Debt Dynamite Dominoes: The Coming Financial Catastrophe Assessing
the Illusion of Recovery
By Andrew Gavin Marshall
URL of this article:www.globalresearch.ca/index.php?context=va&aid=17736
Global Research, February 22, 2010
Understanding the Nature of the Global Economic Crisis
The people have been lulled into a false sense of safety under the
rouse of a perceived economic recovery. Unfortunately, what the
majority of people think does not make it so, especially when the
people making the key decisions think and act to the contrary. The
sovereign debt crises that have been unfolding in the past couple
years and more recently in Greece, are canaries in the coal mine
for the rest of Western civilization. The crisis threatens to spread
to Spain, Portugal and Ireland; like dominoes, one country after
another will collapse into a debt and currency crisis, all the way
to America.
In October 2008, the mainstream media and politicians of the Western
world were warning of an impending depression if actions were not
taken to quickly prevent this. The problem was that this crisis had
been a long-time coming, and whats worse, is that the actions
governments took did not address any of the core, systemic issues
and problems with the global economy; they merely set out to save
the banking industry from collapse. To do this, governments around
the world implemented massive stimulus and bailout packages, plunging
their countries deeper into debt to save the banks from themselves,
while charging it to people of the world.
Then an uproar of stock market speculation followed, as money was
pumped into the stocks, but not the real economy. This recovery has
been nothing but a complete and utter illusion, and within the next
two years, the illusion will likely come to a complete collapse.
The governments gave the banks a blank check, charged it to the
public, and now its time to pay; through drastic tax increases,
social spending cuts, privatization of state industries and services,
dismantling of any protective tariffs and trade regulations, and
raising interest rates. The effect that this will have is to rapidly
accelerate, both in the speed and volume, the unemployment rate,
globally. The stock market would crash to record lows, where
governments would be forced to freeze them altogether.
When the crisis is over, the middle classes of the western world
will have been liquidated of their economic, political and social
status. The global economy will have gone through the greatest
consolidation of industry and banking in world history leading to
a system in which only a few corporations and banks control the
global economy and its resources; governments will have lost that
right. The people of the western world will be treated by the
financial oligarchs as they have treated the global South and in
particular, Africa; they will remove our social structures and
foundations so that we become entirely subservient to their dominance
over the economic and political structures of our society.
This is where we stand today, and is the road on which we travel.
The western world has been plundered into poverty, a process long
underway, but with the unfolding of the crisis, will be rapidly
accelerated. As our societies collapse in on themselves, the
governments will protect the banks and multinationals. When the
people go out into the streets, as they invariably do and will, the
government will not come to their aid, but will come with police
and military forces to crush the protests and oppress the people.
The social foundations will collapse with the economy, and the state
will clamp down to prevent the people from constructing a new one.
The road to recovery is far from here. When the crisis has come to
an end, the world we know will have changed dramatically. No one
ever grows up in the world they were born into; everything is always
changing. Now is no exception. The only difference is, that we are
about to go through the most rapid changes the world has seen thus
far.
Assessing the Illusion of Recovery
In August of 2009, I wrote an article, Entering the Greatest
Depression in History, in which I analyzed how there is a deep
systemic crisis in the Capitalist system in which we have gone
through merely one burst bubble thus far, the housing bubble, but
there remains a great many others.
There remains as a significantly larger threat than the housing
collapse, a commercial real estate bubble. As the Deutsche Bank CEO
said in May of 2009, It's either the beginning of the end or the
end of the beginning.
Of even greater significance is what has been termed the bailout
bubble in which governments have superficially inflated the economies
through massive debt-inducing bailout packages. As of July of 2009,
the government watchdog and investigator of the US bailout program
stated that the U.S. may have put itself at risk of up to $23.7
trillion dollars.
[See: Andrew Gavin Marshall, Entering the Greatest Depression in
History. Global Research: August 7, 2009]
In October of 2009, approximately one year following the great panic
of 2008, I wrote an article titled, The Economic Recovery is an
Illusion, in which I analyzed what the most prestigious and powerful
financial institution in the world, the Bank for International
Settlements (BIS), had to say about the crisis and recovery.
The BIS, as well as its former chief economist, who had both correctly
predicted the crisis that unfolded in 2008, were warning of a future
crisis in the global economy, citing the fact that none of the key
issues and structural problems with the economy had been changed,
and that government bailouts may do more harm than good in the long
run.
William White, former Chief Economist of the BIS, warned:
The world has not tackled the problems at the heart of the economic
downturn and is likely to slip back into recession. [He] warned
that government actions to help the economy in the short run may
be sowing the seeds for future crises.
[See: Andrew Gavin Marshall, The Economic Recovery is an Illusion.
Global Research: October 3, 2009]
Crying Wolf or Castigating Cassandra?
While people were being lulled into a false sense of security,
prominent voices warning of the harsh bite of reality to come were,
instead of being listened to, berated and pushed aside by the
mainstream media. Gerald Celente, who accurately predicted the
economic crisis of 2008 and who had been warning of a much larger
crisis to come, had been accused by the mainstream media of pushing
pessimism porn.[1] Celentes response has been that he isnt pushing
pessimism porn, but that he refuses to push optimism opium of which
the mainstream media does so outstandingly.
So, are these voices of criticism merely crying wolf or is it that
the media is out to castigate Cassandra? Cassandra, in Greek
mythology, was the daughter of King Priam and Queen Hecuba of Troy,
who was granted by the God Apollo the gift of prophecy. She prophesied
and warned the Trojans of the Trojan Horse, the death of Agamemnon
and the destruction of Troy. When she warned the Trojans, they
simply cast her aside as mad and did not heed her warnings.
While those who warn of a future economic crisis may not have been
granted the gift of prophecy from Apollo, they certainly have the
ability of comprehension.
So what do the Cassandras of the world have to say today? Should
we listen?
Empire and Economics
To understand the global economic crisis, we must understand the
global causes of the economic crisis. We must first determine how
we got to the initial crisis, from there, we can critically assess
how governments responded to the outbreak of the crisis, and thus,
we can determine where we currently stand, and where we are likely
headed.
Africa and much of the developing world was released from the
socio-political-economic restraints of the European empires throughout
the 1950s and into the 60s. Africans began to try to take their
nations into their own hands. At the end of World War II, the United
States was the greatest power in the world. It had command of the
United Nations, the World Bank and the IMF, as well as setting up
the NATO military alliance. The US dollar reigned supreme, and its
value was tied to gold.
In 1954, Western European elites worked together to form an
international think tank called the Bilderberg Group, which would
seek to link the political economies of Western Europe and North
America. Every year, roughly 130 of the most powerful people in
academia, media, military, industry, banking, and politics would
meet to debate and discuss key issues related to the expansion of
Western hegemony over the world and the re-shaping of world order.
They undertook, as one of their key agendas, the formation of the
European Union and the Euro currency unit.
[See: Andrew Gavin Marshall, Controlling the Global Economy:
Bilderberg, the Trilateral Commission and the Federal Reserve.
Global Research: August 3, 2009]
In 1971, Nixon abandoned the dollars link to gold, which meant that
the dollar no longer had a fixed exchange rate, but would change
according to the whims and choices of the Federal Reserve (the
central bank of the United States). One key individual that was
responsible for this choice was the third highest official in the
U.S. Treasury Department at the time, Paul Volcker.[2]
Volcker got his start as a staff economist at the New York Federal
Reserve Bank in the early 50s. After five years there, David
Rockefellers Chase Bank lured him away.[3] So in 1957, Volcker went
to work at Chase, where Rockefeller recruited him as his special
assistant on a congressional commission on money and credit in
America and for help, later, on an advisory commission to the
Treasury Department.[4] In the early 60s, Volcker went to work in
the Treasury Department, and returned to Chase in 1965 as an aide
to Rockefeller, this time as vice president dealing with international
business. With Nixon entering the White House, Volcker got the third
highest job in the Treasury Department. This put him at the center
of the decision making process behind the dissolution of the Bretton
Woods agreement by abandoning the dollars link to gold in 1971.[5]
In 1973, David Rockefeller, the then-Chairman of Chase Manhattan
Bank and President of the Council on Foreign Relations, created the
Trilateral Commission, which sought to expand upon the Bilderberg
Group. It was an international think tank, which would include
elites from Western Europe, North America, and Japan, and was to
align a trilateral political economic partnership between these
regions. It was to further the interests and hegemony of the Western
controlled world order.
That same year, the Petri-dish experiment of neoliberalism was
undertaken in Chile. While a leftist government was coming to power
in Chile, threatening the economic interests of not only David
Rockefellers bank, but a number of American corporations, David
Rockefeller set up meetings between Henry Kissinger, Nixons National
Security Adviser, and a number of leading corporate industrialists.
Kissinger in turn, set up meetings between these individuals and
the CIA chief and Nixon himself. Within a short while, the CIA had
begun an operation to topple the government of Chile.
On September 11, 1973, a Chilean General, with the help of the CIA,
overthrew the government of Chile and installed a military dictatorship
that killed thousands. The day following the coup, a plan for an
economic restructuring of Chile was on the presidents desk. The
economic advisers from the University of Chicago, where the ideas
of Milton Freidman poured out, designed the restructuring of Chile
along neoliberal lines.
Neoliberalism was thus born in violence.
In 1973, a global oil crisis hit the world. This was the result of
the Yom Kippur War, which took place in the Middle East in 1973.
However, much more covertly, it was an American strategem. Right
when the US dropped the dollars peg to gold, the State Department
had quietly begun pressuring Saudi Arabia and other OPEC nations
to increase the price of oil. At the 1973 Bilderberg meeting, held
six months before the oil price rises, a 400% increase in the price
of oil was discussed. The discussion was over what to do with the
large influx of what would come to be called petrodollars, the oil
revenues of the OPEC nations.
Henry Kissinger worked behind the scenes in 1973 to ensure a war
would take place in the Middle East, which happened in October.
Then, the OPEC nations drastically increased the price of oil. Many
newly industrializing nations of the developing world, free from
the shackles of overt political and economic imperialism, suddenly
faced a problem: oil is the lifeblood of an industrial society and
it is imperative in the process of development and industrialization.
If they were to continue to develop and industrialize, they would
need the money to afford to do so.
Concurrently, the oil producing nations of the world were awash
with petrodollars, bringing in record surpluses. However, to make
a profit, the money would need to be invested. This is where the
Western banking system came to the scene. With the loss of the
dollars link to cold, the US currency could flow around the world
at a much faster rate. The price of oil was tied to the price of
the US dollar, and so oil was traded in US dollars. OPEC nations
thus invested their oil money into Western banks, which in turn,
would recycle that money by loaning it to the developing nations
of the world in need of financing industrialization. It seemed like
a win-win situation: the oil nations make money, invest it in the
West, which loans it to the South, to be able to develop and build
western societies.
However, all things do not end as fairy tales, especially when those
in power are threatened. An industrialized and developed Global
South (Latin America, Africa, and parts of Asia) would not be a
good thing for the established Western elites. If they wanted to
maintain their hegemony over the world, they must prevent the rise
of potential rivals, especially in regions so rich in natural
resources and the global supplies of energy.
It was at this time that the United States initiated talks with
China. The opening of China was to be a Western project of expanding
Western capital into China. China will be allowed to rise only so
much as the West allows it. The Chinese elite were happy to oblige
with the prospect of their own growth in political and economic
power. India and Brazil also followed suit, but to a smaller degree
than that of China. China and India were to brought within the
framework of the Trilateral partnership, and in time, both China
and India would have officials attending meetings of the Trilateral
Commission.
So money flowed around the world, primarily in the form of the US
dollar. Foreign central banks would buy US Treasuries (debts) as
an investment, which would also show faith in the strength of the
US dollar and economy. The hegemony of the US dollar reached around
the world.
[See: Andrew Gavin Marshall, Controlling the Global Economy:
Bilderberg, the Trilateral Commission and the Federal Reserve.
Global Research: August 3, 2009]
The Hegemony of Neoliberalism
In 1977, however, a new US administration came to power under the
Presidency of Jimmy Carter, who was himself a member of the Trilateral
Commission. With his administration, came another roughly two-dozen
members of the Trilateral Commission to fill key positions within
his government. In 1973, Paul Volcker, the rising star through Chase
Manhattan and the Treasury Department became a member of the
Trilateral Commission. In 1975, he was made President of the Federal
Reserve Bank of New York, the most powerful of the 12 regional Fed
banks. In 1979, Jimmy Carter gave the job of Treasury Secretary to
the former Governor of the Federal Reserve System, and in turn,
David Rockefeller recommended Jimmy Carter appoint Paul Volcker as
Governor of the Federal Reserve Board, which Carter quickly did.[6]
In 1979, the price of oil skyrocketed again. This time, Paul Volcker
at the Fed was to take a different approach. His response was to
drastically increase interest rates. Interest rates went from 2%
in the late 70s to 18% in the early 1980s. The effect this had was
that the US economy went into recession, and greatly reduced its
imports from developing nations. A the same time, developing nations,
who had taken on heavy debt burdens to finance industrialization,
suddenly found themselves having to pay 18% interest payments on
their loans. The idea that they could borrow heavily to build an
industrial society, which would in turn pay off their loans, had
suddenly come to a halt. As the US dollar had spread around the
world in the forms of petrodollars and loans, the decisions that
the Fed made would affect the entire world. In 1982, Mexico announced
that it could no longer service its debt, and defaulted on its
loans. This marked the spread of the 1980s debt crisis, which spread
throughout Latin America and across the continent of Africa.
Suddenly, much of the developing world was plunged into crisis.
Thus, the IMF and World Bank entered the scene with their newly
developed Structural Adjustment Programs (SAPs), which would encompass
a country in need signing an agreement, the SAP, which would provide
the country with a loan from the IMF, as well as development projects
by the World Bank. In turn, the country would have to undergo a
neoliberal restructuring of its country.
Neoliberalism spread out of America and Britain in the 1980s; through
their financial empires and instruments including the World Bank
and IMF they spread the neoliberal ideology around the globe.
Countries that resisted neoliberalism were subjected to regime
change. This would occur through financial manipulation, via currency
speculation or the hegemonic monetary policies of the Western
nations, primarily the United States; economic sanctions, via the
United Nations or simply done on a bilateral basis; covert regime
change, through colour revolutions or coups, assassinations; and
sometimes overt military campaigns and war.
The neoliberal ideology consisted in what has often been termed
free market fundamentalism. This would entail a massive wave of
privatization, in which state assets and industries are privatized
in order to become economically more productive and efficient. This
would have the social effect of leading to the firing of entire
areas of the public sector, especially health and education as well
as any specially protected national industries, which for many poor
nations meant vital natural resources.
Then, the market would be liberalized which meant that restrictions
and impediments to foreign investments in the nation would diminish
by reducing or eliminating trade barriers and tariffs (taxes), and
thus foreign capital (Western corporations and banks) would be able
to invest in the country easily, while national industries that
grow and compete would be able to more easily invest in other nations
and industries around the world. The Central Bank of the nation
would then keep interest rates artificially low, to allow for the
easier movement of money in and out of the country. The effect of
this would be that foreign multinational corporations and international
banks would be able to easily buy up the privatized industries, and
thus, buy up the national economy. Simultaneously major national
industries may be allowed to grow and work with the global banks
and corporations. This would essentially oligopolize the national
economy, and bring it within the sphere of influence of the global
economy controlled by and for the Western elites.
The European empires had imposed upon Africa and many other colonized
peoples around the world a system of indirect rule, in which local
governance structures were restructured and reorganized into a
system where the local population is governed by locals, but for
the western colonial powers. Thus, a local elite is created, and
they enrich themselves through the colonial system, so they have
no interest in challenging the colonial powers, but instead seek
to protect their own interests, which happen to be the interests
of the empire.
In the era of globalization, the leaders of the Third World have
been co-opted and their societies reorganized by and for the interests
of the globalized elites. This is a system of indirect rule, and
the local elites becoming indirect globalists; they have been brought
within the global system and structures of empire.
Following a Structural Adjustment Program, masses of people would
be left unemployed; the prices of essential commodities such as
food and fuel would increase, sometimes by hundreds of percentiles,
while the currency lost its value. Poverty would spread and entire
sectors of the economy would be shut down. In the developing world
of Asia, Latin America and Africa, these policies were especially
damaging. With no social safety nets to fall into, the people would
go hungry; the public state was dismantled.
When it came to Africa, the continent so rapidly de-industrialized
throughout the 1980s and into the 1990s that poverty increased by
incredible degrees. With that, conflict would spread. In the 1990s,
as the harsh effects of neoliberal policies were easily and quickly
seen on the African continent, the main notion pushed through
academia, the media, and policy circles was that the state of Africa
was due to the mismanagement by Africans. The blame was put solely
on the national governments. While national political and economic
elites did become complicit in the problems, the problems were
imposed from beyond the continent, not from within.
Thus, in the 1990s, the notion of good governance became prominent.
This was the idea that in return for loans and help from the IMF
and World Bank, nations would need to undertake reforms not only
of the economic sector, but also to create the conditions of what
the west perceived as good governance. However, in neoliberal
parlance, good governance implies minimal governance, and governments
still had to dismantle their public sectors. They simply had to
begin applying the illusion of democracy, through the holding of
elections and allowing for the formation of a civil society. Freedom
however, was still to maintain simply an economic concept, in that
the nation would be free for Western capital to enter into.
While massive poverty and violence spread across the continent,
people were given the gift of elections. They would elect one leader,
who would then be locked into an already pre-determined economic
and political structure. The political leaders would enrich themselves
at the expense of others, and then be thrown out at the next election,
or simply fix the elections. This would continue, back and forth,
all the while no real change would be allowed to take place. Western
imposed democracy had thus failed.
An article in a 2002 edition of International Affairs, the journal
of the Royal Institute of International Affairs (the British
counter-part to the Council on Foreign Relations), wrote that:
In 1960 the average income of the top 20 per cent of the worlds
population was 30 times that of the bottom 20 per cent. By 1990 it
was 60 times, ad by 1997, 74 times that of the lowest fifth. Today
the assets of the top three billionaires are more than the combined
GNP [Gross National Product] of all least developed countries and
their 600 million people.
This has been the context in which there has been an explosive
growth in the presence of Western as well as local non-governmental
organizations (NGOs) in Africa. NGOs today form a prominent part
of the development machine, a vast institutional and disciplinary
nexus of official agencies, practitioners, consultants, scholars
and other miscellaneous experts producing and consuming knowledge
about the developing world.
[. . . ] Aid (in which NGOs have come to play a significant role)
is frequently portrayed as a form of altruism, a charitable act
that enables wealth to flow from rich to poor, poverty to be reduced
and the poor to be empowered.[7]
The authors then explained that NGOs have a peculiar evolution in
Africa:
[T[heir role in development represents a continuity of the work of
their precursors, the missionaries and voluntary organizations that
cooperated in Europes colonization and control of Africa. Today
their work contributes marginally to the relief of poverty, but
significantly to undermining the struggle of African people to
emancipate themselves from economic, social and political oppression.[8]
The authors examined how with the spread of neoliberalism, the
notion of a minimalist state spread across the world and across
Africa. Thus, they explain, the IMF and World Bank became the new
commanders of post-colonial economies. However, these efforts were
not imposed without resistance, as, Between 1976 and 1992 there
were 146 protests against IMF-supported austerity measures [SAPs]
in 39 countries around the world. Usually, however, governments
responded with brute force, violently oppressing demonstrations.
However, the widespread opposition to these reforms needed to be
addressed by major organizations and aid agencies in re-evaluating
their approach to development:[9]
The outcome of these deliberations was the good governance agenda
in the 1990s and the decision to co-opt NGOs and other civil society
organizations to a repackaged programme of welfare provision, a
social initiative that could be more accurately described as a
programme of social control.
The result was to implement the notion of pluralism in the form of
multipartyism, which only ended up in bringing into the public
domain the seething divisions between sections of the ruling class
competing for control of the state. As for the welfare initiatives,
the bilateral and multilateral aid agencies set aside significant
funds for addressing the social dimensions of adjustment, which
would minimize the more glaring inequalities that their policies
perpetuated. This is where the growth of NGOs in Africa rapidly
accelerated.[10]
Africa had again, become firmly enraptured in the cold grip of
imperialism. Conflicts in Africa would be stirred up by imperial
foreign powers, often using ethnic divides to turn the people against
each other, using the political leaders of African nations as vassals
submissive to Western hegemony. War and conflict would spread, and
with it, so too would Western capital and the multinational
corporation.
Building a New Economy
While the developing world fell under the heavy sword of Western
neoliberal hegemony, the Western industrialized societies experienced
a rapid growth of their own economic strength. It was the Western
banks and multinational corporations that spread into and took
control of the economies of Africa, Latin America, Asia, and with
the fall of the Soviet Union in 1991, Eastern Europe and Central
Asia.
Russia opened itself up to Western finance, and the IMF and World
Bank swept in and imposed neoliberal restructuring, which led to a
collapse of the Russian economy, and enrichment of a few billionaire
oligarchs who own the Russian economy, and who are intricately
connected with Western economic interests; again, indirect globalists.
As the Western financial and commercial sectors took control of the
vast majority of the worlds resources and productive industries,
amassing incredible profits, they needed new avenues in which to
invest. Out of this need for a new road to capital accumulation
(making money), the US Federal Reserve stepped in to help out.
The Federal Reserve in the 1990s began to ease interest rates lower
and lower to again allow for the easier spread of money. This was
the era of globalization, where proclamations of a New World Order
emerged. Regional trading blocs and free trade agreements spread
rapidly, as world systems of political and economic structure
increasingly grew out of the national structure and into a
supra-national form. The North American Free Trade Agreement (NAFTA)
was implemented in an economic constitution for North America as
Reagan referred to it.
Regionalism had emerged as the next major phase in the construction
of the New World Order, with the European Union being at the
forefront. The world economy was globalized and so too, would the
political structure follow, on both regional and global levels. The
World Trade Organization (WTO) was formed to maintain and enshrine
global neoliberal constitution for trade. All through this time, a
truly global ruling class emerged, the Transnational Capitalist
Class (TCC), or global elite, which constituted a singular international
class.
However, as the wealth and power of elites grew, everyone else
suffered. The middle class had been subjected to a quiet dismantling.
In the Western developed nations, industries and factories closed
down, relocating to cheap Third World countries to exploit their
labour, then sell the products in the Western world cheaply. Our
living standards in the West began to fall, but because we could
buy products for cheaper, no one seemed to complain. We continued
to consume, and we used credit and debt to do so. The middle class
existed only in theory, but was in fact, beholden to the shackles
of debt.
The Clinton administration used globalization as its grand strategy
throughout the 1990s, facilitating the decline of productive capital
(as in, money that flows into production of goods and services),
and implemented the rise finance capital (money made on money).
Thus, financial speculation became one of the key tools of economic
expansion. This is what was termed the financialization of the
economy. To allow this to occur, the Clinton administration actively
worked to deregulate the banking sector. The Glass-Steagle Act, put
in place by FDR in 1933 to prevent commercial banks from merging
with investment banks and engaging in speculation, (which in large
part caused the Great Depression), was slowly dismantled through
the coordinated efforts of Americas largest banks, the Federal
Reserve, and the US Treasury Department.
Thus, a massive wave of consolidation took place, as large banks
ate smaller banks, corporations merged, where banks and corporations
stopped being American or European and became truly global. Some
of the key individuals that took part in the dismantling of
Glass-Steagle and the expansion of financialization were Alan
Greenspan at the Federal Reserve and Robert Rubin and Lawrence
Summers at the Treasury Department, now key officials in Obamas
economic team.
This era saw the rise of derivatives which are complex financial
instruments that essentially act as short-term insurance policies,
betting and speculating that an asset price or commodity would go
up or go down in value, allowing money to be made on whether stocks
or prices go up or down. However, it wasnt called insurance because
insurance has to be regulated. Thus, it was referred to as derivatives
trade, and organizations called Hedge Funds entered the picture in
managing the global trade in derivatives.
The stock market would go up as speculation on future profits drove
stocks higher and higher, inflating a massive bubble in what was
termed a virtual economy. The Federal Reserve facilitated this, as
it had previously done in the lead-up to the Great Depression, by
keeping interest rates artificially low, and allowing for easy-flowing
money into the financial sector. The Federal Reserve thus inflated
the dot-com bubble of the technology sector. When this bubble burst,
the Federal Reserve, with Allen Greenspan at the helm, created the
housing bubble.
The Federal Reserve maintained low interest rates and actively
encouraged and facilitated the flow of money into the housing sector.
Banks were given free reign and actually encouraged to make loans
to high-risk individuals who would never be able to pay back their
debt. Again, the middle class existed only in the myth of the free
market.
Concurrently, throughout the 1990s and into the early 2000s, the
role of speculation as a financial instrument of war became apparent.
Within the neoliberal global economy, money could flow easily into
and out of countries. Thus, when confidence weakens in the prospect
of one nations economy, there can be a case of capital flight where
foreign investors sell their assets in that nations currency and
remove their capital from that country. This results in an inevitable
collapse of the nations economy.
This happened to Mexico in 1994, in the midst of joining NAFTA,
where international investors speculated against the Mexican peso,
betting that it would collapse; they cashed in their pesos for
dollars, which devalued the peso and collapsed the Mexican economy.
This was followed by the East Asian financial crisis in 1997, where
throughout the 1990s, Western capital had penetrated East Asian
economies speculating in real estate and the stock markets. However,
this resulted in over-investment, as the real economy, (production,
manufacturing, etc.) could not keep up with speculative capital.
Thus, Western capital feared a crisis, and began speculating against
the national currencies of East Asian economies, which triggered
devaluation and a financial panic as capital fled from East Asia
into Western banking sectors. The economies collapsed and then the
IMF came in to restructure them accordingly. The same strategy was
undertaken with Russia in 1998, and Argentina in 2001.
[See: Andrew Gavin Marshall, Forging a New World Order Under a One
World Government. Global Research: August 13, 2009]
Throughout the 2000s, the housing bubble was inflated beyond measure,
and around the middle of the decade, when the indicators emerged
of a crisis in the housing market a commercial real estate bubble
was formed. This bubble has yet to burst.
The 2007-2008 Financial Crisis
In 2007, the Bank for International Settlements (BIS), the most
prestigious financial institution in the world and the central bank
to the worlds central banks, issued a warning that the world is on
the verge of another Great Depression, citing mass issuance of
new-fangled credit instruments, soaring levels of household debt,
extreme appetite for risk shown by investors, and entrenched
imbalances in the world currency system.[11]
As the housing bubble began to collapse, the commodity bubble was
inflated, where money went increasingly into speculation, the stock
market, and the price of commodities soared, such as with the massive
increases in the price of oil between 2007 and 2008. In September
of 2007, a medium-sized British Bank called Northern Rock, a major
partaker in the loans of bad mortgages which turned out to be
worthless, sought help from the Bank of England, which led to a run
on the bank and investor panic. In February of 2008, the British
government bought and nationalized Northern Rock.
In March of 2008, Bear Stearns, an American bank that had been a
heavy lender in the mortgage real estate market, went into crisis.
On March 14, 2008, the Federal Reserve Bank of New York worked with
J.P. Morgan Chase (whose CEO is a board member of the NY Fed) to
provide Bear Stearns with an emergency loan. However, they quickly
changed their mind, and the CEO of JP Morgan Chase, working with
the President of the New York Fed, Timothy Geithner, and the Treasury
Secretary Henry Paulson (former CEO of Goldman Sachs), forced Bear
Stearns to sell itself to JP Morgan Chase for $2 a share, which had
previously traded at $172 a share in January of 2007. The merger
was paid for by the Federal Reserve of New York, and charged to the
US taxpayer.
In June of 2008, the BIS again warned of an impending Great
Depression.[12]
In September of 2008, the US government took over Fannie Mae and
Freddie Mac, the two major home mortgage corporations. The same
month, the global bank Lehman Brothers declared bankruptcy, giving
the signal that no one is safe and that the entire economy was on
the verge of collapse. Lehman was a major dealer in the US Treasury
Securities market and was heavily invested in home mortgages. Lehman
filed for bankruptcy on September 15, 2008, marking the largest
bankruptcy in US history. A wave of bank consolidation spread across
the United States and internationally. The big banks became much
bigger as Bank of America swallowed Merrill Lynch, JP Morgan ate
Washington Mutual, and Wells Fargo took over Wachovia.
In November of 2008, the US government bailed out the largest
insurance company in the world, AIG. The Federal Reserve Bank of
New York, with Timothy Geithner at the helm:
[Bought out], for about $30 billion, insurance contracts AIG sold
on toxic debt securities to banks, including Goldman Sachs Group
Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG,
among others. That decision, critics say, amounted to a back-door
bailout for the banks, which received 100 cents on the dollar for
contracts that would have been worth far less had AIG been allowed
to fail.
As Bloomberg reported, since the New York Fed is quasi-governmental,
as in, it is given government authority, but not subject to government
oversight, and is owned by the banks that make up its board (such
as JP Morgan Chase), Its as though the New York Fed was a black-ops
outfit for the nations central bank.[13]
The Bailout
In the fall of 2008, the Bush administration sought to implement a
bailout package for the economy, designed to save the US banking
system. The leaders of the nation went into rabid fear mongering.
The President warned:
More banks could fail, including some in your community. The stock
market would drop even more, which would reduce the value of your
retirement account. The value of your home could plummet. Foreclosures
would rise dramatically.
The head of the Federal Reserve Board, Ben Bernanke, as well as
Treasury Secretary Paulson, in late September warned of recession,
layoffs and lost homes if Congress doesnt quickly approve the Bush
administrations emergency $700 billion financial bailout plan.[14]
Seven months prior, in February of 2008, prior to the collapse of
Bear Stearns, both Bernanke and Paulson said the nation will avoid
falling into recession.[15] In September of 2008, Paulson was saying
that people should be scared.[16]
The bailout package was made into a massive financial scam, which
would plunge the United States into unprecedented levels of debt,
while pumping incredible amounts of money into major global banks.
The public was told, as was the Congress, that the bailout was worth
$700 billion dollars. However, this was extremely misleading, and
a closer reading of the fine print would reveal much more, in that
$700 billion is the amount that could be spent at any one time. As
Chris Martenson wrote:
This means that $700 billion is NOT the cost of this dangerous
legislation, it is only the amount that can be outstanding at any
one time. After, say, $100 billion of bad mortgages are disposed
of, another $100 billion can be bought. In short, these four little
words assure that there is NO LIMIT to the potential size of this
bailout. This means that $700 billion is a rolling amount, not a
ceiling.
So what happens when you have vague language and an unlimited budget?
Fraud and self-dealing. Mark my words, this is the largest looting
operation ever in the history of the US, and it's all spelled out
right in this delightfully brief document that is about to be rammed
through a scared Congress and made into law.[17]
Further, the proposed bill would raise the nation's debt ceiling
to $11.315 trillion from $10.615 trillion, and that the actions
taken as a result of the passage of the bill would not be subject
to investigation by the nations court system, as it would bar courts
from reviewing actions taken under its authority:
The Bush administration seeks dictatorial power unreviewable by the
third branch of government, the courts, to try to resolve the crisis,
said Frank Razzano, a former assistant chief trial attorney at the
Securities and Exchange Commission now at Pepper Hamilton LLP in
Washington. We are taking a huge leap of faith.[18]
Larisa Alexandrovna, writing with the Huffington Post, warned that
the passage of the bailout bill will be the final nails in the
coffin of the fascist coup over America, in the form of financial
fascists:
This manufactured crisis is now to be remedied, if the fiscal
fascists get their way, with the total transfer of Congressional
powers (the few that still remain) to the Executive Branch and the
total transfer of public funds into corporate (via government as
intermediary) hands.
[. . . ] The Treasury Secretary can buy broadly defined assets, on
any terms he wants, he can hire anyone he wants to do it and can
appoint private sector companies as financial deputies of the US
government. And he can write whatever regulation he thinks [is]
needed.
Decisions by the Secretary pursuant to the authority of this Act
are non-reviewable and committed to agency discretion, and may not
be reviewed by any court of law or any administrative agency.[19]
At the same time, the US Federal Reserve was bailing out foreign
banks of hundreds of billions of dollars, that are desperate for
dollars and cant access Americas frozen credit markets a move
co-ordinated with central banks in Japan, the Eurozone, Switzerland,
Canada and here in the UK.[20] The moves would have been coordinated
through the Bank for International Settlements (BIS) in Basle,
Switzerland. As Politico reported, foreign-based banks with big
U.S. operations could qualify for the Treasury Departments mortgage
bailout. A Treasury Fact Sheet released by the US Department of
Treasury stated that:
Participating financial institutions must have significant operations
in the U.S., unless the Secretary makes a determination, in
consultation with the Chairman of the Federal Reserve, that broader
eligibility is necessary to effectively stabilize financial
markets.[21]
So, the bailout package would not only allow for the rescue of
American banks, but any banks internationally, whether public or
private, if the Treasury Secretary deemed it necessary, and that
none of the Secretarys decisions could be reviewed or subjected to
oversight of any kind. Further, it would mean that the Treasury
Secretary would have a blank check, but simply wouldnt be able to
hand out more than $700 billion at any one time. In short, the
bailout is in fact, a coup dC)tat by the banks over the government.
Many Congressmen were told that if they failed to pass the bailout
package, they were threatened with martial law.[22] Sure enough,
Congress passed the bill, and the financial coup had been a profound
success.
No wonder then, in early 2009, one Congressman reported that the
banks are still the most powerful lobby on Capitol Hill. And they
frankly own the place.[23] Another Congressman said that The banks
run the place, and explained, I will tell you what the problem is
- they give three times more money than the next biggest group.
It's huge the amount of money they put into politics.[24]
The Collapse of Iceland
On October 9th, 2008, the government of Iceland took control of the
nations largest bank, nationalizing it, and halted trading on the
Icelandic stock market. Within a single week, the vast majority of
Iceland's once-proud banking sector has been nationalized. In early
October, it was reported that:
Iceland, which has transformed itself from one of Europe's poorest
countries to one of its wealthiest in the space of a generation,
could face bankruptcy. In a televised address to the nation, Prime
Minister Geir Haarde conceded: "There is a very real danger, fellow
citizens, that the Icelandic economy in the worst case could be
sucked into the whirlpool, and the result could be national
bankruptcy."
An article in BusinessWeek explained:
How did things get so bad so fast? Blame the Icelandic banking
system's heavy reliance on external financing. With the privatization
of the banking sector, completed in 2000, Iceland's banks used
substantial wholesale funding to finance their entry into the local
mortgage market and acquire foreign financial firms, mainly in
Britain and Scandinavia. The banks, in large part, were simply
following the international ambitions of a new generation of Icelandic
entrepreneurs who forged global empires in industries from retailing
to food production to pharmaceuticals. By the end of 2006, the total
assets of the three main banks were $150 billion, eight times the
country's GDP.
In just five years, the banks went from being almost entirely
domestic lenders to becoming major international financial
intermediaries. In 2000, says Richard Portes, a professor of economics
at London Business School, two-thirds of their financing came from
domestic sources and one-third from abroad. More recentlyuntil the
crisis hitthat ratio was reversed. But as wholesale funding markets
seized up, Iceland's banks started to collapse under a mountain of
foreign debt.[25]
This was the grueling situation that faced the government at the
time of the global economic crisis. The causes, however, were not
Icelandic; they were international. Iceland owed more than $60
billion overseas, about six times the value of its annual economic
output. As a professor at London School of Economics said, No Western
country in peacetime has crashed so quickly and so badly.[26]
What went wrong?
Iceland followed the path of neoliberalism, deregulated banking and
financial sectors and aided in the spread and ease of flow for
international capital. When times got tough, Iceland went into
crisis, as the Observer reported in early October 2008:
Iceland is on the brink of collapse. Inflation and interest rates
are raging upwards. The krona, Iceland's currency, is in freefall
and is rated just above those of Zimbabwe and Turkmenistan.
[. . . ] The discredited government and officials from the central
bank have been huddled behind closed doors for three days with still
no sign of a plan. International banks won't send any more money
and supplies of foreign currency are running out.[27]
In 2007, the UN had awarded Iceland the best country to live in:
The nation's celebrated rags-to-riches story began in the Nineties
when free market reforms, fish quota cash and a stock market based
on stable pension funds allowed Icelandic entrepreneurs to go out
and sweep up international credit. Britain and Denmark were favourite
shopping haunts, and in 2004 alone Icelanders spent B#894m on shares
in British companies. In just five years, the average Icelandic
family saw its wealth increase by 45 per cent.[28]
As the third of Icelands large banks was in trouble, following the
government takeover of the previous two, the UK responded by freezing
Icelandic assets in the UK. Kaupthing, the last of the three banks
standing in early October, had many assets in the UK.
On October 7th, Icelands Central Bank governor told the media, We
will not pay for irresponsible debtors andnot for banks who have
behaved irresponsibly. The following day, UK Chancellor of the
Exchequer, Alistair Darling, claimed that, The Icelandic government,
believe it or not, have told me yesterday they have no intention
of honoring their obligations here, although, Arni Mathiesen, the
Icelandic minister of finance, said, nothing in this telephone
conversation can support the conclusion that Iceland would not honor
its obligation.[29]
On October 10, 2008, UK Prime Minister Gordon Brown said, We are
freezing the assets of Icelandic companies in the United Kingdom
where we can. We will take further action against the Icelandic
authorities wherever that is necessary to recover money. Thus:
Many Icelandic companies operating in the U.K., in totally unrelated
industries, experienced their assets being frozen by the U.K.
government--as well as other acts of seeming vengeance by U.K.
businesses and media.
The immediate effect of the collapse of Kaupthing is that Iceland's
financial system is ruined and the foreign exchange market shut
down. Retailers are scrambling to secure currency for food imports
and medicine. The IMF is being called in for assistance.[30]
The UK had more than B#840m invested in Icelandic banks, and they
were moving in to save their investments,[31] which just so happened
to help spur on the collapse of the Icelandic economy.
On October 24, 2008, an agreement between Iceland and the IMF was
signed. In late November, the IMF approved a loan to Iceland of
$2.1 billion, with an additional $3 billion in loans from Denmark,
Finland, Norway, Sweden, Russia, and Poland.[32] Why the agreement
to the loan took so long, was because the UK pressured the IMF to
delay the loan until a dispute over the compensation Iceland owes
savers in Icesave, one of its collapsed banks, is resolved.[33]
In January of 2009, the entire Icelandic government was formally
dissolved as the government collapsed when the Prime Minister and
his entire cabinet resigned. This put the opposition part in charge
of an interim government.[34] In July of 2009, the new government
formally applied for European Union membership, however, Icelanders
have traditionally been skeptical of the benefits of full EU
membership, fearing that they would lose some of their independence
as a small state within a larger political entity.[35]
In August of 2009, Icelands parliament passed a bill to repay Britain
and the Netherlands more than $5 billion lost in Icelandic deposit
accounts:
Icelanders, already reeling from a crisis that has left many
destitute, have objected to paying for mistakes made by private
banks under the watch of other governments.
Their anger in particular is directed at Britain, which used an
anti-terrorism law to seize Icelandic assets during the crisis last
year, a move which residents said added insult to injury.
The government argued it had little choice but to make good on the
debts if it wanted to ensure aid continued to flow. Rejection could
have led to Britain or the Netherlands seeking to block aid from
the International Monetary Fund (IMF).[36]
Iceland is now in the service of the IMF and its international
creditors. The small independent nation that for so long had prided
itself on a strong economy and strong sense of independence had
been brought to its knees.
In mid-January of 2010, the IMF and Sweden together delayed their
loans to Iceland, due to Icelands failure to reach a B#2.3bn
compensation deal with Britain and the Netherlands over its collapsed
Icesave accounts. Sweden, the UK and the IMF were blackmailing
Iceland to save UK assets in return for loans.[37]
In February of 2010, it was reported that the EU would begin
negotiations with Iceland to secure Icelandic membership in the EU
by 2012. However, Icelands aspirations are now tied partially to a
dispute with the Netherlands and Britain over $5 billion in debts
lost in the country's banking collapse in late 2008.[38]
Iceland stood as a sign of what was to come. The sovereign debt
crisis that brought Iceland to its knees had new targets on the
horizon.
Dubai Hit By Financial Storm
In February of 2009, the Guardian reported that, A six-year boom
that turned sand dunes into a glittering metropolis, creating the
world's tallest building, its biggest shopping mall and, some say,
a shrine to unbridled capitalism, is grinding to a halt, as Dubai,
one of six states that form the United Arab Emirates (UAE), went
into crisis. Further, the real estate bubble that propelled the
frenetic expansion of Dubai on the back of borrowed cash and
speculative investment, has burst.[39]
Months later, in November of 2009, Dubai was plunged into a debt
crisis, prompting fears of sparking a double-dip recession and the
next wave of the financial crisis. As the Guardian reported:
Governments have cut interest rates, created new electronic money
and allowed budget deficits to reach record levels in an attempt
to boost growth after the near-collapse of the global financial
system. [. . . ] Despite having oil, it's still the case that many
of these countries had explosive credit growth. It's very clear
that in 2010, we've got plenty more problems in store.[40]
The neighboring oil-rich state of Abu Dhabi, however, came to the
rescue of Dubai with a $10 billion bailout package, leading the
Foreign Minister of the UAE to declare Dubais financial crisis as
over.[41]
In mid-February of 2010, however, renewed fears of a debt crisis
in Dubai resurfaced; Morgan Stanley reported that, the cost to
insure against a Dubai default [in mid-February] shot up to the
level it was at during the peak of the city-state's debt crisis in
November.[42] These fears resurfaced as:
Investors switched their attention to the Gulf [on February 15] as
markets reacted to fears that a restructuring plan from the state-owned
conglomerate Dubai World would pay creditors only 60 per cent of
the money they are owed.[43]
Again, the aims that governments seek in the unfolding debt crisis
is not to save their people from a collapsing economy and inflated
currency, but to save the interests of their major banks and
corporations within each collapsing economy.
A Sovereign Debt Crisis Hits Greece
In October of 2009, a new Socialist government came to power in
Greece on the promise of injecting 3 billion euros to reinvigorate
the Greek economy.[44] Greece had suffered particularly hard during
the economic crisis; it experienced riots and protests. In December
of 2009, Greece said it would not default on its debt, but the
government added, Salaried workers will not pay for this situation:
we will not proceed with wage freezes or cuts. We did not come to
power to tear down the social state. As Ambrose Evans-Pritchard
wrote for the Telegraph in December of 2009:
Greece is being told to adopt an IMF-style austerity package, without
the devaluation so central to IMF plans. The prescription is ruinous
and patently self-defeating. Public debt is already 113pc of GDP.
The [European] Commission says it will reach 125pc by late 2010.
It may top 140pc by 2012.
If Greece were to impose the draconian pay cuts under way in Ireland
(5pc for lower state workers, rising to 20pc for bosses), it would
deepen depression and cause tax revenues to collapse further. It
is already too late for such crude policies. Greece is past the
tipping point of a compound debt spiral.
Evans-Pritchard wrote that the crisis in Greece had much to do with
the European Monetary Union (EMU), which created the Euro, and made
all member states subject to the decisions of the European Central
Bank, as Interest rates were too low for Greece, Portugal, Spain,
and Ireland, causing them all to be engulfed in a destructive
property and wage boom. Further:
EU states may club together to keep Greece afloat with loans for a
while. That solves nothing. It increases Greece's debt, drawing out
the agony. What Greece needs unless it leaves EMU is a permanent
subsidy from the North. Spain and Portugal will need help too.[45]
Greeces debt had soared, by early December 2009, to a spiraling
300-billion euros, as its financial woes have also weighed on the
euro currency, whose long-term value depends on member countries
keeping their finances in order. Further, Ireland, Spain and Portugal
were all facing problems with their debt. As it turned out, the
previous Greek government had been cooking the books, and when the
new government came to power, it inherited twice the federal deficit
it had anticipated.[46]
In February of 2010, the New York Times revealed that:
[W]ith Wall Streets help, [Greece] engaged in a decade-long effort
to skirt European debt limits. One deal created by Goldman Sachs
helped obscure billions in debt from the budget overseers in Brussels.
Even as the crisis was nearing the flashpoint, banks were searching
for ways to help Greece forestall the day of reckoning. In early
November three months before Athens became the epicenter of global
financial anxiety a team from Goldman Sachs arrived in the ancient
city with a very modern proposition for a government struggling to
pay its bills, according to two people who were briefed on the
meeting.
The bankers, led by Goldmans president, Gary D. Cohn, held out a
financing instrument that would have pushed debt from Greeces health
care system far into the future, much as when strapped homeowners
take out second mortgages to pay off their credit cards.[47]
Even back in 2001, when Greece joined the Euro-bloc, Goldman Sachs
helped the country quietly borrow billions in a deal hidden from
public view because it was treated as a currency trade rather than
a loan, [and] helped Athens to meet Europes deficit rules while
continuing to spend beyond its means. Further, Greece owes the world
$300 billion, and major banks are on the hook for much of that debt.
A default would reverberate around the globe. Both Goldman Sachs
and JP Morgan Chase had undertaken similar efforts in Italy and
other countries in Europe as well.[48]
In early February, EU nations led by France and Germany met to
discuss a rescue package for Greece, likely with the help of the
European Central Bank and possibly the IMF. The issue had plunged
the Eurozone into a crisis, as confidence in the Euro fell across
the board, and Germans have become so disillusioned with the euro,
many will not accept notes produced outside their homeland.[49]
Germany was expected to bail out the Greek economy, much to the
dismay of the German people. As one German politician stated, We
cannot expect the citizens, whose taxes are already too high, to
go along with supporting the erroneous financial and budget policy
of other states of the eurozone. One economist warned that the
collapse of Greece could lead to a collapse of the Euro:
There are enough people B-speculating on the markets about the
possible bankruptcy of Greece, and once Greece goes, they would
then turn their attentions to Spain and Italy, and Germany and
France would be forced to step in once again.[50]
However, the Lisbon Treaty had been passed over 2009, which put
into effect a European Constitution, giving Brussels enormous powers
over its member states. As the Telegraph reported on February 16,
2010, the EU stripped Greece of its right to vote at a crucial
meeting to take place in March:
The council of EU finance ministers said Athens must comply with
austerity demands by March 16 or lose control over its own tax and
spend policies altogether. It if fails to do so, the EU will itself
impose cuts under the draconian Article 126.9 of the Lisbon Treaty
in what would amount to economic suzerainty [i.e., foreign economic
control].
While the symbolic move to suspend Greece of its voting rights at
one meeting makes no practical difference, it marks a constitutional
watershed and represents a crushing loss of sovereignty.
"We certainly won't let them off the hook," said Austria's finance
minister, Josef Proll, echoing views shared by colleagues in Northern
Europe. Some German officials have called for Greece to be denied
a vote in all EU matter until it emerges from "receivership".
The EU has still refused to reveal details of how it might help
Greece raise 30bn (B#26bn) from global debt markets by the end of
June.[51]
It would appear that the EU is in a troubling position. If they
allow the IMF to rescue Greece, it would be a blow to the faith in
the Euro currency, whereas if they bailout Greece, it will encourage
internal pressures within European countries to abandon the Euro.
In early February, Ambrose Evans-Pritchard wrote in the Telegraph
that, The Greek debt crisis has spread to Spain and Portugal in a
dangerous escalation as global markets test whether Europe is willing
to shore up monetary union with muscle rather than mere words:
Julian Callow from Barclays Capital said the EU may to need to
invoke emergency treaty powers under Article 122 to halt the
contagion, issuing an EU guarantee for Greek debt. If not contained,
this could result in a `Lehman-style tsunami spreading across much
of the EU.
[. . . ] EU leaders will come to the rescue in the end, but Germany
has yet to blink in this game of brinkmanship. The core issue is
that EMUs credit bubble has left southern Europe with huge foreign
liabilities: Spain at 91pc of GDP (950bn); Portugal 108pc (177bn).
This compares with 87pc for Greece (208bn). By this gauge, Iberian
imbalances are worse than those of Greece, and the sums are far
greater. The danger is that foreign creditors will cut off funding,
setting off an internal EMU version of the Asian financial crisis
in 1998.[52]
Fear began to spread in regards to a growing sovereign debt crisis,
stretching across Greece, Spain and Portugal, and likely much wider
and larger than that.
A Global Debt Crisis
In 2007, the Bank for International Settlements (BIS), the world's
most prestigious financial body, warned of a coming great depression,
and stated that while in a crisis, central banks may cut interest
rates (which they subsequently did). However, as the BIS pointed
out, while cutting interest rates may help, in the long run it has
the effect of sowing the seeds for more serious problems further
ahead.[53]
In the summer of 2008, prior to the apex of the 2008 financial
crisis in September and October, the BIS again warned of the inherent
dangers of a new Great Depression. As Ambrose Evans-Pritchard wrote,
the ultimate bank of central bankers warned that central banks,
such as the Federal Reserve, would not find it so easy to clean up
the messes they had made in asset-price bubbles.
The BIS report stated that, It is not impossible that the unwinding
of the credit bubble could, after a temporary period of higher
inflation, culminate in a deflation that might be hard to manage,
all the more so given the high debt levels. As Evans-Pritchard
explained, this amounts to a warning that monetary overkill by the
Fed, the Bank of England, and above all the European Central Bank
could prove dangerous at this juncture. The BIS report warned that,
Global banks - with loans of $37 trillion in 2007, or 70pc of world
GDP - are still in the eye of the storm. Ultimately, the actions
of central banks were designed to put off the day of reckoning, not
to prevent it.[54]
Seeing how the BIS is not simply a casual observer, but is in fact
the most important financial institution in the world, as it is
where the worlds central bankers meet and, in secret, decide monetary
policy for the world. As central banks have acted as the architects
of the financial crisis, the BIS warning of a Great Depression is
not simply a case of Cassandra prophesying the Trojan Horse, but
is a case where she prophesied the horse, then opened the gates of
Troy and pulled the horse in.
It was within this context that the governments of the world took
on massive amounts of debt and bailed out the financial sectors
from their accumulated risk by buying their bad debts.
In late June of 2009, several months following Western governments
implementing bailouts and stimulus packages, the world was in the
euphoria of recovery. At this time, however, the Bank for International
Settlements released another report warning against such complacency
in believing in the recovery. The BIS warned of only limited progress
in fixing the financial system. The article is worth quoting at
length:
Instead of implementing policies designed to clean up banks' balance
sheets, some rescue plans have pushed banks to maintain their lending
practices of the past, or even increase domestic credit where it's
not warranted.
[. . . ] The lack of progress threatens to prolong the crisis and
delay the recovery because a dysfunctional financial system reduces
the ability of monetary and fiscal actions to stimulate the economy.
That's because without a solid banking system underpinning financial
markets, stimulus measures won't be able to gain traction, and may
only lead to a temporary pickup in growth.
A fleeting recovery could well make matters worse, the BIS warns,
since further government support for banks is absolutely necessary,
but will become unpopular if the public sees a recovery in hand.
And authorities may get distracted with sustaining credit, asset
prices and demand rather than focusing on fixing bank balance sheets.
[. . . ] It warned that despite the unprecedented measures in the
form of fiscal stimulus, interest rate cuts, bank bailouts and
quantitative easing, there is an open question whether the policies
will be able to stabilize the global economy.
And as governments bulk up their deficits to spend their way out
of the crisis, they need to be careful that their lack of restraint
doesn't come back to bite them, the central bankers said. If
governments don't communicate a credible exit strategy, they will
find it harder to place debt, and could face rising funding costs
leading to spending cuts or significantly higher taxes.[55]
The BIS had thus endorsed the bailout and stimulus packages, which
is no surprise, considering that the BIS is owned by the central
banks of the world, which in turn are owned by the major global
banks that were bailed out by the governments. However, the BIS
warned that these rescue efforts, while necessary for the banks,
will likely have deleterious effects for national governments.
The BIS warned that, theres a risk central banks will raise interest
rates and withdraw emergency liquidity too late, triggering inflation:
Central banks around the globe have lowered borrowing costs to
record lows and injected billions of dollars [or, more accurately,
trillions] into the financial system to counter the worst recession
since World War II. While some policy makers have stressed the need
to withdraw the emergency measures as soon as the economy improves,
the Federal Reserve, Bank of England, and European Central Bank are
still in the process of implementing asset-purchase programs designed
to unblock credit markets and revive growth.
The big and justifiable worry is that, before it can be reversed,
the dramatic easing in monetary policy will translate into growth
in the broader monetary and credit aggregates, the BIS said. That
will lead to inflation that feeds inflation expectations or it may
fuel yet another asset-price bubble, sowing the seeds of the next
financial boom-bust cycle.[56]
Of enormous significance was the warning from the BIS that, fiscal
stimulus packages may provide no more than a temporary boost to
growth, and be followed by an extended period of economic stagnation.
As the Australian reported in late June:
The only international body to correctly predict the financial
crisis - the Bank for International Settlements (BIS) - has warned
the biggest risk is that governments might be forced by world bond
investors to abandon their stimulus packages, and instead slash
spending while lifting taxes and interest rates.
Further, major western countries such as Australia faced the
possibility of a run on the currency, which would force interest
rates to rise, and Particularly in smaller and more open economies,
pressure on the currency could force central banks to follow a
tighter policy than would be warranted by domestic economic conditions.
Not surprisingly, the BIS stated that, government guarantees and
asset insurance have exposed taxpayers to potentially large losses,
through the bailouts and stimulus packages, and stimulus programs
will drive up real interest rates and inflation expectations, as
inflation would intensify as the downturn abated.[57]
In May of 2009, Simon Johnson, former chief economist of the
International Monetary Fund (IMF), warned that Britain faces a major
struggle in the next phase of the economic crisis:
[T]he mountain of debt that had poisoned the financial system had
not disappeared overnight. Instead, it has been shifted from the
private sector onto the public sector balance sheet. Britain has
taken on hundreds of billions of pounds of bank debt and stands
behind potentially trillions of dollars of contingent liabilities.
If the first stage of the crisis was the financial implosion and
the second the economic crunch, the third stage the one heralded
by Johnson is where governments start to topple under the weight
of this debt. If 2008 was a year of private sector bankruptcies,
2009 and 2010, it goes, will be the years of government insolvency.
However, as dire as things look for Britain, The UK is likely to
be joined by other countries as the full scale of the downturn
becomes apparent and more financial skeletons are pulled from the
sub-prime closet.[58]
In September of 2009, the former Chief Economist of the Bank for
International Settlements (BIS), William White, who had accurately
predicted the previous crisis, warned that, The world has not tackled
the problems at the heart of the economic downturn and is likely
to slip back into recession. He also warned that government actions
to help the economy in the short run may be sowing the seeds for
future crises. An article in the Financial Times elaborated:
Are we going into a W[-shaped recession]? Almost certainly. Are we
going into an L? I would not be in the slightest bit surprised,
[White] said, referring to the risks of a so-called double-dip
recession or a protracted stagnation like Japan suffered in the
1990s.
The only thing that would really surprise me is a rapid and sustainable
recovery from the position were in.
The comments from Mr White, who ran the economic department at the
central banks bank from 1995 to 2008, carry weight because he was
one of the few senior figures to predict the financial crisis in
the years before it struck.
Mr White repeatedly warned of dangerous imbalances in the global
financial system as far back as 2003 and breaking a great taboo
in central banking circles at the time he dared to challenge Alan
Greenspan, then chairman of the Federal Reserve, over his policy
of persistent cheap money [i.e., low interest rates].
[. . . ] Worldwide, central banks have pumped [trillions] of dollars
of new money into the financial system over the past two years in
an effort to prevent a depression. Meanwhile, governments have gone
to similar extremes, taking on vast sums of debt to prop up industries
from banking to car making.
These measures may already be inflating a bubble in asset prices,
from equities to commodities, he said, and there was a small risk
that inflation would get out of control over the medium term if
central banks miss-time their exit strategies.
Meanwhile, the underlying problems in the global economy, such as
unsustainable trade imbalances between the US, Europe and Asia, had
not been resolved.[59]
In late September of 2009, the General Manager of the BIS warned
governments against complacency, saying that, the market rebound
should not be misinterpreted, and that, The profile of the recovery
is not clear.[60]
In September, the Financial Times further reported that William
White, former Chief Economist at the BIS, also argued that after
two years of government support for the financial system, we now
have a set of banks that are even bigger and more dangerous than
ever before, which also, has been argued by Simon Johnson, former
chief economist at the International Monetary Fund, who says that
the finance industry has in effect captured the US government, and
pointedly stated: recovery will fail unless we break the financial
oligarchy that is blocking essential reform.[61]
In mid-September, the BIS released a warning about the global
financial system, as The global market for derivatives rebounded
to $426 trillion in the second quarter [of 2009] as risk appetite
returned, but the system remains unstable and prone to crises. The
derivatives rose by 16% mostly due to a surge in futures and options
contracts on three-month interest rates. In other words, speculation
is back in full force as bailout money to banks in turn fed speculative
practices that have not been subjected to reform or regulation.
Thus, the problems that created the previous crisis are still present
and growing:
Stephen Cecchetti, the [BIS] chief economist, said over-the-counter
markets for derivatives are still opaque and pose "major systemic
risks" for the financial system. The danger is that regulators will
again fail to see that big institutions have taken far more exposure
than they can handle in shock conditions, repeating the errors that
allowed the giant US insurer AIG to write nearly "half a trillion
dollars" of unhedged insurance through credit default swaps.[62]
In late November of 2009, Morgan Stanley warned that, Britain risks
becoming the first country in the G10 bloc of major economies to
risk capital flight and a full-blown debt crisis over coming months.
The Bank of England may have to raise interest rates before it is
ready -- risking a double-dip recession, and an incipient compound-debt
spiral. Further:
Morgan Stanley said [the] sterling may fall a further 10pc in
trade-weighted terms. This would complete the steepest slide in the
pound since the industrial revolution, exceeding the 30pc drop from
peak to trough after Britain was driven off the Gold Standard in
cataclysmic circumstances in 1931.[63]
As Ambrose Evans-Pritchard wrote for the Telegraph, this is a
reminder that countries merely bought time during the crisis by
resorting to fiscal stimulus and shunting private losses onto public
books, and, while he endorsed the stimulus packages claiming it was
necessary, he admitted that the stimulus packages have not resolved
the underlying debt problem. They have storied up a second set of
difficulties by degrading sovereign debt across much of the world.[64]
Morgan Stanley said another surprise in 2010 could be a surge in
the dollar. However, this would be due to capital flight out of
Europe as its economies crumble under their debt burdens and capital
seeks a safe haven in the US dollar.
In December of 2009, the Wall Street Journal reported on the warnings
of some of the nations top economists, who feared that following a
financial crisis such as the one experienced in the previous two
years, there's typically a wave of sovereign default crises. As
economist Kenneth Rogoff explained, If you want to know what's next
on the menu, that's a good bet, as Spiraling government debts around
the world, from Washington to Berlin to Tokyo, could set the scene
for years of financial troubles. Apart from the obvious example of
Greece, other countries are at risk, as the author of the article
wrote:
Also worrying are several other countries at the periphery of
Europethe Baltics, Eastern European countries like Hungary, and
maybe Ireland and Spain. This is where public finances are worst.
And the handcuffs of the European single currency, Prof. Rogoff
said, mean individual countries can't just print more money to get
out of their debts. (For the record, the smartest investor I have
ever known, a hedge fund manager in London, is also anticipating a
sovereign debt crisis.)
[. . . ] The major sovereign debt crises, he said, are probably a
couple of years away. The key issue is that this time, the mounting
financial troubles of the U.S., Germany and Japan mean these
countries, once the rich uncles of the world, will no longer have
the money to step in and rescue the more feckless nieces and nephews.
Rogoff predicted that, We're going to be raising taxes sky high,
and that, we're probably going to see a lot of inflation, eventually.
We will have to. It's the easiest way to reduce the value of those
liabilities in real terms. Rogoff stated, The way rich countries
default is through inflation. Further, even U.S. municipal bonds
won't be safe from trouble. California could be among those facing
a default crisis. Rogoff elaborated, It wouldn't surprise me to see
the Federal Reserve buying California debt at some point, or some
form of bailout.[65]
The bailouts, particularly that of the United States, handed a blank
check to the worlds largest banks. As another favour, the US
government put those same banks in charge of reform and regulation
of the banking industry. Naturally, no reform or regulation took
place. Thus, the money given to banks by the government can be used
in financial speculation. As the sovereign debt crisis unfolds and
spreads around the globe, the major international banks will be
able to create enormous wealth in speculation, rapidly pulling their
money out of one nation in debt crisis, precipitating a collapse,
and moving to another, until all the dominoes have fallen, and the
banks stand larger, wealthier, and more powerful than any nation
or institution on earth (assuming they already arent). This is why
the bankers were so eager to undertake a financial coup of the
United States, to ensure that no actual reform took place, that
they could loot the nation of all it has, and profit off of its
eventual collapse and the collapse of the global economy. The banks
have been saved! Now everyone else must pay.
Edmund Conway, the Economics Editor of the Telegraph, reported in
early January of 2010, that throughout the year:
[S]overeign credit will buckle under the strain of [government]
deficits; the economic recovery will falter as the Government
withdraws its fiscal stimulus measures and more companies will
continue to fail. In other words, 2010 is unlikely to be the year
of a V-shaped recovery.[66]
In other words, the recovery is an illusion. In mid-January of 2010,
the World Economic Forum released a report in which it warned that,
There is now more than a one-in-five chance of another asset price
bubble implosion costing the world more than B#1 trillion, and
similar odds of a full-scale sovereign fiscal crisis. The report
warned of a simultaneous second financial crisis coupled with a
major fiscal crisis as countries default on their debts. The report
also warned of the possibility of China's economy overheating and,
instead of helping support global economic growth, preventing a
fully-fledged recovery from developing. Further:
The report, which in previous years had been among the first to
cite the prospect of a financial crisis, the oil crisis that preceded
it and the ongoing food crisis, included a list of growing risks
threatening leading economies. Among the most likely, and potentially
most costly, is a sovereign debt crisis, as some countries struggle
to afford the unprecedented costs of the crisis clean-up, the report
said, specifically naming the UK and the US.
[. . .] The report also highlights the risk of a further asset price
collapse, which could derail the nascent economic recovery across
the world, with particular concern surrounding China, which some
fear may follow the footsteps Japan trod in the 1990s.[67]
Nouriel Roubini, one of Americas top economists who predicted the
financial crisis, wrote an article in Forbes in January of 2010
explaining that, the severe recession, combined with a financial
crisis during 2008-09, worsened the fiscal positions of developed
countries due to stimulus spending, lower tax revenues and support
to the financial sector. He warned that the debt burden of major
economies, including the US, Japan and Britain, would likely increase.
With this, investors will become wary of the sustainability of
fiscal markets and will begin to withdraw from debt markets, long
considered safe havens. Further:
Most central banks will withdraw liquidity starting in 2010, but
government financing needs will remain high thereafter. Monetization
and increased debt issuances by governments in the developed world
will raise inflation expectations.
As interest rates rise, which they will have to in a tightening of
monetary policy, (which up until now have been kept artificially
low so as to encourage the spread of liquidity around the world),
interest payments on the debt will increase dramatically. Roubini
warned:
The U.S. and Japan might be among the last to face investor aversionthe
dollar is the global reserve currency and the U.S. has the deepest
and most liquid debt markets, while Japan is a net creditor and
largely finances its debt domestically. But investors will turn
increasingly cautious even about these countries if the necessary
fiscal reforms are delayed.[68]
Governments will thus need to drastically increase taxes and cut
spending. Essentially, this will amount to a global Structural
Adjustment Program (SAP) in the developed, industrialized nations
of the West.
Where SAPs imposed upon Third World debtor nations would provide a
loan in return for the dismantling of the public state, higher
taxes, growing unemployment, total privatization of state industries
and deregulation of trade and investment, the loans provided by the
IMF and World Bank would ultimately benefit Western multinational
corporations and banks. This is what the Western world now faces:
we bailed out the banks, and now we must pay for it, through massive
unemployment, increased taxes, and the dismantling of the public
sphere.
In February of 2010, Niall Ferguson, a prominent British economic
historian, wrote an article for the Financial Times entitled, A
Greek Crisis Coming to America. He starts by explaining that, It
began in Athens. It is spreading to Lisbon and Madrid. But it would
be a grave mistake to assume that the sovereign debt crisis that
is unfolding will remain confined to the weaker eurozone economies.
He explained that this is not a crisis confined to one region, It
is a fiscal crisis of the western world, and Its ramifications are
far more profound than most investors currently appreciate. Ferguson
writes that, the problem is essentially the same from Iceland to
Ireland to Britain to the US. It just comes in widely differing
sizes, and the US is no small risk:
For the worlds biggest economy, the US, the day of reckoning still
seems reassuringly remote. The worse things get in the eurozone,
the more the US dollar rallies as nervous investors park their cash
in the safe haven of American government debt. This effect may
persist for some months, just as the dollar and Treasuries rallied
in the depths of the banking panic in late 2008.
Yet even a casual look at the fiscal position of the federal
government (not to mention the states) makes a nonsense of the
phrase safe haven. US government debt is a safe haven the way Pearl
Harbor was a safe haven in 1941.
Ferguson points out that, The long-run projections of the Congressional
Budget Office suggest that the US will never again run a balanced
budget. Thats right, never. Ferguson explains that debt will hurt
major economies:
By raising fears of default and/or currency depreciation ahead of
actual inflation, they push up real interest rates. Higher real
rates, in turn, act as drag on growth, especially when the private
sector is also heavily indebted as is the case in most western
economies, not least the US.
Although the US household savings rate has risen since the Great
Recession began, it has not risen enough to absorb a trillion dollars
of net Treasury issuance a year. Only two things have thus far stood
between the US and higher bond yields: purchases of Treasuries (and
mortgage-backed securities, which many sellers essentially swapped
for Treasuries) by the Federal Reserve and reserve accumulation by
the Chinese monetary authorities.[69]
In late February of 2010, the warning signs were flashing red that
interest rates were going to have to rise, taxes increase, and the
burden of debt would need to be addressed.
China Begins to Dump US Treasuries
US Treasuries are US government debt that is issued by the US
Treasury Department, which are bought by foreign governments as an
investment. It is a show of faith in the US economy to buy their
debt (i.e., Treasuries). In buying a US Treasury, you are lending
money to the US government for a certain period of time.
However, as the United States has taken on excessive debt loads to
save the banks from crisis, the prospect of buying US Treasuries
has become less appealing, and the threat that they are an unsafe
investment is ever-growing. In February of 2009, Hilary Clinton
urged China to continue buying US Treasuries in order to finance
Obamas stimulus package. As an article in Bloomberg pointed out:
The U.S. is the single largest buyer of the exports that drive
growth in China, the worlds third-largest economy. China in turn
invests surplus earnings from shipments of goods such as toys,
clothing and steel primarily in Treasury securities, making it the
worlds largest holder of U.S. government debt at the end of last
year with $696.2 billion.[70]
The following month, the Chinese central bank announced that they
would continue buying US Treasuries.[71]
However, in February of 2009, Warren Buffet, one of the worlds
richest individuals, warned against buying US Treasuries:
Buffett said that with the U.S. Federal Reserve and Treasury
Department going "all in" to jump-start an economy shrinking at the
fastest pace since 1982, "once-unthinkable dosages" of stimulus
will likely spur an "onslaught" of inflation, an enemy of fixed-income
investors.
"The investment world has gone from underpricing risk to overpricing
it," Buffett wrote. "Cash is earning close to nothing and will
surely find its purchasing power eroded over time."
"When the financial history of this decade is written, it will
surely speak of the Internet bubble of the late 1990s and the housing
bubble of the early 2000s," he went on. "But the U.S. Treasury bond
bubble of late 2008 may be regarded as almost equally extraordinary."[72]
In September of 2009, an article on CNN reported of the dangers if
China were to start dumping US Treasuries, which could cause
longer-term interest rates to shoot up since bond prices and yields
move in opposite directions, as a weakening US currency could lead
to inflation, which would in turn, reduce the value and worth of
Chinas holdings in US Treasuries.[73]
It has become a waiting game; an economic catch-22: China holds US
debt (Treasuries) which allows the US to spend to save the economy
(or more accurately, the banks), but all the spending has plunged
the US into such abysmal debt from which it will never be able to
emerge. The result is that inflation will likely occur, with a
possibility of hyperinflation, thus reducing the value of the US
currency. Chinas economy is entirely dependent upon the US as a
consumer economy, while the US is dependent upon China as a buyer
and holder of US debt. Both countries are delaying the inevitable.
If China doesnt want to hold worthless investments (US debt) it
must stop buying US Treasuries, and then international faith in the
US currency would begin to fall, forcing interest rates to rise,
which could even precipitate a speculative assault against the US
dollar. At the same time, a collapsing US currency and economy would
not help Chinas economy, which would tumble with it. So, it has
become a waiting game.
In February of 2010, the Financial Times reported that China had
begun in December of 2009, the process of dumping US Treasuries,
and thus falling behind Japan as the largest holder of US debt,
selling approximately $38.8 billion of US Treasuries, as Foreign
demand for US Treasury bonds fell by a record amount:
The fall in demand comes as countries retreat from the "flight to
safety" strategy they embarked on at the peak of the global financial
crisis and could mean the US will have to pay more in debt interest.
For China, the sale of US Treasuries marks a reversal that it
signalled last year when it said it would begin to reduce some of
its holdings. Any changes in its behaviour are politically sensitive
because it is the biggest US trade partner and has helped to finance
US deficits.
Alan Ruskin, a strategist at RBS Securities, said that China's
behaviour showed that it felt "saturated" with Treasury paper. The
change of sentiment could hurt the dollar and the Treasury market
as the US has to look to other countries for financing.[74]
So, China has given the US a vote of non-confidence. This is evident
of the slippery-slide down the road to a collapse of the US economy,
and possibly, the US dollar, itself.
Is a Debt Crisis Coming to America?
All the warning signs are there: America is in dire straights when
it comes to its total debt, proper actions have not been taken to
reform the monetary or financial systems, the same problems remain
prevalent, and the bailout and stimulus packages have further exposed
the United States to astronomical debt levels. While the dollar
will likely continue to go up as confidence in the Eurozone economies
tumbles, this is not because the dollar is a good investment, but
because the dollar is simply a better investment (for now) than the
Euro, which isnt saying much.
The Chinese moves to begin dumping US Treasuries is a signal that
the issue of American debt has already weighed in on the functions
and movements of the global financial system. While the day of
reckoning may be months if not years away, it is coming nonetheless.
On February 15, it was reported that the Federal Reserve, having
pumped $2.2 trillion into the economy, must start pulling that money
back. As the Fed reportedly bought roughly $2 trillion in bad assets,
it is now debating how and when to sell those assets.[75] As the
Korea Times reported, The problem: Do it too quickly and the Fed
might cut off or curtail the recovery. Wait too long and risk setting
off a punishing round of inflation.[76]
In mid-February, there were reports of dissent within the Federal
Reserve System, as Thomas Hoenig, president of the Federal Reserve
Bank of Kansas City, warned that, The US must fix its growing debt
problems or risk a new financial crisis. He explained, that rising
debt was infringing on the central banks ability to fulfill its
goals of maintaining price stability and long-term economic growth.
In January, he was the lone voice at a Fed meeting that said interest
rates should not remain near zero for an extended period. He said
the worst case scenario would be for the US government to have to
again ask the Fed to print more money, and instead suggested that,
the administration must find ways to cut spending and generate
revenue, admitting that it would be a painful and politically
inconvenient process.[77]
However, these reports are largely disingenuous, as it has placed
focus on a superficial debt level. The United States, even prior
to the onset of the economic crisis in 2007 and 2008, had long been
a reckless spender. The cost of maintaining an empire is astronomical
and beyond the actual means of any nation. Historically, the collapse
of empires has as much or more to do with a collapse in their
currency and fiscal system than their military defeat or collapse
in war. Also important to note is that these processes are not
mutually exclusive, but are, in fact, intricately interconnected.
As empires decline, the world order is increasingly marred in
economic crises and international conflict. As the crisis in the
economy worsens, international conflict and wars spread. As I have
amply documented elsewhere, the United States, since the end of
World War II, has been the global hegemon: maintaining the largest
military force in the world, and not shying away from using it, as
well as running the global monetary system. Since the 1970s, the
US dollar has acted as a world reserve currency. Following the
collapse of the USSR, the grand imperial strategy of America was
to dominate Eurasia and control the world militarily and economically.
[See: Andrew Gavin Marshall, An Imperial Strategy for a New World
Order: The Origins of World War III. Global Research: October 16,
2009]
Throughout the years of the Bush administration, the imperial
strategy was given immense new life under the guise of the war on
terror. Under this banner, the United States declared war on the
world and all who oppose its hegemony. All the while, the administration
colluded with the big banks and the Federal Reserve to artificially
maintain the economic system. In the latter years of the Bush
administration, this illusion began to come tumbling down. Never
before in history has such a large nation wages multiple major
theatre wars around the world without the public at home being
fiscally restrained in some manner, either through higher taxes or
interest rates. In fact, it was quite the opposite. The trillion
dollar wars plunged the United States deeper into debt.
By 2007, the year that Northern Rock collapsed in the UK, signaling
the start of the collapse of 2008, the total debt domestic,
commercial and consumer debt of the United States stood at a
shocking $51 trillion.[78]
As if this debt burden was not enough, considering it would be
impossible to ever pay back, the past two years has seen the most
expansive and rapid debt expansion ever seen in world history in
the form of stimulus and bailout packages around the world. In July
of 2009, it was reported that, U.S. taxpayers may be on the hook
for as much as $23.7 trillion to bolster the economy and bail out
financial companies, said Neil Barofsky, special inspector general
for the Treasurys Troubled Asset Relief Program.[79]
That is worth noting once again: the bailout bill implemented under
Bush, and fully supported and sponsored by President-elect Obama,
has possibly bailed out the financial sector of up to $23.7 trillion.
How could this be? After all, the public was told that the bailout
was $700 billion.
In fact, the fine print in the bailout bill revealed that $700
billion was not a ceiling, as in, $700 billion was not the maximum
amount of money that could be injected into the banks; it was the
maximum that could be injected into the financial system at any one
time. Thus, it became a rolling amount. It essentially created a
back-door loophole for the major global banks, both domestic and
foreign, to plunder the nation and loot it entirely. There was no
limit to the money banks could get from the Fed. And none of the
actions would be subject to review or oversight by Congress or the
Judiciary, i.e., the people.[80]
This is why, as Obama became President in late January of 2009, his
administration fully implemented the financial coup over the United
States. The man who had been responsible for orchestrating the
bailout of AIG, the buyout of Bear Stearns as a gift for JP Morgan
Chase, and had been elected to run the Federal Reserve Bank of New
York by the major global banks in New York (chief among them, JP
Morgan Chase), had suddenly become Treasury Secretary under Obama.
The Fed, and thus, the banks were now put directly in charge of the
looting.
Obama then took on a team of economic advisers that made any astute
economic observer flinch in terror. The titans of economic crisis
and catastrophe had become the fox in charge of the chicken coop.
Those who were instrumental in creating and constructing the economic
crises of the previous decades and building the instruments and
infrastructure that led to the current crisis, were with Obama,
brought in to solve the crisis they created. Paul Volcker, former
Chairman of the Federal Reserve and architect of the 1980s debt
crisis, was now a top economic adviser to Obama. As well as this,
Lawrence Summers joined Obamas economic team, who had previously
been instrumental in Bill Clintons Treasury Department in dismantling
all banking regulations and creating the market for speculation and
derivatives which directly led to the current crisis.
In short, the financial oligarchy is in absolute control of the
United States government. Concurrently, the military structure of
the American empire has firmly established its grip over foreign
policy, as Americas wars are expanded into Pakistan, Yemen, and
potentially Iran.
Make no mistake, a crisis is coming to America, it is only a question
of when, and how severe.
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Andrew Gavin Marshall is a Research Associate with the Centre for
Research on Globalization (CRG). He is currently studying Political
Economy and History at Simon Fraser University.
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