well For Yen By: Wanfeng Zhou http://www.iraq-war.ru/article/105805
The central banks now want to reduce their USD reserves while trying to do as little damage to their own economies as possible. That’ll be difficult. If a sell-off ensues, it will start a stampede for the exits.
There’s little hope of an “orderly adjustment” as Costello opines; that’s just false optimism. When the greenback begins listing; things will turn helter-skelter quickly.
In September, we saw early signs that the dollar was in trouble. The trade deficit registered at $70 billion but the Net Foreign Security Purchases (NFSP) came in at a paltry $33 billion. That means that our main trading partners are no longer buying back our debt which puts downward pressure on the greenback. The Fed had two choices; either raise interest rates substantially or let the currency fall. Given the tenuous condition of the housing bubble and the proximity of the midterm elections, the Fed did neither.
A month later, in October, the trade deficit hit $69.9 billion but, then, without warning, a miracle occurred. The Net Foreign Security Purchases skyrocketed to a “historic high” of $116.8 billion; covering both months’ shortfalls almost to the penny.
Coincidence?
Not likely. Either the skittish central banks decided to “stock up” on their dollar-denominated investments or the Federal Reserve (and their banking-buddies) is buying back its own debt to float us through the elections.
This is exactly the kind of hanky-panky that people expected when Greenspan stopped publishing the M-3 last March keeping the rest of us in the dark about what was really going on with the money supply.
Are we supposed to believe that the skeptical central banks suddenly doubled up on their T-Bills while they’re (publicly) moaning about the dollar’s weakness and threatening to diversify?
That’s a stretch.
According to the Wall Street Journal the Chinese Central-bank governor Zhou Xiaochuan stated unequivocally that “We think we’ve got enough.” The Chinese presently have nearly $1 trillion in USD and US Treasuries.
“Enough”?
The United States runs a $200 billion per year trade deficit with China. If they’ve “got enough” we’re dead-ducks. After all, it doesn’t take a sell-off to kill the dollar, just unwillingness on the part of the main players to stop purchasing at the same rate.
Of course, everyone in Washington already knew that doomsday was approaching. That’s the way the system was designed from the very beginning. It’s all part of the madcap scheme to “starve the beast” and transfer the nation’s wealth to a handful of western plutocrats. That’s explains why the Fed and the White House whirred along like two spokes on the same wheel; every policy calculated to thrust the country headlong toward disaster.
The administration never created a funding mechanism for the $400 million tax cuts or for the 35% expansion of the Federal government. Defense spending increased by leaps and bounds as did the “no-bid” contracts for friends of the Bush clan. At the same time, interest rates were lowered to rock-bottom to put as much money as possible into the hands of people who couldn’t meet the traditional criteria for a mortgage. And, if gluttonous waste, reckless overspending and “Mickey Mouse” loans were not enough; the Fed capped it off by doubling the money supply in 7 years; a surefire prescription for hyper-inflation.
So, which one of these policies was not deliberate?
The financial crisis that we now face was created by design. It is intended to destroy the labor movement, crush the middle class, quash Medicare, Medicaid and Social Security, reduce our foreign debt by 50 or 60%, force a restructuring of America’s debt, privatize all public assets and resources, and create a new regime of austerity measures which will divert more wealth to the banking and corporate establishments.
The avatars of neoliberalism invariably use crooked politicians to spawn enormous “unsustainable” debt so that the nations’ riches can be transferred to ruling elites. It works the same everywhere. It’s a form of corporate colonization, only this time the victim is the good old USA.
“The Phase of Impact”
According to Richard Daughty in his prescient article “The Phase of Impact” the Federal Reserve and the Treasury Dept have already manned the battle-stations. Here’s an excerpt:
“Mr. Paulson, the Secretary of the Treasury, is, by virtue of his ascension to the throne, now the head of the shadowy President’s Working Group of Financial Markets (which was created by Presidential Order 12631) and he is insisting that they meet more often, namely every 6 weeks!
This whole Working Group thing was originally set up as a fallback, ad-hoc, if-then defense to deal with possible economic emergencies, but now they are routinely meeting every 6 weeks. He has even ordered Jim Wilkinson, his chief of staff, to ‘oversee the creation of a Treasury Command Center to track markets world-wide and serve as an operations base in a crisis”! (Wall Street Journal) World-wide!! The American government is moving to take control of the world-wide economy as the result of an anticipated crisis? Yikes!”
Daughty goes on to say: “So a lot of the hubbub is obviously being caused by some approaching upheaval, perhaps reflected in something sent to me by Phil S., which is the Global Europe Anticipation Bulletin No8 which reminded us that last May they predicted that the economy would have a ‘phase of acceleration’ that would begin in June, and it “would be spread out over a period of a maximum of 6 months’, which it subsequently did. They said then, and are saying again now, that a ‘phase of impact will begin in November 2006’, and that this impact phase would be the ‘explosive phase of the crisis’.
This ‘phase of impact’ that is due to begin momentarily is, they explain, ‘a period when a series of brutal crises starts affecting by contamination the total system. This explosive phase of the crisis, which will last 6 months to one year, will affect directly and very strongly financial players and markets, the owners of investment schemes with fixed incomes in dollars, pension funds and the strategic relations between the United States on the one side, and Europe and Asia on the other.” (Richard Daughty; “The Phase of Impact” Kitco.com)
Predictions, of course, are rarely reliable and Daughty’s scenario may be a bit too apocalyptic for many. But if we accept the premise that the tax cuts, the expansion of the federal government, the doubling of the money supply, and the $10 trillion that was sluiced into the housing bubble were not merely “honest mistakes” made by “supply side” enthusiasts; then we must assume that this is all part of a loony plan to demolish the economic foundation-blocks of the current system and remake society from the ground up.
Domestically, that plan appears to involve the activation of the police state.
In the last few weeks the Bush administration has passed the Military Commissions Act of 2006 which allows the president to arrest and torture whomever he chooses without charging him with a crime. Also, unbeknownst to most Americans, Bush signed into law a provision which, according to Senator Patrick Leahy, will allow the president to unilaterally declare martial law. By changing The Insurrection Act, Bush has essentially overturned the Posse Comitatus Act which bars the president from deploying troops with the United States. The John Warner Defense Authorization Act of 2007 (as it is called) also allows Bush to take control of the National Guard which has always been under the purview of the state governors. Bush now has absolute power over all armed troops within the country, a state of affairs which the constitution purposely tried to prevent. The administration’s dream of militarizing the country under the sole authority of the executive has now been achieved although the public still has no idea that a coup that has taken place.
Internationally, the falling dollar means that America’s debt will be reduced proportionate to the percentage-loss of the dollar in relation to other currencies. This is a great deal for the U.S. First the Fed prints fiat money to buy valuable resources and manufactured goods and then it nabs a discount by depreciating its currency. It’s a “win-win” situation for Washington, although it will undoubtedly cheat unwitting foreign-creditors out of their hard-earned profits. It’s doubtful that their interests will weigh very heavily on the money-lenders at the US Treasury or the Federal Reserve.
The dollar faces a second crisis at home which is bound to play out throughout 2007. The $10 trillion dollar housing bubble is quickly losing air causing a precipitous drop in GDP. The housing industry is seeing its steepest decline in 30 years and home equity is beginning to shrivel. Housing has been the one bright spot in an otherwise bleak economic landscape. With the housing market slowing down and prices decreasing, the $600 billion of consumer spending which was extracted in 2005 from home equity will quickly evaporate triggering an overall slowdown in the economy. (Consumer spending is 70% of GDP)
By the Fed’s own calculations; “The total amount of residential housing wealth in the US just about doubled between 1999 and 2006 up from $10.4 trillion to $20.4 trillion. (“Times Online”) If these figures are accurate than we can assume that much of America’s “perceived” growth has been nothing more than the expansion of debt. In fact, that seems to be the case. Wages have been stagnant since the 1970s, 3 million manufacturing jobs have been outsourced, savings have shrunk to below 0%, and personal debt is soaring. We have become an “asset-based” society and when the principle asset begins to loose its value, we are in deep trouble. As housing prices continue to decline through 2007 we can expect a full-blown recession. If energy prices rear their ugly head again, (were they lowered for the elections?) it will just be that much worse.
So, how will recession affect the dollar?
Capital has no loyalties. It follows the markets. When America’s bustling consumer market stalls, we’ll undergo capital flight just like everywhere else. The 3 million lost manufacturing jobs, the 200,000 lost high-paying high-tech jobs, the tax incentives for major corporations doing business outside the country; all signal that corporate America has already loaded the boats and is headed for more promising markets in Asia and Europe. A sluggish consumer market could further weaken the dollar and force Americans to begin saving again but, (and here’s the surprising part) the decision-makers at the Federal Reserve and the Treasury Dept don’t really care if the face-value of the greenback goes down anyway.
What really matters is that the dollar retains its position as the world’s reserve currency. That allows the Federal Reserve to continue to print the money, set the interest rates, and control the global economic system. The dollar presently accounts for 66% of foreign currency reserves in central banks across the globe, an increase of nearly 10% in one decade alone. The dollar has become the international currency, a de-facto monopoly. This is the goal of the globalists and the American ruling elite who dream of one system, the dollar-system; with us running it.
So, how will this cadre of plutocrats coerce the other nations to continue to use the dollar while it plummets from its perch?
Oil.
As long as oil is denominated in dollars, the central banks will be forced to stockpile American scrip regardless of its value. It’s no different than holding a gun to someone’s head. They will use our debt-plagued greenbacks or their cars and trucks will sputter, their tractors and factories will wheeze, and their economies will grind to a halt. It’s just that simple.
America cannot maintain its superpower status unless it continues to control the global economic system. That means the linkage between the dollar and oil must be preserved. The Bush troupe sees this as an existential issue upon which the future of America’s ruling class depends. By 2020, 60% of the world’s oil will come from the Middle East. Bush will do everything in his power to control the resources of the Caspian Basin, thereby expanding US dollar-hegemony and paving the way for a new American century
