Digging Ourselves Into More Debt

[This article was first posted here on 1st October 2010.]

Here in Great Britain the media have just announced that, according to the Office for National Statistics, Great Britain’s national debt has just topped a trillion pounds.

Well, that’s strange. The same Office announced nearly 2 years ago that the national debt had just topped TWO trillion pounds.

Someone’s obviously got their figures mixed up somewhere, but when you’re talking in the trillions it’s easy to slip up and miss out a trillion or so. Which is exactly what they more or less admit to having done, for in their report they mention the fact that the real figure is probably between £4 trillion and £5 trillion when you take into account obligations such as public sector pensions and private finance initiatives.

But back to the main point, which is that the new coalition government here, in order to prevent total economic collapse, is having to bring in extreme austerity measures and cut back public spending like never before.

To try and convince the public that this really is the way to run the economy they have to frighten us with announcements that, for example, the previous Labour government had been, at the end, borrowing £450 million a DAY, and that interest alone on the national debt was now running at around £40 billion a year – about the same as the defence budget which includes all the expenditure on the futile and illegal war in Afghanistan.

Last year, according to the ONS, the government borrowed £159.8 billion, equal to 11.4 per cent of the UK’s entire economic output (GDP) – a record figure. In fact the level of government borrowing as a percentage of GDP has increased by more than four and a half times in just three years. No wonder we are paying £120 million a day in interest alone.

This sort of behaviour is simply unsustainable. The previous Labour government was, at the end of its term and knowing its time was up at the hands of the electorate, spending money at a ferocious rate, like squatters frantically wrecking a country mansion before the bailiffs arrived to kick them out.

Now our national debt is, we are told, equal to 71.3 per cent of our GDP. Let’s take a minute to see how all these figures stack up.

If you were a private individual owing £20,000 and your income was £28,000 per year, if you were having to borrow £4.50 a day, or £1,640 a year, just to make ends meet, then you would be declared bankrupt. You would probably have an administrator or trustee appointed to pay off your creditors at so much in the pound, leaving you with next to nothing. These figures are proportionally the same as those applying to the British government.

I’ve put the question before in this blog – with all these trillions of pounds and dollars owed by Britain and the US, and other countries like Ireland, Greece, Portugal, Spain, Italy, Germany and France, not to mention Iceland and countless other countries with smaller economies, who is it exactly who are lending the money?

Does it all originate from China and other Far Eastern countries? No, it doesn’t. While these countries are running massive trade surpluses they, too, are now feeling the brunt of the same forces as those responsible for the economic mess in Western countries. A proportion of Western debt has been bought by the Chinese and others, but only a tiny one.

The real culprits are the likes of Goldman Sachs, the Rothschilds, the Rockefellers, the Schiffs, the Warburgs and all the rest of the banking families that have been sucking the wealth out of all countries for the last 300 years and more. The nations of the West have grown weak and emasculated, while the banking families have grown prosperous and powerful.

It’s obvious isn’t it? If you get rid of the diabolical banking system and the greedy power-crazed parasites behind it then you get rid of the problem.

Philip Gegan

It’s Not a Recession. It’s a Planned Demolition

This is from someone in cyberspace called “World View”, who sent it out on August 9th 2009. It was originally posted here on 3rd September 2009.

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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?

This post was first made in August 2009.

Here’s an interesting item sent to me by one of my contacts:

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.