Now those people have egg on their faces. Here is an interesting item about the Dubai collapse, written by James Howard Kunstler:

Apart from the stark self-contradiction in this quote from The New York Times, you have to love the fatuous ‘it’s all good’ self-assurance where global banking is concerned. No problemo y’all! A mere overdraft incident, a cash-flow hiccup… and yet “the main fear” [among whom?] is that investors [where and in what? Like, everywhere?] could flee risky markets all at once in search of safer havens for their money [WTF?]. Gosh, well, as long as they don’t flee the New York Stock Exchange, the Hang Seng, the FTSE…. And, hey, do you suppose anybody bought any credit default swap “insurance” on the deals that financed scores and scores of super-giant condominium skyscrapers and hotels amounting to the greatest spec construction folly in the history of the world?

Snapshots of the stupid ****ing work-in-progress have been circulating around the Internet for five years, the disbelief was so monumental. I confess, when I first saw the Palm Island I was impressed at what a superb air strike target it presented. And then, when the real estate assemblage of artificial islands arranged like a map-of-the-world came along, I could only imagine the megalomaniacal glee rising in the throat of a jet bomber pilot (nationality unspecified) as he closed in on it.

Whom the gods would punish, they first make completely crazy. That includes us, here in the USA, by the way, but pound-for-pound Dubai is the current champeen. The monstrosity they built in their waterless convection-oven of a city-state makes Las Vegas look like a mere strip mall in comparison. Throw in a few other affronts to nature, such as an indoor ski “mountain,” a beach cooled by an under-the-sand refrigerated pipe network, golf courses that have to be hosed down with acre-feet of desalinated sea-water, and forget about “the gods” — one begins to see the monotheistic hand of “Old Scratch” himself working the levers of the construction cranes out there.

Frankly, I have no idea whether the Dubai fiasco will send seismic ripples thundering through a global banking establishment that is already crippled in more ways than you can count. But it does remind those in thrall to the dazzlement of “green shoots” that debt comes a’creeping, and runs so far, deep, and wide through the broken system of mutual assurances constituting international finance, that Ben Bernanke and his counterparts in central banks ‘round the world could drop helicopter loads of paper cash on every rooftop, intersection, parking lot, field, forest, and camel raceway and never make a dent in the fatal web of false obligations we have woven for ourselves.

But you do wonder what was going through their minds as this ridiculous organism took shape on the horn of the Persian Gulf, just as one wonders at loathsome aspirations that Las Vegas presents in our own so-called culture — essentially a wickedness that exceeds the wildest fantasies of the most demented clergymen, be they closeted sado-masochistic Southern Baptist teleministers, Vatican-approved child molesters, or mullahs dispatching suicide bombers to the marketplaces frequented by housewives and their children.

Lately, the much-repeated aphorism has circulated around the Web that civilizations build their most extreme monuments at the very moment of collapse. If this is true — and it is hard to argue with the historical record — then it’s time to organize a new Third Party for the 2012 election with Jared Diamond and Cormac McCarthy heading the national ticket (and Roland Emmerich for EPA chief). By then, if we don’t stop lying to ourselves about the destruction we have induced, every other suit-and-tie wearing authority figure in America, from the county clerk to Barack Obama, will take on the aura of the archetypal Evil Clown from a Stephen King yarn. Imagine living in a country where absolutely nobody in a leadership position is credible. This is the kind of country we’re becoming and it will not keep running that way for long.

The markets have begun digesting the Dubai news in earnest, making for a holiday season of possibly momentous thrills-and-chills. The big debate going into Thanksgiving was whether the dollar would continue its downward trajectory, leading to some kind of currency failure, hyper-inflation, take your pick… or turn briskly around as investors bailed out of risk vehicles for the conventional safe-haven paper parking lot of US Treasuries. This debate between the inflationists and deflationists has defied resolution all year. Personally, I side with the deflationistas these days, though I believe our ultimate destination, in a year or so, is destruction of the dollar.

In keeping with the wickedness theme, isn’t it interesting that our society now vests all its hopes and wishes for thriving — indeed survival! — on a yearly ceremony we have come to call Black Friday. I was raised in a religion-free household, but I confess the signs are just everywhere that we’ve taken some turn to the Dark Side. I’m a little surprised that “consumers” were not caught on video wringing the necks of chickens in the Wal-Mart parking lots the other day in the hopes of winning supernatural favor for that race down the aisle to the flat-screen TV loss leaders. The cinemas are full of blood-sucking teenagers. Grown men swarm in the unemployment offices wearing sideways hats and butt-crack trousers. Why not just tattoo a message on your forehead that says: ”Moron for Hire”?

Regards,
James Howard Kunstler

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Don’t forget to visit AncientBankingSystem.com for your free copy of “Promise To Pay”.

And . . . Spread the word.

Philip Gegan

Not that I necessarily agree with all of it, but it’s there for all who want to discuss or debate it.

Feel free to add your comments on any aspect of it. And of course, as always . . .

Spread the word!

Philip Gegan

Philip Gegan

In it Tom White argues that usury relies on perpetual growth – something that nature doesn’t allow. All modern economies are based on usury and that will eventually lead to total disaster.

Isn’t that why the economies of all industrialised countries eventually become moribund and stagnant, with the gap between rich and poor wider than ever?

Philip Gegan

I shall return to regular articles on this site as soon as possible.

Philip Gegan

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Credit is not flowing. In fact, credit is contracting. That means things aren’t getting better; they’re getting worse. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country’s credit engines are grinding to a halt.

Bernanke has increased excess reserves in the banking system by $800 billion, but lending is still slow. The banks are hoarding capital in order to deal with the losses from toxic assets, non performing loans, and a $3.5 trillion commercial real estate bubble that’s following housing into the toilet. That’s why the rate of bank failures is accelerating. 2010 will be even worse; the list is growing. It’s a bloodbath.

The standards for conventional loans have gotten tougher while the pool of qualified credit-worthy borrowers has shrunk. That means less credit flowing into the system. The shadow banking system has been hobbled by the freeze in securitization and only provides a trifling portion of the credit needed to grow the economy. Bernanke’s initiatives haven’t made a bit of difference. Credit continues to shrivel.

The S&P 500 is up 50 percent from its March lows. The financials, retail, materials and industrials are leading the pack. It’s a “Green Shoots” Bear market rally fueled by the Fed’s Quantitative Easing (QE) which is forcing liquidity into the financial system and lifting equities. The same thing happened during the Great Depression. Stocks surged after 1929. Then the prevailing trend took hold and dragged the Dow down 89 percent from its earlier highs. The S&P’s March lows will be tested before the recession is over. Systemwide deleveraging is ongoing. That won’t change.

No one is fooled by the fireworks on Wall Street. Consumer confidence continues to plummet. Everyone knows things are bad. Everyone knows the media is lying. Credit is contracting; the economy’s life’s blood has slowed to a trickle. The economy is headed for a hard landing.

Bernanke has pulled out all the stops. He’s lowered interest rates to zero, backstopped the entire financial system with $13 trillion, propped up insolvent financial institutions and monetized $1 trillion in mortgage-backed securities and US sovereign debt. Nothing has worked. Wages are falling, banks are cutting lines of credit, retirement savings have been slashed in half, and home equity losses continue to mount. Living standards can no longer be bandaged together with VISA or Diners Club cards. Household spending has to fit within one’s salary. That’s why retail, travel, home improvement, luxury items and hotels are all down double-digits. The easy money has dried up.

According to Bloomberg:

“Borrowing by U.S. consumers dropped in June for the fifth straight month as the unemployment rate rose, getting loans remained difficult and households put off major purchases. Consumer credit fell $10.3 billion, or 4.92 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $5.38 billion in May, more than previously estimated. The series of declines is the longest since 1991.

A jobless rate near the highest in 26 years, stagnant wages and falling home values mean consumer spending… will take time to recover even as the recession eases. Incomes fell the most in four years in June as one-time transfer payments from the Obama administration’s stimulus plan dried up, and unemployment is forecast to exceed 10 percent next year before retreating.” (Bloomberg)

What a mess. The Fed has assumed near-dictatorial powers to fight a monster of its own making, and achieved nothing. The real economy is still dead in the water. Bernanke is not getting any traction from his zero-percent interest rates. His monetization program (QE) is just scaring off foreign creditors. On Friday, Marketwatch reported:

“The Federal Reserve will probably allow its $300 billion Treasury-buying program to end over the next six weeks as signs of a housing recovery prompt the central bank to unwind one its most aggressive and unusual interventions into financial markets, big bond dealers say.”

Right. Does anyone believe the housing market is recovering? If so, please check out this chart and keep in mind that, in the first 6 months of 2009, there have already been 1.9 million foreclosures.

The Fed is abandoning the printing presses (presumably) because China told Geithner to stop printing money or they’ll sell their US Treasuries. It’s a wake-up call to remind the Fed of its limits.

That puts Bernanke in a pickle. If he stops printing; interest rates will skyrocket, stocks will crash and housing prices will tumble. But if he continues QE, China will dump their Treasuries and the greenback will vanish in a poof of smoke. Either way, the malaise in the credit markets will persist and personal consumption will continue to sputter.

The basic problem is that consumers are buried beneath a mountain of debt and have no choice but to curtail their spending and begin to save. Currently, the the ratio of debt to personal disposable income, is 128% just a tad below its all-time high of 133% in 2007. According to the Federal Reserve Bank of San Francisco’s “Economic Letter: US Household Deleveraging and Future Consumption Growth”:

“The combination of higher debt and lower saving enabled personal consumption expenditures to grow faster than disposable income, providing a significant boost to U.S. economic growth over the period. In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes. For many U.S. households, current debt levels appear too high, as evidenced by the sharp rise in delinquencies and foreclosures in recent years. To achieve a sustainable level of debt relative to income, households may need to undergo a prolonged period of deleveraging, whereby debt is reduced and saving is increased.

Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates.” (”U.S. Household Deleveraging and Future Consumption Growth, by Reuven Glick and Kevin J. Lansing, FRBSF Economic Letter”)

A careful reading of the FRBSF’s Economic Letter shows why the economy will not bounce back. It is mathematically impossible. We’ve reached peak credit; consumers have to deleverage and patch their balance sheets. Household wealth has slipped $14 trillion since the crisis began. Home equity has dropped to 41% (a new low) and joblessness is on the rise. By 2011, Duetsche Bank AG predicts that 48 percent of all homeowners with a mortgage will be underwater. As the equity position of homeowners deteriorates, banks will further tighten credit and foreclosures will mushroom.

The executive board of the IMF does not share Wall Street’s rosy view of the future, which is why it issued a memo that stated:

“Directors observed that the crisis will have important implications for the role of the United States in the global economy. The U.S. consumer is unlikely to play the role of global “buyer of last resort” — other regions will need to play an increased role in supporting global growth.”

The United States will not emerge as the epicenter of global demand following the recession. The world is changing and the US role is getting smaller. As US markets become less attractive to foreign exporters, the dollar will lose its position as the world’s reserve currency. As goes the dollar, so goes the empire.

July’s employment numbers came in better than expected (negative 247,000) lowering total unemployment from 9.5% to 9.4%. That’s good. Things are getting worse at a slower pace. What’s striking about the BLS report is that there’s no jobs-surge in any sector of the economy. No signs of life. Outsourcing and offshoring are ongoing, and downsizing is the new path to profitability. Businesses everywhere are anticipating weaker demand. Thus, the jobs report is probably a one-off event; a lull in the storm before the next round of layoffs begin.

Unemployment is rising, wages are falling and credit is contracting. In other words, the system is working exactly as it was designed to work. All the money is flowing upwards to the gangsters at the top. Here’s an excerpt from a recent Don Monkerud article that sums it all up:

“During eight years of the Bush Administration, the 400 richest Americans, who now own more than the bottom 150 million Americans, increased their net worth by $700 billion. In 2005, the top one percent claimed 22 percent of the national income, while the top ten percent took half of the total income, the largest share since 1928

Over 40 percent of GNP comes from Fortune 500 companies. According to the World Institute for Development Economics Research, the 500 largest conglomerates in the U.S. “control over two-thirds of the business resources, employ two-thirds of the industrial workers, account for 60 percent of the sales, and collect over 70 percent of the profits.”

… In 1955, IRS records indicated the 400 richest people in the country were worth an average $12.6 million, adjusted for inflation. In 2006, the 400 richest increased their average to $263 million, representing an epochal shift of wealth upward in the U.S.” (”Wealth Inequality destroys US Ideals” Don Monkerud, consortiumnews.com)

Working people are not being crushed by accident, but by design. It is the way the system is supposed to work. Bernanke knows that sustained demand requires higher wages and a vital middle class, but what does he care. He’s not a public servant. He works for the banks. That’s why the Fed’s monetary policies reflect the goals of the investor class.

Bubblenomics is not the way to a strong/sustainable economy, but it is an effective tool for shifting wealth from one class to another. And that’s the point. Wall Street doesn’t give a fig about productivity, capital formation or free markets. What they care about is moving every farthing in your account into their account. The Fed’s job is to facilitate that objective, which is why the economy is headed for the rocks.

The free market is a sham to conceal the crimes of the rich. Read Taibbi. Read Marx. Karl, not Groucho.

The financial meltdown is the logical outcome of the Fed’s monetary policies. That’s why it’s a mistake to call the current slump a “recession”. It’s not. It’s a planned demolition.

Towards a Global Currency?
Towards the integration of the Dollar and the Euro?
by Michel Chossudovsky

With a view to restoring financial stability, World leaders have called upon the Group of 20 countries (G-20) to instigate a new global currency based on the IMF’s  Special Drawing Rights (SDRs).

The media has presented the global currency initiative as a consensus building process, in which BRIC countries (Brazil, Russia, India and China) would participate in the revamping of the international monetary system.

Russia and China have put forth “proposals” which have been highlighted as possible alternatives to the dollar.  China has proposed the formation of a new global currency based on a reform of SDR system:

“It is a feasible plan to reform the present SDR and make it into a real settlement currency, a universally accepted ‘currency basket’ that would replace the dollar at the heart of the monetary system,”  (Li Ruogu, chairman of the Export-Import Bank of China, Reuters, 6  July 2009) China’s proposal does not imply a major shift in global banking arrangements, nor does it open up a window of debate regarding monetary reform.

On the other hand, Russian President Dmitry Medvedev has explicitly questioned the composition of the SDR basket and has called upon the IMF “to expand the currency basket of SDRs to include the Chinese yuan, commodity currencies and gold in order that it matures into  a reserve currency.”

Geopolitics

Global Geopolitics bears a relationship to the international monetary system. Control over money creation is an instrument of economic conquest.

The invasion and occupation of Iraq was to exclude rival Russian and Chinese interests from the Middle-East and Central Asian oil fields.

The reform of the international monetary system is a project of the dominant financial elites, which is discussed behind closed doors. It is unlikely that Russia and China, which in large part remain subordinate to Western banking interests, will perform a significant role in central banking functions at a global level.

Moreover, this initiative occurs at a time of East West confrontation, amidst veiled US-NATO threats directed against Russia as well China.  The establishment of a new global currency and central banking system is an instrument of global economic domination which is intimately related to the broader US-NATO military agenda.

While the SDR basket composition could be modified or revised, it is unlikely that the Yuan and the Ruble would be allowed to perform a role as major reserve currencies. What is more likely to occur is the formation of a global proxy currency predicated largely on the Euro and the US dollar. In response to the Dollar-Euro hegemony, Russia, China and the member states of the Shanghai Cooperation Organization (SCO) may decide to develop bilateral trading arrangements in Rubles or Yuan (renminbi).

Special Drawing Rights

SDRs are a composite accounting unit used by the IMF and the World Bank in loan agreements with member countries. The SDR is a basket of essentially four major currencies: the US dollar, the Euro, the British pound and the Japanese Yen.
Composition of basket (value of 1 XDR)

The IMF has recently presented a plan for issuing debt denominated in SDRs rather than US dollars. The media has heralded this decision as a major innovation, when in fact the Bretton Woods institutions have, for many years, been issuing debt denominated in SDRs.

“Today, the SDR has only limited use as a reserve asset, and its main function is to serve as the unit of account of the IMF and some other international organizations. The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.” (IMF Fact Sheet on SDRs )

What would happen if a new global currency were to be devised using the existing SDR framework?

SDRs would no longer be an accounting unit but a unit of currency in a basket. Actual central banking functions, however, would not necessarily be transferred to the IMF, they would remain in the hands of four constituent central banks:  The US Federal  Reserve, the European Central Bank based in Frankfurt, the Bank of England and the Bank of Japan. I

The IMF is a bureaucracy which serves the interests of major private financial institutions.

While the IMF would formally be responsible for overseeing a global currency, the IMF would not actually be responsible for monetary policy. Under the existing SDR composition, the central banking functions would be divided between four central banks. These central banks are in turn controlled by a handful of private banking interests.

A global currency based on the existing SDR arrangement would not fundamentally change the global monetary order.

The SDR would be a proxy currency. Under the present composition of the SDR, what we would be dealing with is an alliance between US, British, European and Japanese banking institutions, ultimately with the US dollar and the Euro predominating.

Euro-Dollar Rivalry

From the outset in 1999, there has been a clash between the Euro and the dollar. In Eastern Europe, the former Soviet Union, the Balkans extending into Central Asia, the dollar and the Euro are competing with one another. Ultimately, control over national currency systems is the basis upon which countries are colonized. While the U.S. dollar prevails throughout the Western Hemisphere, the Euro and the U.S. dollar are clashing in the former Soviet Union, Central Asia, Sub-Saharan Africa and the Middle East.

Prior to the invasion of Iraq in March 2003, there was a political confrontation between the Franco-German alliance and the dominant Anglo-American military axis.

With the election of pro-US governments in both France and Germany, a political consensus seems to have emerged with regard to the Middle East war. In turn, this consensus regarding the US-NATO military agenda favors greater cooperation and integration between the US and the EU in global financial and monetary affairs.

Would this potential “alliance” between powerful overlapping American, British, European and Japanese banking interests lead to the integration of the Euro and the dollar into a single global currency?

This integration would lead to reinforcing the hegemonic control of a small number of global banking and financial institutions over the process of money creation. This, in turn, would overshadow the functions of national central banks, encroach on the sovereignty of the Nation State and eventually lead to a new phase of the global debt crisis.

Credit crunch: a panic-driven massive withdrawal of credit from all sections of society desperately in need of it by banks that have previously been engaged in an orgy of unsustainable, irresponsible lending of fictitious money in huge amounts largely to people who any fool could see had no means of repaying it.

That’s quite an indictment of banks and the banking system, so let’s take a closer look at what triggered the credit crunch, now grown into a full-blown recession around the globe and ruining countless peoples’ lives.

Money is created by the banking system out of nothing. This is wrong, but it’s the way it is, unfortunately. It is then lent at interest to all sections of the community – big businesses, small and medium sized businesses, governments, international institutions, nationalised industries, banks themselves (big and small) and, of course, private citizens.

This makes it unrepayable debt. Anyone or any institution of whatever nature that manages to repay its borrowings plus interest does so at the cost of other borrowers not being able to do so. Traditionally governments, even with their power of taxation, have not been able to repay the money they have borrowed. The core lending is shoved into a pile and called the “national debt” or “treasury bonds”, or something like that.

Because this debt is unrepayable the whole system is unworkable in the long run. Sure, it can appear to be working for long periods, while lending is increasing and the amount of money in circulation is therefore keeping fairly constant in spite of large amounts being withdrawn through loan repayments. But after a number of years the system always threatens to collapse, because there is a limit to the amount of phoney money the banks can lend before their stockpile of real money – gold in former times, now more likely treasury bills and other securities – threatens to dry up and destroy the solvency of the banks themselves.

Indeed, a large number of banks have collapsed in spite of calling a halt to further lending and in spite of billions having been pumped into the banking system by leading governments such as the United States and Great Britain. As this is being written (late July 2009) there are still banks in the USA folding, and this is in spite of the recent stock market rally.

The only people benefiting from all of this are the really huge banking houses such as the Rothschilds and J.P.Morgan. Even Goldman Sachs, currently back in profit and paying its fund managers obscene bonuses with taxpayers’ money, is in very dangerous waters.

It’s obvious from even a brief survey of the situation that the system of having private bankers control the currency, an absolutely vital control lever of any economy, is sheer lunacy. Private bankers use the incredible power vested in them for their own enrichment and power, and the evil “hidden agenda” they pursue in their quest for global domination.

In Great Britain they have had this power unopposed since 1694, when the UK central bank, the Bank of England, was founded. It kept its name even after the United Kingdom was formed from the union with Scotland and Ireland some years later.

In the United States there were several criminal attempts to foist a central bank on the new republic early in the nineteenth century but each time those attempts were eventually rejected. But in 1913, on Christmas Eve, while most people were going home to their families for the Christmas holiday, a small group of criminal plotters let by Nelson Aldrich, a corrupt senator whose daughter married a Rothschild, managed to get the Federal Reserve Bill passed before only a handful of senators, and economically enslave the United States.

Since then, of course, the USA has suffered the Great Depression of the 1930s, numerous financial panics (which the Federal Reserve Act of 1913 was supposed to put an end to), and an escalating level of public and private debt. The mighty economic engine of the United States has gradually been withered away and is now in serious danger of complete collapse.

Thus is the story, or a small part of it, so far. The worst of the current recession is shortly to come.

Philip Gegan

It lasts just over 10 minutes, and in places you have to read the text quite quickly before it disappears, and you may find the background makes it difficult sometimes, in which case just pause and rewind.

This should be viewed by all intelligent, right minded people of all countries. If the argument presented here is true, and I believe it is, then urgent action is needed on the part of all of us. If enough people like us unite and act in unison quickly then the wretched Rothschilds will be history.

So spread the word, more urgently than ever before . . .

Philip Gegan

After the market collapse of late 2008 and early 2009 there was a reversal, and the stock markets of Britain and the US have made substantial gains. In the US the S&P rose 8.54 per cent in March, and has made further gains of 9.39 per cent in April, 5.31 per cent in May and, so far in June, 0.23 per cent. In Britain the figures for these months have been plus 2.51 per cent, plus 8.09 per cent. plus 4.11 per cent and then minus 2.89 per cent so far in June.

Just looking at these figures gives cause for concern for anybody having invested on the basis that the recovery is underway. The highest figure for both indices was for April, with June nearly over and showing stagnant or negative figures. But lets take a brief look at what has been happening behind the scenes at the banks, where all the trouble stems from.

These huge banks, remember, had to be bailed out with billions and billions of taxpayers’ money just a few months ago. This was because they had been on a reckless orgy of lending massive amounts of money to people who had little or no chance of ever repaying it. What have these banks been doing over the last few months? Have they been prudently lending to credit-worthy companies and individuals in order to get their business back on a firm footing so they can start repaying the taxpayer? Have they been exercising extreme caution so as not to make the same mistakes again?

No. What they have been busy doing over the last few months is lending massive amounts of money to people who have little or no chance of ever repaying it.

This sounds incredible, but it’s true. Added to this is, as I wrote last month, the fact that another, bigger barrel load of the brown stuff is set to hit the fan over the next few months and into 2010, and that is the commercial mortgage situation, where borrowers, through no fault of their own in general, are in the process of defaulting in massive numbers, having been hit by the recession and subsequent fall in sales and profits.

Meanwhile in Britain the latest ruse of domestic mortgage lenders is to sell the mortgage to another lender, who then offers to write off a percentage of the loan,typically around 25 per cent, if the borrower will then agree to seek out a new lender to transfer his mortgage to. At least this helps many house owners, who can reduce their monthly payments and overall liability to the money-lenders.

But it shows what a farcical merry-go-round the whole financial system is. The sooner we all wake up to the whole racket and take matters into our own hands, the better. There’s nothing to stop us all issuing our own money, free from debt, and regaining our ancient freedoms.
Just download and read “Promise To Pay” from our home page to get started.

Spread the word . . .

Philip Gegan

It’s always been said that when America sneezes the rest of the world catches a cold. So when the credit crunch started in the United States with the sub-prime fiasco, it wasn’t long before most other countries started suffering in the same way.

Let’s have a close look at the present situation in the US, so as to gauge whether there is any evidence that the recession may be flattening out or even, somehow, coming to an end.

The US housing market is where it all started, so what’s the situation there? Well, in April 2009 new constructions fell to the lowest level on record, down 12.8 per cent. One of the main symptoms of the recession is that banks, in spite of the billions pumped into them through “bail outs” are refusing, or unable, to lend money to people so they can buy those houses.

They’re unable to lend sufficient money because their assets, in the form of houses, are still shrinking in value. And nobody knows for sure how much longer they’ll continue to fall in value or to what level. Every bank now is in a battle for survival. They have to avoid further losses, even if that means a stagnant business.

Refusing further loans is the easy way out of the mess. So even credit-worthy individuals and businesses can’t get credit. Up to now, a huge part of the banking business was dedicated to lending money to house builders for constructing new homes. US banks have around $700 billion of exposure here. That’s about 70 per cent of their entire capital.

As we know, banks have historically lent up to and beyond ten times the amount of money that they actually have. We needn’t bang on about that again here, but what we’re concerned with is simply that the assets on which most banks have based their ability to create and lend money have shrunk in value and are continuing to do so. This has affected the “liquidity” of the banking system and is the reason why so many banks have failed.

There have been rises and falls in the value of the assets held by banks as security in the past. But nothing like this. This is scary stuff, and is the reason why the economies of many western countries are balanced on a knife edge. No wonder all that matters to banks is their balance sheets. But it gets worse.

The US sub-prime mortgage market, where all the trouble started in the first place, is valued at about $1.2 trillion. That’s the money that, for the most part, is lost. The banks won’t get it back. Most people think that the trouble is confined to that sub-prime mortgage sector – but it’s not!

There’s an even bigger mortgage bubble, and it’s set to burst in the summer of 2009 and on into 2010 in markets known as the option ARMs and Alt-A markets. These are conventional mortgages and commercial real estate loans. And they are two and a half times the size of the sub-prime sector.

All the leading indicators of foreclosure are rising. Probably commercial real estate will go first. The recession has decimated small to medium sized businesses, who are therefore unable to maintain the payments on their commercial loans.

Unemployment in the US has risen to over six and a half million (10 per cent), and in the UK to nearly 3 million, making it difficult if not impossible for vast numbers of people to continue paying their mortgages. And, as we’ve said, the properties they have been occupying, taken as security for the loans, have fallen significantly in value. It’s a vicious circle.

The US commercial real estate market is $3.5 trillion. Sub-prime was about $1.2 trillion, remember? So the coming catastrophe has the scope to be about three times as bad.

On top of all this we have the mountains of debt that have supported our economies in the west for so long. The US and the UK governments are bankrupt.

Take the US. The government has a tax revenue income of around $2 trillion a year. Added to that is around another $2 trillion that it is somehow able to borrow. It has a Treasury Bond Debt (or national debt, if you like) of $12 trillion. Some people maintain the true figure is much higher, but nobody really knows for sure. $12 trillion seems a conservative estimate, but lets stick to that for now.

Added to that is $65 trillion of unfunded social security and Medicare debt and the 2009 budget deficit of $2 trillion. That’s a total of $79 trillion total debt owed by the United States government.

If you, as a private citizen, earned $20,000 a year but had debts of $790,000 (the figures are proportionately the same as above) you’d be not only bankrupt but probably in prison for having obtained money by deception. Even if you could borrow another $20,000 each year it wouldn’t make much difference (though nobody in their right mind would lend it to you).

In the UK it’s not quite as bad, but still pretty awful all the same. Its growing debt burden is expected by S&P to balloon to 100 per cent of its GDP by mid-2010.

It’s a Ponzi scheme, a fraud, a racket. No wonder there’s such a mess. The only question is, how long can total collapse be staved off? That’s the question to ask any ignorant politician or economist who starts seeing “green shoots of recovery”.

Until then, remember – spread the word . . .

Philip Gegan

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GLOBAL FINANCIAL CRISIS

It is August. In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business happening. Everyone is heavily in debt.  Luckily, a rich Russian tourist arrives in the foyer of the small local hotel.  He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100.

The butcher takes the money and races to his supplier to pay his debt.

The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.

The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.

The prostitute goes quickly to the hotel, as she was owing the hotel for her hourly room use to entertain clients.

At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his E100 back and departs.  There was no profit or income.

But everyone no longer has any debt and the small townspeople look optimistically towards their future.

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That’s it until next time. Don’t forget . . .

Spread the word.

Philip Gegan