Money, People, Bankers and Government

U.S Debt Crisis?

2011-07-21T17:28:00.001-07:00

U.S Debt Crisis? Easy to solve. Since U.S. Governmant has run out of money to pay it’s debts then “We the People” must use our military to force those who DO have the money to cover them. After all, our prisons, welfare, wars, and international funding programs have created a wealthy class. We need to reform certain social structures first; budget will take care of itself later.

The public has been led to believe through media propaganda that the trillions of dollars of our money spent on military and wars have been necessary to secure the Common Good and the future of America. But, in reality, the Common Good has been enfeebled, raped and plundered. It is 1776 again, and George III has mysteriously won the Revolutionary War. ”Washington” which once was a name which inspired truth, gallantry, heroism and patriotism has morphed into fraud, opportunism, cowardice, and treason. The Common Good, once esteemed as a high ideal and sacred resource of freedom, productivity and progress is enslaved now by our new corporate masters and financial owners. The values of government and the forces of arms have been so exceedingly exploited that the promise of wealth and prosperity of the nation it’s resources and the people has transferred into the hands of a cunning few. The Federal Government is no longer the proud repository and spokesman of this wealth because in effect there is none to speak of.

But yet, there “is” immeasurable riches. For, every dollar owed by the People shows up on the credit side of our lenders and draped over the lithe shoulders of their wives, sons and daughters. It was their needs from the beginning that the People were inculcated to finance. It was their interest from the start that the People were guided to supply. Is it not their intricate designs, voluminous plans and new world order that are leading us headlong to the financial ruin of our nation and indeed the whole world? Why now would those who have ursuped our strength show any concern? Do not those who sell us unnecessary goods mock us in our folly for buying them? Do not those who promised prosperity now laugh at how gullible we have been while they cruise the Greek Islands eating fresh papaya in cool and refreshing splendor? Do not those who dwell comfortably in their immoral riches despise and scorn us in our poverty upon which they capitalize while building for themselves magnificent banks, tall buildings and a vast global empire? But, the feet of such an boastful and tall image is of clay. It will crumble in a single day.

The US President vs. The CEO.

2010-12-18T14:45:00.000-08:00

The US President vs. The CEO. A President is an official elected by the media conditioned masses; a CEO is an official elected by the intelligent few. The President represents a government whose taxation is the bane of our existence. A CEO represents an industry whose products are and integral part of our daily lives.

Presidents continually sell out the naive public. CEOs sell us innovations that improve our health, efficiencies and personal comforts as an integral part of the public's daily lives and ratified by earnings derived through customer satisfaction and consumer benefits. The President sends our children to war. The CEO sends our children to training, college, and to others who can guide their careers to excellence through organization and sound collective efforts.

A former CEO of Carrier International once told me that he "was" the company. CEO bonuses are voted on by the boards of trustees based on measurable merits on all levels. They are like the a Carnegie or a Morgan. [I get into my fourteen y...ear old Pathfinder turn the key and go. When I need a part I can have it shipped in 24 hours from anywhere.] The great financial gap between the rich and poor is seen in the difference between what is required to govern a global company, and millions of consumers and those who have trouble governing themselves let alone thousands of employees.

The Crisis Gives the US New Financial Power

2008-12-16T08:04:00.000-08:00

By Ricardo Hausmann

Published: December 15 2008 19:19 | Last updated: December 15 2008 19:19

The economic crisis in the US signals the end of American global hegemony. Or does it? Pundits from different camps, some with fear and others with glee, contemplate a future where the US will have a much diminished weight in global affairs. But if the US plays its hand well, things will turn out to be just the opposite.

It is useful to remember that power is a relative, not an absolute concept. True, the US has been hurt by the current turmoil but so have many others. The Dow Jones is down by almost 40 per cent so far this year but this makes it pretty much the best performing stock market in the world.

More importantly, as far as power is concerned, unfriendly states such as Russia, Iran and Venezuela are suffering from a dual collapse in the price of their oil exports and the value of their sovereign bonds.

Remember the dangerous scenario this past summer with Russia intervening in Georgia and threatening Europe with the energy card?

Now, Russian policymakers perform daily prayers just to be able to open the stock market for regular business.

More broadly, the financial meltdown has translated into a sudden stop in capital flows to emerging and developing countries, which threatens to destabilise their growth, their financial systems and their government accounts.

Contrary to popular opinion, the current crisis has very little to do with the Armageddon that Nouriel Roubini, professor of economics at New York University, predicted over the past few years. In his mind, the widening US current account deficit would eventually top the willingness of the rest of the world to fund it, causing the US dollar to crash while long term interest rates on US Treasury bonds would soar.

That has little to do with this crisis: the US has become the only remaining super-borrower, able to issue thousands of billions of dollars in debt at record low rates while the dollar strengthens. People are unwilling to lend to almost anybody except for the US Treasury. This has allowed the US to provide – at record low cost – about $5,000bn (£3,325bn, €3,700bn) to bail out its financial system and organise a Keynesian reflation of its economy.

At the same time, fairly well behaved countries such as Brazil, Colombia, Mexico, Peru, South Africa and Turkey have essentially lost access to external finance.

What should the US do with its newfound financial power? While it is tempting to use this power only for domestic policy purposes, it would be a mistake to do so.

First, the US is already running a large current account deficit, a reflection of the fact that domestic spending is well above output. Using the capacity to borrow just to spend it domestically is going to aggravate this deficit and leave the US with a worsened external balance that will limit growth down the line.

Second, net public debt is rising sharply just as baby boomers will begin to collect their social security cheques, worsening long-run fiscal solvency.

Third, many countries across the world are going to suffer the consequences of the lack of access to finance at a time where the decline in their export earnings would have warranted more borrowing to smooth things out. If unchecked, this will cause their economies to shrink and their imports to decline, hurting US exports just when they are most needed. Under these conditions, there is the risk that countries will shut themselves off from the global economy and impose the financial equivalent of the protectionist Smoot-Hawley Act of 1930 . This can lead to an unravelling of the consensus for globalisation that has characterised the post-cold war era.

Fourth, if the US re-circulates financial resources, by on-lending to well behaved countries that have lost access because of the financial crisis, it would not increase its net debt but instead would make money for the US taxpayer while helping increase demand for US exports.

Fifth, re-exporting capital to the rest of the world would prevent the inconvenient strengthening of the dollar.

Finally, exercising this function would give the US enormous soft power in the world. Countries would have to decide whether they want to play ball with market democracy and benefit from access to the financial resources that the US and others can mobilise, or try to form a separate camp with Russia, Iran or Venezuela just as the rug has been pulled from under them.

Re-circulating the money in the needed scale will require more than business as usual at the International Monetary Fund, the World Bank and regional development banks. These institutions have been lending well below $100bn a year but the collapse of financial markets represents some $700bn in lost access.

Moreover, countries are afraid to ask for assistance for fear of scaring the markets. The US Federal Reserve has already broken new ground by offering $120bn in swap agreements with Brazil, Korea, Mexico and Singapore but this is geographically limited and unilateral. Intervening directly by creating a fund to purchase globally public and private securities, as is being done at home, and the Latin American Financial Regulation Shadow Committee – of which I am a member – has recently recommended, may be a promising way forward.

The author is the director of Harvard’s Center for International Development and a member of the Latin American Financial Regulation Shadow Committee

Dick Cheney Quick Review: "Born second man".

2008-11-23T05:24:00.000-08:00

There was an interesting article in the TMP Cafe:

Cheney's Esurience

By Jacob Heilbrunn - November 21, 2008, 6:06PM

"These have been very enlightening blogs. However, the question of how to reconcile executive power with "conservative" values does not seem so far-fetched: In order to create "free" markets, untie people from the networks of liberal social policies, and give free reign to religious values etc, you need a "strong executive." In unguarded moments, "conservatives" like Michael Ledeen will drop their guards and use the word "dictatorial." Cheney himself was quoted with the word "monarchical" at some point here. It's like Pinochet in Chile, who had to "torture people to free markets," as on Uruguayan writer put it, except in the U.S. you still need to keep it secret.

Without claiming to be able to look into Cheney's soul, it also seems obvious that his craving for unrestrained power does not simply represent a wish to fulfill his job as efficiently as possible (in that sense he is no Thomas Beckett). No, if we look at Cheney's record as a Congressman, it becomes clear that he was one of the most ideological members of Congress, an extremist even among hardcore cultural conservatives, beginning with his opposition to Martin Luther King Day. In his book "Dick," John Nichols chronicles Cheney's extremist votes against any form of gun control, reimbursing states for immunization programs for children, opposing a law to allow federal employees to take time off work to care for sick family members, etc (often Cheney was one of only a handful of Congressmen opposing measures as those above).

Looking at Cheney's career as a whole, it is fair to describe him as a politician who was adept at only one thing: avoiding taking real responsibility for the consequences of his actions. He was the born number two guy, somebody who can afford not to compromise, because he would never put his policies to real tests. That's why he HAD to manipulate, scheme, and outsmart his competitors behind the scenes.

I would even go further (indeed further than any of the contributors here): Cheney is a dilettante, at least as a politician. He dropped out of Yale, he never finished graduate school, his client Gerald Ford lost the 1976 election by following Cheney's advice, the Republican party is in shambles following his policies. Yes, he managed to enrich his cronies. He is a talented criminal I suppose. But otherwise?"

Posted by John
November 22, 2008 12:17 PM

The United States Position on the Current Financial Crisis

2008-11-22T04:58:00.000-08:00

http://www.whitehouse.gov/infocus/economy/

Fact Sheet: Plan To Stabilize Financial System Is Limited In Size, Scope, And Duration

The Federal Government Is Acting Swiftly To Preserve Our System Of Free Market Capitalism And Return Our Nation To A Path Of Prosperity, Job Creation, And Long-Term Economic Growth

On October 17, 2008, President Bush visited the United States Chamber of Commerce and discussed the actions that the Federal Government has taken in response to the financial crisis. The President explained that the government took swift action to protect the financial security of the American people. One important element, the equity purchase program, is designed with strong protections to ensure the government's involvement is limited in size, limited in scope, and limited in duration:

The government's involvement is limited in size. The government's investment is capped for any individual firm that chooses to participate in this voluntary program, so that private investors retain control.
The government's involvement is limited in scope. The government will not exercise control over any private firm. The shares owned by the government will have voting rights that can be used only to protect the taxpayer's investment – not to direct the firm's operations.
The government's involvement is limited in duration. This program includes provisions to encourage banks to buy back their shares from the government when the markets stabilize and they can raise money from private investors.

We must never lose sight of the enormous benefits delivered by the free enterprise system. Democratic capitalism remains the greatest system ever devised. Around the world, free market policies have lifted millions of people out of poverty and given them the opportunity to build a more hopeful life. In the United States, it has given our large and dynamic economy the flexibility and resilience to absorb shocks, adjust, and bounce back.

... it continues.

The Timeline of the Great Depression

2008-11-21T05:27:00.000-08:00

Study data to determine the parallels with today's events.

Excerpt:

ECONOMIC TIMELINE

The following timeline shows the order of economic events during the Great Depression. Notice the effect that deficit spending had on economic growth:

Receipts: Tax receipts as a percentage of the Gross Domestic Product

Spending: Federal spending as a percentage of the Gross Domestic Product

GNP: Percent change in the Gross National Product

Unemp.: Unemployment rate

       Tax       Federal    GNP       Unemp.
Year   Receipts  Spending   Growth    Rate
-------------------------------------------------
1929      --       --         --      3.2%  < Hoover era, Great Depression begins
1930     4.2%     3.4%     - 9.4%     8.7
1931     3.7      4.3      - 8.5     15.9
1932     2.9      7.0      -13.4     23.6
1933     3.5      8.1      - 2.1     24.9   < FDR, New Deal begins; contraction ends March
1934     4.9     10.8      + 7.7     21.7
1935     5.3      9.3      + 8.1     20.1
1936     5.1     10.6      +14.1     16.9
1937     6.2      8.7      + 5.0     14.3   < recession begins, May
1938     7.7      7.8      - 4.5     19.0   < recession ends, June
1939     7.2     10.4      + 7.9     17.2
1940     6.9      9.9 
1941     7.7     12.1 
1942    10.3     24.8  
1943    13.7     44.8  
1944    21.7     45.3  
1945    21.3     43.7

Wall Steet Shocked as Farmboy Paulson Repents

2008-11-18T05:14:00.000-08:00

Quoting from Washington Post November 18th, By David Cho, "A Coversion In This Storm" 2008:

What I saw as a few key points of the article:

"A Republican, Paulson would bring government into some of Wall Street's most private quarters. He said banking regulators should have a major say in how financial firms compensate their executives and that the Federal Reserve should have the power to regulate any financial company it considers crucial, including hedge funds and private-equity firms. He added that the policy statement he crafted on hedge funds in January 2007, which stated they should not be regulated, was wrong.

In reshaping his philosophy, he has had to feel his way even as the once-familiar financial landscape shifted around him. Some senior government officials who worked with him said he invented much of the government's response on the fly."

"Paulson had long believed that free markets work only if companies, no matter how big or vital to the financial system, could pay for their mistakes by failing. Nothing is as powerful a motivator as the possibility of a collapse, he would say."

"While critics on Wall Street now accuse Paulson of inconsistency, some senior government officials said he has been ideally suited to grapple with a fast-moving and complicated financial meltdown. His shifting views, while startling, are not that surprising because his beliefs have never been grounded in ideology, these officials said.

"These are unprecedented times," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., who has worked closely with Paulson and occasionally clashed with him. "He doesn't have an ideological bias one way or the other. He's tried to be receptive as he developed responses, and to his credit, he is willing to go where folks have dared not to go in terms of regulation.""

"Paulson said he has become far more comfortable in Washington than in New York. An Illinois farm boy, he never adapted to the New York lifestyle, never enjoyed swinging deals along a golf course.

Even from the beginning of his tenure at the Treasury, it was clear that Paulson might break the mold. When he accepted the administration position in the summer of 2006, his allies on Wall Street urged him to revise the Sarbanes-Oxley Act, which was adopted in 2002 in response to a string of accounting scandals at Enron and other firms. The legislation had increased accountability for public companies but at some expense to their bottom line."

"Paulson said he has become far more comfortable in Washington than in New York. An Illinois farm boy, he never adapted to the New York lifestyle, never enjoyed swinging deals along a golf course.

"Paulson said he will urge Congress and the administration to grant the Fed broad discretion to examine the books of any firm, regulated or unregulated. This would require large hedge funds, private-equity firms and other now-unregulated financial entities to accept a charter from the Fed and open their financial records to its officials.

He added that executive compensation for financial firms also needs substantial reform, which could be accomplished partly through banking regulation.

Paulson said he pushed the five major federal banking agencies over the past weeks to release a guidance document that would require firms to eliminate compensation that encourages risky behavior by traders and executives."

"If the rescue does work, that will be a huge part of his legacy," said Bair, the FDIC chairman. "Even if it doesn't and we have to do other measures . . . I think history will view him favorably as someone who tried programs and took some risks and tackled this crisis with the best information that was available to him."

CEOs

2008-10-26T21:20:00.000-07:00

The directors of corporations voted to pay their CEOs fat salaries hoping to gain for themselves greater earnings, higher stock prices, and greater popularity and importance for their shareholders. But, the CEO's were wiser then their directors and all others in the company. And they took that wealth and translated it into gold and other tangible treasures that would endure the remainder of time. They retired in their nobility and brilliance each to a rural country house where they raised horses, crop and good feelings with all people for the insights and knowledge they had gained was profound and their decisions sound.

Soros, Socialism and Conspiracy

2008-10-25T06:45:00.000-07:00

Back in the seventies I read the popular thesis by the gifted Stanford University research scholar, Gary Allen, called "None Dare Call it Conspiracy". Today the book is a book of prophesy because a great deal of what he spoke about has been unfolding year by year ever since it's initial publication. What I enjoy most about the book is that it is insightful. It takes the reader beneath the surface of politics, finance and government and provides a much deeper modus operandi for why and how people gather on high political levels and who controls whom. It is an intriguing world that few of us understand unless one is willing to transcend the media and begin a lifetime of one's own research into the subject. Other individuals who do this and have shown exceptional accuracy and reliability are generally disregarded by what has come to be known as the "Establishment". For, what is classically established is a highly organized cadre of wealthy movers who create politics, government, finance and media to support their objectives and visions. Although some say that their world is too disorganized to be a conspiracy then I would pose the question, "How do the events match the predictions so accurately ?" The major prediction is for a New World Order. What we are seeing today is the NWO alive and present and Soros is quite near the very top. The reasons why he and others like him are as powerful a force for democratic socialism will be discussed in the article which follows. Happy reading.

You Lose, Soros Wins by Richard W. Rahn

Richard W. Rahn is a senior fellow in foreign policy studies at the Cato Institute and chairman of the Institute for Global Economic Growth.

Added to cato.org on October 24, 2008

This article appeared in The Washington Times on October 24, 2008.

Have you ever wondered why billionaires like George Soros financially support politicians who say they will "increase taxes on the rich"?

The answer quite simply is that the tax increases are most often put on people trying to become rich, not those already rich. ... read on

Obama Sued Citibank Under CRA to Force it to Make Bad Loans

2008-10-19T07:17:00.000-07:00

- UPDATED - http://iusbvision.wordpress.com/2008/09/30/obama-sued-citibank-under-cra-to-force-it-to-make-bad-loans/

September 30, 2008 — iusbvision

UPDATE 10-12-2008: Hotair.com posts a video From April 3, 1998 of Clinton’s HUD Secretary Andrew Cuomo telling how they forced banks to make high risk affirmative action loans. See Update VIII towards the bottom of this post.

UPDATE V: AUDIO - OBAMA SAID IN 2007 THAT GIVING SUB-PRIME LOANS TO PEOPLE WHO COULDN’T AFFORD THEM WAS A GOOD IDEA!!! Hotair.com comments HERE. ---------> Watch Video

“I’ve been fighting alongside ACORN on issues you care about my entire career. Even before I was an elected official, when I ran Project Vote voter registration drive in Illinois, ACORN was smack dab in the middle of it, and we appreciate your work.” — Barack Obama, Speech to ACORN, November 2007

Do you remember how we told you that the Democrats and groups associated with them leaned on banks and even sued to get them to make bad loans by abusing the Community Reinvestment Act (see HERE and HERE)? The abuse of this act by ACORN and officials like Janet Reno was a factor in causing the economic crisis. The harasment suits filed under this act were used to get banks to lower credit standards and hand out high risk loans. Fellow bloggers have dug up the lawsuit below while researching Obama’s legal career. It is a typical example of an ACORN harassment lawsuit.

In these lawsuits, ACORN makes a bogus claim of Redlining (denying poor people loans because of their ethnic heritage). They protest and get the local media to raise a big stink. This stink means that the bank faces thousands of people closing their accounts and get local politicians to lobby to stop the bank from doing some future business, expansions and mergers. If the bank goes to court, they will win, but the damage is already done because who is going to launch a big campaign to get the bank’s reputation back?

It is important to understand the nature of these lawsuits and what their purpose is. ACORN filed, or threatened to file, tons of these lawsuits and ALL CRA suits allege racism (usually the press involved and such with the threat of the CRA lawsuit is enough to get the bank to give in and put them in a catch 22, they also had a willing Janet Reno Justice Department to work with - see below for more on Reno). As we have said in our series or articles analyzing every aspect of this story (links at the very bottom of this post), the series of ACORN harassment lawsuits and intimidation against banks to lower credit standards was not the sole reason for the mortgage crisis, it was one important layer of many that brought us to the mortgage crisis and the largest financial scandal in the history of the world. Continue Reading.

Study on Acorn
http://article.nationalreview.com/?q=NDZiMjkwMDczZWI5ODdjOWYxZTIzZGIyNzEyMjE0ODI=#more

Inside Obama’s Acorn
By their fruits ye shall know them.

By Stanley Kurtz

This is a story we’ve largely missed. While Obama’s Acorn connection has not gone entirely unreported, its depth, extent, and significance have been poorly understood. Typically, media background pieces note that, on behalf of Acorn, Obama and a team of Chicago attorneys won a 1995 suit forcing the state of Illinois to implement the federal “motor-voter” bill. In fact, Obama’s Acorn connection is far more extensive. In the few stories where Obama’s role as an Acorn “leadership trainer” is noted, or his seats on the boards of foundations that may have supported Acorn are discussed, there is little follow-up. Even these more extensive reports miss many aspects of Obama’s ties to Acorn.

An Anti-Capitalism Agenda
To understand the nature and extent of Acorn’s radicalism, an excellent place to begin is Sol Stern’s 2003 City Journal article, “ACORN’s Nutty Regime for Cities.” (For a shorter but helpful piece, try Steven Malanga’s “Acorn Squash.”)

Sol Stern explains that Acorn is the key modern successor of the radical 1960’s “New Left,” with a “1960’s-bred agenda of anti-capitalism” to match. Acorn, says Stern, grew out of “one of the New Left’s silliest and most destructive groups, the National Welfare Rights Organization.” In the 1960’s, NWRO launched a campaign of sit-ins and disruptions at welfare offices. The goal was to remove eligibility restrictions, and thus effectively flood welfare rolls with so many clients that the system would burst. The theory, explains Stern, was that an impossibly overburdened welfare system would force “a radical reconstruction of America’s unjust capitalist economy.” Instead of a socialist utopia, however, we got the culture of dependency and family breakdown that ate away at America’s inner cities — until welfare reform began to turn the tide.

While Acorn holds to NWRO’s radical economic framework and its confrontational 1960’s-style tactics, the targets and strategy have changed. Acorn prefers to fly under the national radar, organizing locally in liberal urban areas — where, Stern observes, local legislators and reporters are often “slow to grasp how radical Acorn’s positions really are.” Acorn’s new goals are municipal “living wage” laws targeting “big-box” stores like Wal-Mart, rolling back welfare reform, and regulating banks — efforts styled as combating “predatory lending.” Unfortunately, instead of helping workers, Acorn’s living-wage campaigns drive businesses out of the very neighborhoods where jobs are needed most. Acorn’s opposition to welfare reform only threatens to worsen the self-reinforcing cycle of urban poverty and family breakdown. Perhaps most mischievously, says Stern, Acorn uses banking regulations to pressure financial institutions into massive “donations” that it uses to finance supposedly non-partisan voter turn-out drives.

According to Stern, Acorn’s radical agenda sometimes shifts toward “undisguised authoritarian socialism.” Fully aware of its living-wage campaign’s tendency to drive businesses out of cities, Acorn hopes to force companies that want to move to obtain “exit visas.” “How much longer before Acorn calls for exit visas for wealthy or middle-class individuals before they can leave a city?” asks Stern, adding, “This is the road to serfdom indeed.” Continue ...

The Cause of the 2008 Financial Crisis By James F. Davis | October 14, 2008

2008-10-18T19:17:00.000-07:00

As someone who spent the majority of his life as an international bank analyst and executive, I learned, that to fix a problem, one needs to understand what caused it. It can be difficult to see because sometimes it takes time for the effects of bad decisions to manifest themselves. It also requires that we examine the facts rather than our emotional biases.

The facts are that approximately 6% of all mortgage loans in United States are in default. Historically, defaults were less than one-third of that, i.e., from 0.25% to 2%.

A huge portion of the increased mortgage loan defaults are what are referred to as ‘sub-prime’ loans. Most of the sub-prime loans have been made to borrowers with poor credit ratings, no down payment on the home financed, and/or no verification of income or assets (Alt-A’s). Close to 25% of sub-prime and Alt-A’s loans are in default.

These loans increased dramatically as a 9/30/99 New York Times article explained, “In a move that could help increase homeownership rates among minorities and low income consumers, the Fannie Mae Corp. is easing the credit requirements on loans that it will purchase from banks and other lenders.” ... continue

Greenspan's Laissez-Faire or LaRouche's Firewall

2008-10-17T07:22:00.000-07:00

Greenspan has continually suggested to keep the economics simple, legislate against corruption, and let the markets play out the way they must. He believes it all balances out in the end, and will eventually adjust itself. Sadly, half the world may drop dead in the process. After Atlas Shrugged in the sixties, Greenspan became a social Darwinist letting the strongest survive, and permitting the weakest to peter out gracefully in traditional systems of sub minimum wage slavery. His philosophy is to keep from over-regulating, never never freeze anything and hunker down.

La Rouche that old sage and prophet of doom says just the opposite calling for a braking system he calls a "firewall". The alternative he fears at this stage of the turbulence is the end of civilization. If one open the time honored book of Revelation it might appear that we are durn near close. He writes:

"So therefore, we need a method of firewalls; now I mentioned two kinds of firewalls. I mentioned this act; it's a firewall. It is a feasible form of firewall under U.S. law. We just need that one piece of legislation, no more complicated than what I've written. That piece of legislation will create a firewall.

Now, we need another firewall: We need a firewall for the transition from the way the U.S. financial system is operating now, to what we are installing. We also need, in that, we need a firewall in the form of treaty agreements among a powerful aggregation of nations. In other words, if the majority of the powerful nations of the world agree that something is going to be protected, it can be protected. Without such an agreement, it can't be protected: That's a firewall. If these nations agree to come to each others' support and defense, on this issue, knowing that it's their interest that's at stake—a firewall, a transition from a system that has failed, the Cold War system, the present system, the globalization system: These systems have failed. We must, with one fell swoop, get rid of them! Well, you can not reform them, piece by piece: You have to create a firewall, to contain the disease." [This presentation appears in the September 28, 2007 issue of Executive Intelligence Review.This Present World Financial Crisis]

This is your typical convoluted LaRouche read filled with unedited streams of economic alter-consciousness. The wise, however, will find many interesting details and perhaps a piece of the great puzzle of history.

BBC - Fear Grips Global Stock Markets

2008-10-10T06:39:00.000-07:00

Stock markets across Europe have fallen after dramatic share price falls in Asia.

The FTSE 100 share index was down 8% at 3,964 points. It opened 9.8% lower at 3887 points, below the 4,000-point level for the first time in five years.

There were similar falls across Europe - Paris was down 8.4% while Germany was down 9.1%.

Investors fear a global slowdown, despite interest rate cuts and huge cash injections by central banks.

The Prime Minister, Gordon Brown, has again called on other countries to follow Britain's bank rescue package.

"What we need now is for other countries to be doing similar things," he told the BBC news channel.

He said he was confident the bail-out would eventually help stabilise the economy.

"Everybody depends on banks. We're trying to get the banks to do what they've traditionally done, to get the flow of money to businesses, to help people with their mortgages, to make sure people's savings are safe," he said.

FTSE 100 INDEX: 10 October 2008

*All Times GMT

DAX INDEX: 10 October 2008

*All Times GMT

In other major developments:

The British pound tumbled to a five-year low against the US dollar to trade at $1.6902 at one point, but recovered slightly later. It also fell against the euro to 1.245 euros
Tokyo's shares plunged 24% during the week, double their weekly fall during the 1987 market crash
Oil prices plummeted to a one-year low in European trading, with the price of US crude oil falling below $83 a barrel.
The three-month rate at which banks lend dollars to each other - known as Libor - has risen to 4.8%
Finance ministers from the G7 are to meet in Washington later and President Bush is to make an address to the American people.
Moscow and Jakarta stock markets remain suspended because of excessive volatility
Trading in the Vienna market was suspended until Friday afternoon.

Despite concerted government action, investors are increasingly fearful the financial crisis will prompt a global recession.

The underlying illness remains in the system - as manifested in the record amounts banks were charging each other yesterday for lending to each other

Robert Peston
BBC Business Editor

Robert Peston's blog

"It's a banking problem, it's a credit crisis problem and it's a complete loss of confidence worldwide," said David Buik of BGC Partners in London.

The BBC's business editor Robert Peston said markets were worried about Friday's auction of insurance claims on the debts of the collapsed US investment bank, Lehman Brothers.

This could not come at a worse time for bank shares, said our correspondent.

'Unstoppable selling'

Heavy falls were seen across Asia's markets as a climate of fear took hold on Friday.

In Japan, the Nikkei index slumped in its biggest one-day fall since the 1987 stock market crash.

The crisis also claimed its first Japanese financial institution, with the insurance company Yamato Life going bankrupt.

"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities in Tokyo.

"Investors were gripped by fear."

Tokyo dealers faced their worst day's trading since the 1987 crash

Elsewhere in Asia was a similar story.

In India, the Mumbai market plunged 6.5% in early trading. Shortly afterwards, India's central bank said it would make an additional $12.8bn (£7.5bn) available for the money markets.

Australian shares closed down 8.3%, Hong Kong's benchmark Hang Seng index slumped to a three-year low while in the Philippines, share prices closed down more 8.3%.

In Indonesia, plans to re-open the stock market were suspended in order to prevent what the president of the exchange called "deeper panic". Trading was halted for two days earlier this week.

Crisis meeting

The Dow Jones - the US benchmark index - ended down 7.3% on Thursday - tumbling below 9,000 points for the first time since August 2003.

"We're way beyond fundamentals," said Chris Orndorff, head of equity strategy at Payden & Rygel, in Los Angeles.

"This is just pure panic, that's all it is."

Finance ministers from the G7 leading industrial countries are set to meet in Washington to discuss the crisis.

US President George W Bush is due to make an address to the American people later in the day.

As well as the G7 meeting, talks will be held at the International Monetary Fund (IMF) in Washington.

The IMF has said it is ready to lend to countries hit by the global credit crunch, using an emergency lending procedure first used in the 1990s Asian crisis. It has about $200bn immediately available to lend but can tap other sources.

4 Ways to Turn a Recession Into a Depression by James Pethokoukis

2008-10-07T06:08:00.000-07:00

September 18, 2008 02:22 PM ET

Hoo, boy. Wall Street, as well as America's Investor Class, ought to find the following statement reassuring. Here is Senate Majority Leader Harry Reid on the credit crisis, "No one knows what to do. We are in new territory here." Well, my first piece of advice would be to do nothing. Punish Wall Street? The market is already doing that. Crack down on super risky home loans? The market is already doing that, too.

Moving forward, however, Washington might want to crack open some history books and examine just how bad policy from Washington turned an economic downturn into the Great Depression. Here are handy tips for what not to do:

1) Close the banks. This is the biggie—not letting the financial system disintegrate. Thank goodness it is already being handled by de facto copresidents Hank Paulson and Ben Bernanke. (In the end, though, the American taxpayer may well have to provide M.O.A.B.—the Mother of All Bailouts.) Indeed, Bernanke is a student of the Great Depression and understands well the key role of the Federal Reserve in such a crisis. In fact, he has explicitly blamed bad Fed policy for turning a 1920s downturn into a 1930s economic catastrophe.

2) Raise taxes. Another classic. The Revenue Act of 1932 was at ... read on

What Is Tipping the Boat?

2008-06-19T05:30:00.000-07:00

the liquidity must always be under the strong row boat
it would be a bear
if it were inside astern

The Cult of the Next Thing: Quotes on Consumerism by Keropok Lekor

2008-06-18T07:35:00.001-07:00

"I say that I am a “consumer” because that is what I am told, and consequently that is what I believe about myself. When did I start hearing that I was a consumer and why? Who tells me that I am a consumer and why? A noted philosopher told me once when I asked him what lust was, “Lust” he said, “is consuming”. I live in a rural area. Everywhere I go I find sheep, cows, and pigs. They are consumers, too. We eat them. Who is eating us? "—Wildfeather

Article by Keropok Lekor:

"I belong to the Cult of the Next Thing. It's dangerously easy to get enlisted. It happens by default—not by choosing the cult, but by failing to resist it. The Cult of the Next Thing is consumerism cast in religious terms. It has its own litany of sacred words: more, you deserve it, new, faster, cleaner, brighter. It has its own deep-rooted liturgy: charge it, instant credit, no down-payment, deferred payment, no interest for three months. It has its own preachers, evangelists, prophets, and apostles: ad men, pitchmen, celebrity sponsors. It has, of course, its own shrines, chapels, temples, meccas: malls, superstores, club warehouses. It has its own sacraments: credit and debit cards. It has its own ecstatic experiences: the spending spree. ...more

The Solution to the Global World Financial Crisis of the US Dollar by Wildfeather

2008-06-14T04:05:00.000-07:00

Overview
Noted economists have adequately described the grave financial problem existing in the global markets today as being caused by fiat money and a marked shift away from the United States Dollar as the primary reserve currency. We are told that confidence in the United States on many levels has dropped signficantly. Some have begun to view us as a wounded predator insanely harming anything in its path in desperate fear for its own survival. The words of the ancient Roman historian Livy seem true when he wrote that through lack of discipline and morals the people had come to a place where they could no longer bear the vice nor the cure. To this end, economists are telling, we have arrived and are now in the throws of a deep financial crisis. Nothing could be farther from the truth.

Our Strength
The United States of America in the world because our non profit organizations continue to enrich the lives of millions of people globally and are for the most part untaxed in that process. Some like to say that we are glutting ourselves at the expense of the rest of the world. I disagree with this position because our greatest strength to this point has been in the interdependent stance we have taken with others to provide billions of dollars in grants to people and organizations who know how to give both domestically and internationally. The nations of the world need to be reminded of this because it would appear that this is something they know very little about. And that this is an underlying principle upon which our wealth is founded. It will even the most advanced nations many more years to achieve what we have for so long endured in order to obtain. We have our own poverty, crime and social diseases perhaps because we have given too much to the wrong people. The ancient of Aristotle will clarify this condition. Other nations quickly assume evil things about us because they envy the wealth we possess unaware that such wealth is founded upon spiritual principles which manifests itself in the physical. We are a humane, liberated and forthright people. Our social structure are open and accountable. We guarantee the rights of all from unborn children, through the sexes, classes, races, creeds and ages. Our freedoms represented through our churches, fellowships, associations, societies, and other philanthropic and charity based organizations are the heart and lifeblood of America. The corporate cardiovascular system of this nation is quite strong and vital.

The Solution
We always have before us the option to “freely give”, and there is no law, or regulations against that, either natural or economic. Only the unnatural demands of greed stands in the way of giving. Andrew Carnegie has already proven by overpowering those tendencies and setting an example as the worlds most honored and noted philanthropist. True, in many sectors of our economy our giving has been with the intention of deriving "earnings" and showing a profit. What is wrong with that? Why is that so unholy? What value is there in doing anything at a loss for anyone? But, at this juncture in our economic struggles, I propose that we must give even more. We must give wisely and we must give without the obsessive intentions of seeing immediate earnings or profit knowing through faith in the principles of giving that we will indeed reap a handsome reward, and sooner than we might expect if we are wise enough. We need to pump from the more deeply grounded resources of intrinsic wealth in our people.

Wealth
It has been said that "true wealth exists when we create energy and value for other human beings." It has been proven that in crisis one often comes to find the most liberating solutions. It was at a point of crisis that Samuel Adams made the unthinkable decision to stand firmly against the King and the armies of England. He made this decision alone and told his friends later. And you and I are free today because of it. They set in motion the engines of liberty for and entire nation and those engines have been revving ever since. Likewise, I believe the greatest wealth is at hand, if we thoughtfully, and dynamically believe in the wisdom of the ages that points to giving with confidence rather than hedging anxiously to secure our resources. But if we follow those who doubt and conspire nefarious and secret strategies for immediate solutions, we will plunge headlong into a desperate chasm of confusion and chaos just at the point of our greatest economic victory. That has always been the desire of the treacherous few. Therefore, it is my view, that we consider the greater means insuring our survival and that of the rest of the world by giving clean energy and power wholeheartedly to those whom we may have failed. At times of scarcity there is always going to be an abundance of "get" oriented thinkers with vain self serving solutions, but in our great land there is no dearth of "give" oriented thinkers who are fearless and most powerful in their ideas, guidance and disciplines to serve others. It is well within our reach and capacity at this time to solicit their views and to "give" new energy freely. I say again, it is well within our capacity.

History
Over one hundred and fifty years ago petroleum was sold as a cure for cancer, it stole people's live savings then just as it is robbing us of ours now. It was called snake oil back then. Little has changed. Before we drank it. Now we breath it. It is time for change before the snake devours us completely. Since then, certain families have profited by the global control of this snake oil promoting fossil fuels as the only available and economically feasible source of energy. They became our august benefactors. Oil was preferred because in truth it was a high demand resource which could easily be monopolized in mining and transportation. Oil became the establishment. However, there have always existed abundant alternate resources that would have insured and secured our democratic liberties and wealth because they would have fostered our individual independence and our social interdependence. Although delayed we as a free people must claim our rightful access to the available and virtually free resources of clean energy and we must begin to wean ourselves from oil which contaminates our precious atmosphere with toxic hydrocarbons. There is no one to blame ... no scapegoat but ourselves. We though we were benefiting and making progress. But, in the words of Robert Strange McNamarra, "We made mistakes." As Dante traveled with Virgil, the ambassador of reason, it is time for our nation to lead the way out of the sickening stenches of oil, and upward toward Paradise. We must struggle again to find new paths through the mire of this dead oil based energy we have become accustomed to. We must now employ the ancient and omnipresent living energy found in the same gases which were present at the foundation of the universe. These sacred life emitting elements began with the initial words, "Let there be light."

Practical Alternative Energy Now
The solution to the financial crisis caused by greed is to freely give these life supporting substances for the health of the world. Those life generating substances are Hydrogen and Oxygen. These precious gases have been wonderfully and miraculously stored in drinking water. We are told drinking water is good for longevity and good health. It is consistent with the nature of the Creator to provide life in the common substances we must use. Removing these substances and substituting improper ones leads to death. Petroleum distillates are harmful to biology. Certainly oil has proven a cruel master. But, through the simple mechanical dissociation of hydrogen and oxygen we can release the secret power of the universe and foundational elements of life in a perfect two to one ratio easily and safely on demand. The energy that many people are generating today from water was once thought to require massive electrical input in order to obtain. I wonder why? Who has profited from this lie? Every minute oil is used as the common source of energy we the people die. China is suffering severely under this unnecessary burden. Who profits from this? By releasing ourselves from this dependence on oil we will sustain our lives in a greater health and happiness. By offering other nations the methods and means of shifting from the use of fossil fuel toward accessible energy found in the hydrogen and oxygen stored in water, I believe that we will rapidly and safely avert a financial decline.

Since 2004 the US Government has established the Hydrogen, fuel Cells & Infrastructure Technologies Program and funded it with a billion and a half dollars. Interestingly, there is no apparent research for "on-demand" delivery that I have been able to find, only for storage. Obviously, this approach will remove hydrogen one step further from the people and prevent us from being able to produce hydrogen on demand economically. It would seem that on demand private personal manufacture and use may be prohibited.

When we decide to release the expanding pressures in the economic balloon caused by avarice, fear and usury in effect we will be taking the pinch out of its neck and allowing some of the precious gases to emerge freely. Global savings will occur immediately. Some agencies are afraid to give energy to the people for fear that their earnings will be reduced. But the highest agencies of the United States has never shared such fears because right decisions are made by wise and mature leaders who think in terms of benefits in the long run. This will insure the earnings of Big Five in the future but differently than they would like at present and that is why they are at a loss for solutions. Because the solution is instantly available, inexpensive, technically feasible, and may be manufactured and implemented by millions in a matter of weeks. There is simply no profit in it for the big five on this basis. Yet, only on this basis do I find the solution out of the crisis. It is a grave security issue for the People of the United States at this point in time that the governing powers adapt an emergency plan to install in the automobiles of no less that ten million vehicles in the commercial and private sectors which will generate HHO or Brown gas, othewise known as Hydroxy, into the air intake region of as many combustion engines as possible. These gases have proven to have significant beneficial effects on the engine and the atmosphere. They will virtually increase fuel efficiency by over 50% in some cases, and require little modification to the sophisticated engine systems except a simple Electric Fuel Injection sensing modification that will properly adjust for the additional gases. These items are all in practical use today. The Stanley Meyer patents provide the technology needed to minimize the electrical input and maximize the gaseous output. No storage of these gases is necessary or recommended except by those who would have us beholden to proprietary interests. Each unit could be manufactured and distributed to the end user for under thirty dollars. They are as easily self installed or can be installed by licensed professionals in just a few minutes.

The Argument
There is some fear that if there should be any quick and massive movement in the direction of free accessible energy that this would cause a wide scale breakdown in the economy and the taxation generated from the sale of fossil fuel, taxation necessary to offset the enormous debts this nation has to pay. I disagree with this thinking because fossil fuel will continue to be used as the main source of energy. I believe that the reverse of a breakdown will occur because by relieving the pressure from the straining economic balloon, gas consumption of other nations will be relieved permitting them to save. Save, by the way is an important word. People mock when they hear the phrase "Jesus Saves". I wonder why? The people of the United States will save. The Big Five will definitely save stores of oil which is invariably money in the bank. OPEC will save their energy by scaling down production and achieving an equilibrium price. The market will save by regaining confidence in the United States' proving once again that it manifests the power of ingenuity and brilliance in the face of imminent disaster. I love that about US. And, lastly and most importantly, the natural world in which we live will save by renewing the air supply which sustains us all. Just as the marinas cleared themselves of the toxic waters causing friendly wildlife to reappear, so too will the earth replenish itself in the proper balance and stability required to sustain itself a life generating phenomena.

Bob Dylan once sang these words, "Truth is an arrow, and the way is narrow, but it passes through." May those who read this message take courage believing in the simplicity and in the spirit of wisdom may we achieve abundant health and happiness for all who dwell upon the earth. — Joseph Leonard Segreto, sometimes called, Wildfeather

For more on Hydrogen from an average sort of fellow the likes of which is being multiplied millions of times over all over the globe ... click on image to view video.

The War To Save The U.S. Dollar by Gavin R. Putland

2008-06-13T19:03:00.000-07:00

[Highly Prophetic Article MUST READ - Things are happening just as this author has stated in 2003 - Seems the handwriting was on the wall ]

(First released March 26, 2003; revised April 18, 2003.)
http://us.altnews.com.au/article.php?sid=4645

The URL for this article is:
www.trinicenter.com/oops/iraqeuro.html

The Americans could live with Saddam until he started selling oil for euros instead of U.S. dollars. Then the Europeans could live with him.

by Gavin R. Putland putland@bigpond.com

GOOD AS GOLD

At the end of World War II, the USA was the world's biggest national economy and the only great power whose industrial base was not damaged by the war. America's huge productive capacity made the U.S. dollar the easiest currency to spend in the global market and consequently the most acceptable foreign currency outside the USA. By the late 1950s, however, the recovery of Europe and Japan caused a suspicion that there were too many dollars in circulation. Central bankers began to exchange their dollars for gold under the terms of the 1944 Bretton Woods treaty, whereby the currencies of participating countries were backed by gold. In 1971, in response to the depletion of U.S. gold reserves, President Richard Nixon announced that the dollar would no longer be redeemable for gold. So the system of fixed exchange rates via gold-backing fell apart. It was thought that the dollar would decline in value as traders relied less on the dollar and more on the emerging European and Asian currencies. But support for the dollar came from an unlikely quarter.

GOLD TURNS BLACK

In 1973, the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil but continued to accept only U.S. dollars in payment, so that demand for dollars soared. From then on, the dollar was effectively backed by oil instead of gold -- and the U.S. government didn't even have to own the oil!

Because dollars can buy oil, exporters in countries that need to import oil -- i.e. most developed countries -- will accept dollars for their exports. Hence everyone who needs to buy from those exporters will accept dollars as payment for other things, and so on. To pay their bills, importers must have reserves of dollars. To prop up their currencies against speculative attacks, the central banks of all countries must have reserves of dollars. To get capital, poor countries must borrow dollars, and to service these debts they must export goods to obtain more dollars. About 2/3 of all currency reserves, more than 4/5 of all currency transactions, more than half of the world's exports, and all loans from the International Monetary Fund (IMF) are denominated in dollars. As these things create demand for the dollar and shore up its value, oil exporters are the more willing to accept payment in dollars. So the process is self-reinforcing; it's called "dollar hegemony". ... read the rest.

Demising US dollar gives way to euro cash in Russia

2008-06-13T18:59:00.000-07:00

Pravda 17.02.2005

The American currency has lost its function – the dollar does not save people's savings anymore

The dollar's behavior against the ruble makes a lot of Russian people turn to the euro. The Central Bank has recently published the statistics of last-year currency operations. As one can see from the information, authorized banks sold the euro cash in the sum of $1 billion 105.54 million to Russian natural persons in December of 2004. It became the all-time high record of euro sales since the introduction of the euro cash in 2002. On the one hand, December is a month that precedes the long period of New Year holidays. Wealthy Russians prefer to spend them somewhere in Europe having quite an amount of the euro cash in their pockets. On the other hand, there are not many such people in Russia, who can afford spending their holidays abroad. They could not spend such a huge amount of money on holiday tours. For the time being it is not clear if the increased demand on euros was only a seasonal factor, or one could already view it as a change of Russian people's traditional fondness to the US dollar.

An analyst of Gazprombank, Sergei Suverov, believes that Russians are disappointed in the declining dynamics of the dollar. “Everybody is used to the idea that the US dollar is a good way to avoid inflation. Now the American currency has lost its function – the dollar does not save people's savings anymore. The dollar rate has been sliding against the ruble. Furthermore, people look at the politics of the government and the Central Bank, which decided to place a part of its gold and forex reserves in both dollars and euros. To crown it all, Russian people travel to Europe much more often than they do to the USA. One may also recollect analytical forecasts, in which it was supposed that the dollar would continue its demise on account of the deficit of the US balance of payment and budget. To crown it all, Asian banks can also sell dollars and buy euros to diversify their reserves,” the specialist said.

Sergei Suverov does not think that the ongoing demise of the dollar will eventually lead to any extremities. “The American economy is still very strong, technological and efficient. I am talking about corporate data here, not the macroeconomic indexes of the USA. The corporate America is still an example for Europe to follow from the point of view of its effective and technological capacity. It would be naive to say that the dollar will vanish from the international arena. Furthermore, the situation in Europe is far from being perfect. Europe is not the most dynamic region of the world as far as its economic structure is concerned. The European Union is facing three problems at the moment: unemployment, the ageing of the population and the ageing of productive capacities. Asia is the most dynamic market in the world today. A lot of European enterprises do not meet competition with cheap Asian goods, especially when it comes to mass consumption goods. Therefore, the current correlation of the two major currencies has been most likely caused with the decline of the dollar, which in its turn appeared because of financial problems in the USA. As far as the ruble is concerned, the Russian currency depends on oil prices most. The current situation testifies to the high level of oil prices and the favorable development of the macroeconomic situation in Russia. The ruble has not obtained a long-term stability yet – the diversification of the Russian economy is just getting started,” Sergei Suverov said.

Russian people will probably favor their national currency in two or three years. The default of 1998 still has a big impression on the majority of Russians. A lot of them realize that it is oil, which makes for the strength of the ruble. The popularity of ruble tools, ruble bank deposits, first and foremost, will definitely be growing. The dollar and euro rate will most likely be stabilized, because Europe is not interested in the expensive euro: it decreases the competitive ability of the European economy. Russia will probably become a three-currency space (dollar, euro and ruble), and people will be psychologically oriented at the strongest one of them.

Three Billion New Capitalists —Review by Gaetan Lion

2008-06-13T16:27:00.000-07:00

Wanna read a fascinating review ... a little dated but somewhat profound.

He was wrong about Japan. He will be wrong about China too., June 11, 2005

By	Gaetan Lion - See all my reviews

Back in 1988, Prestowitz wrote "Trading Places" which was about Japan taking over the world. It sure looked that way at the time, Japan had the highest savings and investment rate, it was catching up and leapfrogging past us in many technologies. It had a huge current account surplus. However, shortly after Prestowitz published his book Japan experienced a chronic recession for the next 20 years. It's stock market level has not recovered from the peak of the late 80s.

Now, Prestowits is crying wolf about China and India for a different set of well known reasons. They have an abundant, cheap, and increasingly educated labor force that will accelerate the gutting out of both our manufacturing and research-service sectors.

Everything Prestowitz states is true, well researched, and insightful. Thus, why was he so wrong nearly 20 years ago about the prognostic of Japan vs the U.S.? And, is he likely to be wrong about China and India?

There is a simple reason why Prestowitz is likely to be wrong again. He focuses only on the most positive sides of our international competitors, and the worst ones of ours. Thus, his arguments are highly unbalanced. China and India are formidable competitors, and to some degree they should take over the world. This is just so that the living standards of their citizen reaches something beyond a poor third world level. However, both China and India face extremely challenging hurdles. China is absolutely clueless about efficient allocation of capital. Credit allocation through their banking system is one of the poorest and most corrupt in the world. The percentage of bad loans within these same banks is causing the entire banking sector to be essentially insolvent. India on the other hand suffers from an incredibly high illiteracy rate which exceeds 50% of the population. It has also one of the most byzantine and inefficient government regulatory apparatus. Ordering a new residential phone line in India is more cumbersome and time consuming then starting a whole new business in the U.S. These weak spots of China and India are complete blind spots in Prestowitz arguments. Thus, he reaches dramatic and likely wrong conclusions. Just like he did when he wrote about Japan back in 1988.

The truth of the matter is that a "catastrophic" type framework sells a lot more books than a more nuanced, and balanced one. But, reality is typically much more complex than such unidirectional lopsided arguments. This is especially true when one attempts to predict complex international competitiveness outcome over the next half a century.

For more on Ptestowitz

SOME HISTORY ON THE DOLLAR by Economicrot

2008-06-12T17:41:00.000-07:00

Good Recent Essay on the Buck ... Best I've seen in a while ... concise and fairly brief.

Economicrot 1-2008

Throughout the history of the world, there have always been strong currencies, usually held by the economic powerhouses of the day. Theses currencies were primarily called Reserve Currencies. The Pound Sterling was the primary reserve currency for much of the world in the 18th and 19th centuries. But perpetual account and fiscal deficits, financed by cheap credit and unsustainable monetary and fiscal policies used to finance wars and colonial ambitions eventually led to the pound sinking (sound familiar?).

Post World-War II, the US dollar took over the sterling’s dominant position and became the world’s newest reserve currency. The Bretton Woods Accord, the first major economic transformation toward the end of World War II, established the International Monetary Fund (IMF) and a way to value the various currencies of the world relative to each other. All foreign currencies would trade in relationship to the US Dollar and only the US dollar (as the reserve currency) would be tied to a gold standard (meaning the value of dollars circulating must be backed by gold reserves).

The gold standard caused major problems in the 1960’s when France (under the London Gold Pool) called America’s bluff and demanded gold for payment of debt, rather than US dollars (they understood that we were printing more money, to finance the Vietnam conflict and fund new social programs, than we had available in gold reserves).

Due to the rapid loss of US gold reserves, President Nixon had no choice but to abolish the Bretton Woods accord in August of 1971 and he took the US dollar off the gold standard (it was $35 per ounce then; today it is > $900).

This Nixon shock of August 1971 caused a swift devaluation of the US dollar (gold doubled in price by 1972) and numerous efforts followed (by U.S. leadership) to develop a new system of international monetary management. They felt they must find another way, as currencies around the world were in turmoil and were now floating among one another…

The year 1974 provided the much needed answer. In June of 1974, Secretary of State Henry Kissinger established the US-Saudi Arabian Joint Commission on Economic Cooperation. One of the major components of this commission stated that OPEC would officially agree to sell its oil only for dollars—meaning any country purchasing oil from OPEC had to pay in U.S. dollars. This agreement enormously increased the demand for the floating dollar, as oil importing countries now had to earn or borrow dollars to pay for their oil. ...more

Uncertain future for US economy

2008-06-10T07:27:00.000-07:00

I love reading dated stuff ... some insightful writers make marvelous predictions, and thus, one comes to learn by watching the truth of past predictions of wise and qualified by people who have a right to speak. I think that Alan Ahearne is one of these. Here is something he wrote in 2006 which may have some bearing on today's economic events"

The following is taken from the Post.IE

Sunday, November 12, 2006 - By Alan Ahearne
The recapture of the US House of Representatives and the Senate by the Democrats last Tuesday represents an enormous defeat for Republican President George W Bush and his policies in Iraq.

The now lame-duck Bush is a deeply unpopular figure in many parts of the world, including, it would seem, here in Ireland. Republican losses have been greeted in some quarters with a degree of jubilation not seen since the Munchkins celebrated the demise of the Wicked Witch of the East.

But before breaking into a chorus of ‘‘Ding Dong, the Republicans are gone’’, we ought to consider that the shift in power in the US could have major implications for the world’s biggest economy - and therefore for Ireland, which is very reliant on the US.

Voters punished the Bush administration for its failure to win in Iraq, and the Irish economy may end up a victim of collateral damage.

The Democrats’ victory comes at a time when the outlook for the US economy is highly uncertain. After several years of heady economic growth, the performance of the US economy deteriorated markedly this past summer amid a dramatic downturn in the over-stretched housing market.

Hit by a series of interest rate hikes by the Federal Reserve - America’s central bank - which saw interest rates go from 1 per cent in 2004 to 5.25 per cent today, construction of new houses tanked, inventories of unsold houses soared to 40-year highs and house prices stalled - and, in some states, began to fall.

The crucial question for the US economy’s short-term prospects is whether the worst of the housing slowdown has passed. The concern is that the recent softness in the housing market may deteriorate into an outright housing market crash, plunging the US into a severe recession.

The fortunes of the US economy in the near term will be largely unaffected by the changeover in the House and Senate. The Democrats are expected to move quickly to push through a rise in the minimum wage to $7.25 an hour from the current $5.15, a roll-back in tax breaks for oil companies and possibly an increase in income taxes on the very wealthy.

None of these policy changes will matter much for the direction of the overall economy over the next few years. Financial markets, tellingly, hardly reacted to the election results.

Where the economy goes from here will be determined mainly by what happens to interest rates, which are set by the Federal Reserve, not by the newly-elected politicians.

Importantly, the same cannot be said of US economic policies in the international arena, like trade and foreign investment policies, which are expected to change, perhaps radically. ...more

An Economic View of the United States

2008-06-10T07:05:00.000-07:00

The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $46,000. In this market-oriented economy, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. US business firms enjoy greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to enter their rivals' home markets than foreign firms face entering US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. The response to the terrorist attacks of 11 September 2001 showed the remarkable resilience of the economy. The war in March-April 2003 between a US-led coalition and Iraq, and the subsequent occupation of Iraq, required major shifts in national resources to the military. The rise in GDP in 2004-07 was undergirded by substantial gains in labor productivity. Hurricane Katrina caused extensive damage in the Gulf Coast region in August 2005, but had a small impact on overall GDP growth for the year. Soaring oil prices in 2005-2007 threatened inflation and unemployment, yet the economy continued to grow through year-end 2007. Imported oil accounts for about two-thirds of US consumption. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups. The merchandise trade deficit reached a record $847 billion in 2007. Together, these problems caused a marked reduction in the value and status of the dollar worldwide in 2007. ...more

Life is no Bell Curve

2008-06-08T14:07:00.000-07:00

"The combination of relentless refusal to allow regulatory oversight of the explosive new financial instruments from Credit Default Swaps to Mortgage Backed Securities and the myriad of similar exotic "risk-diffusing" financial innovations and the 1999 final repeal of the Glass-Steagall Act strictly separating securities dealing banks from commercial lending banks opened the way for what in June 2007 began as the second Great Depression in less than a century. It began what future historians will describe as the final demise of the United States as the dominant global financial power."

and

"As hundreds of thousands of Americans over the coming months find their monthly mortgage payments dramatically reset according to their Adjustable Rate Mortgage terms, another $690 billion in home mortgage debt will become prime candidates for default. That in turn will lead to a snowball effect in terms of job losses, credit card defaults and another wave of securitization crisis in the huge market for securitized credit card debt. The remarkable thing about this crisis is that so much of the sinews of the entire American financial system were tied in to it. There has never been a crisis of this magnitude in American history.
At the end of February the Financial Times of London revealed that US banks had "quietly" borrowed $50 billion in funds from a special new Fed credit facility to ease their cash crisis. Losses at all the major banks from Citigroup to J.P.Morgan Chase to most other major US bank groups continued to mount as the economy sank deeper into a recession that clearly would turn in coming months into a genuine depression. No Presidential candidate had dared utter a serious word about their proposals to deal with what was becoming the greatest financial and economic meltdown in American history.

By the early days of 2008 it was becoming clear that Financial Securitization would be the Last Tango for the United States as the global financial superpower.

The question now was posed what new center or centers of financial power could conceivably replace New York as the global nexus. That we will examine in Part VI."

Read:

Speculative Onslaught. Crisis of the World Financial System: The Financial Predators had a Ball

Financial Tsunami, Part V

by F. William Engdahl

The Financial Tsunami: Sub-Prime Mortgage Debt is but the Tip of the Iceberg by F. William Engdahl

2008-06-08T07:01:00.000-07:00

Part 1: Deutsche Bank’s painful lesson

Even experienced banker friends tell me that they think the worst of the US banking troubles are over and that things are slowly getting back to normal. What is lacking in their rosy optimism is the realization of the scale of the ongoing deterioration in credit markets globally, centered in the American asset-backed securities market, and especially in the market for CDO’s—Collateralized Debt Obligations and CMO’s—Collateralized Mortgage Obligations. By now every serious reader has heard the term “It’s a crisis in Sub-Prime US home mortgage debt.” What almost no one I know understands is that the Sub-Prime problem is but the tip of a colossal iceberg that is in a slow meltdown. I offer one recent example to illustrate my point that the “Financial Tsunami” is only beginning.

Deutsche Bank got a hard shock a few days ago when a judge in the state of Ohio in the USA made a ruling that the bank had no legal right to foreclose on 14 homes whose owners had failed to keep current in their monthly mortgage payments. Now this might sound like small beer for Deutsche Bank, one of the world’s largest banks with over €1.1 trillion (Billionen) in assets worldwide. As Hilmar Kopper used to say, “peanuts.” It’s not at all peanuts, however, for the Anglo-Saxon banking world and its European allies like Deutsche Bank, BNP Paribas, Barclays Bank, HSBC or others. Why? ...more

How Far Will the Crash Go and What Do we Do Now?

2007-08-21T08:42:00.001-07:00

Richard C. Cook is a retired federal analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. His articles on monetary reform, economics, and space policy have appeared on Global Research, Economy in Crisis, Dissident Voice, Atlantic Free Press, and elsewhere. He is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” His website is at www.richardccook.com.

The “Crash of 2007-8” is underway

by Richard C. Cook

The immediate triggers are being described quite well: the collapse of the U.S. subprime mortgage market; the vulnerability of the rest of the economy to the subprime undertow, due to the “efficiency” of the markets in spreading risk; the worldwide overextension of cheap credit; the failure of large institutional investors and Wall Street brokerages to behave responsibly; and the long-term effects of the U.S. trade and fiscal deficits which are now coming home to roost.

Amazingly, some commentators have been asking “if the monetary crisis will affect the producing economy,” and whether a recession lies ahead. In reality, the U.S. producing economy has been in a recession for the last year. This is shown most clearly by the decline in M1, the portion of the money supply immediately available to people for making purchases.

The causes of the M1 decline are two-fold. One is the weak purchasing power of American consumers, at least half of whose decently-paying manufacturing jobs have been eliminated by the outsourcing, mergers, and productivity improvements during the past two decades. The other is that while many of the U.S. corporations not connected to housing have been doing all right, their success has been tied to overseas investments and sales, such as GE and GM who are heavily invested in China.

This type of business activity props up the stock prices of these global corporations but does little for the working American. The presumption that overflow earnings from stockholders will benefit the rest of our domestic economy is the essence of “trickle-down,” supply-side economics and is part of the justification for the system that makes the rich richer and the poor poorer.

But as Barron’s reported earlier this year, much of the profits from the global corporations are being held as retained earnings for future growth, rather than being passed on to stockholders as dividends. Because of the heavy debt load corporations carry today, they are all in a grow-or-die mode. Again, the result is deficient purchasing power which works to negate the already dubious trickle-down effect.

The recession has been masked by four factors: 1) the government’s phony GDP numbers, where the “churning” of financial transactions masquerade as production; 2) the froth on the stock market that took the Dow Jones Average (DJA) from a little over 11,000 to a record-breaking 14,000 during a one-year period that ended with the decline that began in mid-July; 2) the propensity of the American consumer, which is now ending, to continue to buy goods and services on credit, including necessities of life like health care; and 3) modest growth in low-paying service economy jobs, which also may be coming to an end.

These lesser bubbles have mirrored the big ones that are bursting as lenders lose confidence in the ability of borrowers to repay. These are the housing bubble, affecting consumers; the acquisition bubble, affecting equity funds; and the speculation bubble, affecting hedge funds. Continue ...

Nuking the Dollar Getting a Grip by Michael I. Niman

2006-12-22T00:52:00.000-08:00

Hyperinflation is a nasty thing. I was in Nicaragua in the 1980s when that country experienced an inflation rate of 14,000 percent. Prices would regularly triple overnight, wiping out a family’s savings within a week. A trip to a grocery store would involve hauling a shopping bag of currency—money that the government printed on a daily basis, often adding new zeros every week. Coins disappeared, since, with one US penny buying, in theory, a wheelbarrow full of Nicaraguan nickels, scrappers quickly melted down the nation’s change. Lower denomination notes would end up in piles next to toilets, since they cost less then a sheet of bathroom tissue.

The problem in Nicaragua was that there was nothing to back up the money. A US economic embargo, coupled with the expenses associated with defending the country against the US-sponsored Contra war, bankrupted Nicaragua. They had no gold reserves and few commodities to sell on the international market. Their money was backed up by air and hence was worthless on the global currency exchange.

The Bank of Joe and Mike

So-called “hard currencies” are backed up by something tangible. Back when Nicaragua experienced hyperinflation, I used to joke with my friend Joe that we could introduce our own currency in Nicaragua. Issued by the “Banco de Joe and Mike,” the bills would sport a picture of our two decade-old cars. The cars had a tangible value and would back up the paper currency. By accepting the bills as legal tender, people, in essence, would be buying shares in two old Volkswagens. Had we done this, and limited the number of bills to an amount equaling the value of our cars, we would have theoretically introduced a more stable currency, albeit in limited numbers, to Nicaragua.

This is the idea behind a gold standard—pegging the value of paper currency to gold or silver and making the currency technically redeemable for gold or silver. The US abandoned the gold standard during Richard Nixon’s presidency, replacing faith in gold with faith in the almighty American economy. While this sounds arrogant, it worked. The dollar was more than numbers printed on paper. It was America, and America was invincible.

The dollar remains the dominant currency and the standard measure for international transactions. American paper currency circulates around the world, replacing the gold standard with the dollar standard, as folks in the Third World hoard US greenbacks as a hedge against the collapse of their own paper currencies. Even America’s ideological enemies adopted the dollar standard. Castro’s Cuba, for example, all but abandoned its own worthless pesos in the 1990s, switching over to US dollars for internal and external transactions. This global demand places American dollars into circulation in wallets on every continent, artificially inflating their value.

The dollar isn’t backed by gold, or even by my old car, but by the sheer belief in the supremacy of the US economy. In essence, it’s backed by fiscal smoke and mirrors—with an emphasis on the smoke.

MTV dollars

In the post-Vietnam War era, with the world drinking Coca Cola, tuning in to MTV and lining up for Big Macs, we were flying high. During the 34 years prior to Nixon’s trashing of the gold standard, the number of dollars in circulation had only doubled. In the 34-year period following Nixon’s move, by contrast, the number of dollars in circulation increased 13-fold. As economies around the world dollarized and grew, the US treasury printed more greenbacks—with nothing to back them up. Since those new bills left the country, theoretically never to return, with nations around the globe using them as a standard to trade with each other, our paper money maintained an artificially high value.

Fast-forward to George W. Bush’s America. Our national debt, financed mostly by foreign governments and banks, is at eight and a half trillion dollars—that’s spelled with 12 zeros. Our foreign trade imbalance sits at $800 billion per year. This means we buy $800 billion dollars’ worth more of stuff every year than we sell on the international market, paying for it all with worthless dollars which then circulate between other countries—with China holding the biggest pot of them.

In short, our high-rolling, debt-based, hedonistic, consumerist economy is financed by the good graces of the rest of the world, which we arrogantly tell to go to hell on an almost daily basis these days.

Our petro-euro doomsday

Here’s the doomsday scenario. What happens if nations around the world decided to follow the path of many large American investors and corporations and cash their dollar reserves in for foreign assets and currencies? What if they started hoarding euros under their beds instead of dollars? What if they pegged their “soft” currencies against the euro or the yen or the pound, instead of against US dollars? The answer is simple: All those soiled old bills that were in circulation for decades around the world would start coming home, with their value collapsing as foreigners flood the global currency market with dollars.

The collapsing dollar would plunge us deeper into debt as the cost of imports would increase exponentially. In order to protect the dollar, we’d need to consume less at home and export more. The problem with this plan is that our lust for cheap, imported, sweatshop goods has led us, over the last 20 years, to destroy almost all of our manufacturing capabilities—tearing our factories down and selling the metal for scrap.

We started buying Chinese goods because they were cheap. In the future, when they’re not so cheap, we’ll buy them because we won’t have the capacity to make anything ourselves.

Saddam had at least one WMD

There are, however, a few mechanisms around the world that prevent a total run on the dollar. Foremost among them is a 1970s decision by the oil cartel, OPEC, to price the world’s oil exchanges in dollars. Hence, in order to buy oil, nations need dollars. China, for example, hoards dollars so that they can buy OPEC oil. This keeps the demand for dollars artificially high. If oil markets convert to a harder currency, such as the euro, the reign of the dollar, and along with it the solvency of the US economy, would be over.

This was Saddam Hussein’s plan. After a decade of devastating sanctions and regular American bombing raids against his country, Saddam developed his real weapon of mass destruction—breaking with OPEC and introducing euro-based oil trading. We don’t know if this would have caught on, since the US invaded that nation before Iraq could make the petro-euro a reality.

Now it’s Iran’s turn. Starting in 2004, the Iranians began making noise about no longer floating the currency of a government that labeled them part of an “Axis of Evil.” Later this year, the Iranians plan not only to convert their oil sales to euros, which makes sense since European countries are the largest consumers of Middle East oil, but to introduce a euro-based market for international oil sales, breaking the dollar’s stranglehold on oil trading.

Let’s empathize for a moment so we can understand their motivation. Why should the Iranians prop up our soft dollar when all we do is talk about withdrawing from the human race and dropping nuclear bombs on them?

The Cluster Bomb Dollar

Now let’s look at the Bush junta’s rationale for unleashing the forces of hell on the Iranian population through an aerial bombing campaign, using the most sophisticated weapons of mass destruction ever made, including nuclear bombs. Our excuse for nuking Iran is that they might be making a nuclear bomb. Yet our own intelligence agencies argue that Iran does not possess the technology to build one and that they are at least a decade away from being able to make one. In short, there is no immediate nuclear threat from Iran that mandates our turning that country into a radioactive wasteland and reinforcing our position as a rogue state and a global pariah.

But there is an immediate economic threat—the real WMD—of a euro-based oil market. Bombing Iran would put a stop to that and serve as a warning to Venezuela, Bolivia or any other energy-exporting nation contemplating converting their energy markets to the euro.

In short, the US dollar isn’t backed up by gold or silver anymore. It’s backed up by cluster bombs, cruise missiles, landmines, depleted uranium and nuclear bombs. What a dollar.

Dr. Michael I. Niman’s previous Artvoice columns are archived at www.mediastudy.com. Niman is a Buffalo State College journalism professor and vice president of Niagara Independent Media (AM 1270).

BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION

2006-12-20T22:00:00.000-08:00

BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION (Updated 5/27/03)

As the United States made preparations for war with Iraq, White House Press Secretary Ari Fleischer, on 2/6/03, again denied to US journalists that the projected war had "anything to do with oil." <1> He echoed Defense Minister Donald Rumsfeld, who on 11/14/02 told CBS News that "It has nothing to do with oil, literally nothing to do with oil."

Speaking to British MPs, Prime Minister Tony Blair was just as explicit: "Let me deal with the conspiracy theory idea that this is somehow to do with oil. There is no way whatever if oil were the issue that it would not be infinitely simpler to cut a deal with Saddam...." (London Times 1/15/03).

Nor did Bush's State of the Union Message, or Colin Powell's address to the United Nations Security Council, once mention the word "oil." Instead the talk was (in the president's words) of "Iraq's illegal weapons programs, its attempts to hide those weapons from inspectors, and its links to terrorist groups."

However our leaders are not being candid with us. Oil has been a major US concern about Iraq in internal and unpublicized documents, since the start of this Administration, and indeed earlier. As Michael Renner has written in Foreign Policy in Focus, February 14, 2003, "Washington's War on Iraq is the Lynchpin to Controlling Persian Gulf Oil."

But the need to dominate oil from Iraq is also deeply intertwined with the defense of the dollar. Its current strength is supported by OPEC's requirement (secured by a secret agreement between the US and Saudi Arabia) that all OPEC oil sales be denominated in dollars. This requirement is currently threatened by the desire of some OPEC countries to allow OPEC oil sales to be paid in euros.

The Internally Stated US Goal of Securing the Flow of Oil from the Middle East

As early as April 1997, a report from the James A. Baker Institute of Public Policy at Rice University addressed the problem of "energy security" for the United States, and noted that the US was increasingly threatened by oil shortages in the face of the inability of oil supplies to keep up with world demand. In particular the report addressed "The Threat of Iraq and Iran" to the free flow of oil out of the Middle East. It concluded that Saddam Hussein was still a threat to Middle Eastern security and still had the military capability to exercise force beyond Iraq's borders.

The Bush Administration returned to this theme as soon as it took office in 2001, by following the lead of a second report from the same Institute. <2> This Task Force Report was co-sponsored by the Council on Foreign Relations in New York, another group historically concerned about US access to overseas oil resources. The Report represented a consensus of thinking among energy experts of both political parties, and was signed by Democrats as well as Republicans. <3>

The report, Strategic Energy Policy Challenges for the 21st Century, concluded: "The United States remains a prisoner of its energy dilemma. Iraq remains a de-stabilizing influence to ... the flow of oil to international markets from the Middle East. Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export program to manipulate oil markets. Therefore the US should conduct an immediate policy review toward Iraq including military, energy, economic and political/ diplomatic assessments."

The Task Force meetings were attended by members of the new Bush Administration's Department of Energy, and the report was read by members of Vice-President Cheney's own Energy Task Force. When Cheney issued his own national energy plan, it too declared that "The [Persian] Gulf will be a primary focus of U.S. international energy policy." It agreed with the Baker report that the U.S. is increasingly dependent on imported oil and that it may be necessary to overcome foreign resistance in order to gain access to new supplies.

Later the point was made more bluntly by Anthony H. Cordesman, senior analyst at Washington's Center for Strategic and International Studies: "Regardless of whether we say so publicly, we will go to war, because Saddam sits at the center of a region with more than 60 percent of all the world's oil reserves."

The Unstated US Goals of Increasing the Flow of Oil from the Middle East, and US Dominance of the Area

Behind the acknowledged concern about the "free flow" of Persian Gulf oil are other motives. Following the recommendations of the Task Force Report, the Bush administration wishes to increase international (which may well turn out to mean US) investment in the under-developed Iraq oilfields. On 1/16/03 the Wall Street Journal reported that officials from the White House, State Department, and Department of Defense have been meeting informally with executives from Halliburton, Schlumberger, ExxonMobil, ChevronTexaco and ConocoPhillips to plan the post-war expansion of oil production from Iraq (whose oilfields were largely held by US companies prior to their nationalization). The Journal story has since been denied by Administration officials; but, as the Guardian noted on 1/27/03, "It stretches credulity somewhat to imagine that the subject has never been broached." <4>

It is worth pointing out that Saddam Hussein already has offered exploratory concessions (which remained inactive because of the UN sanctions) to France, China, Russia, Brazil, Italy, and Malaysia. If Saddam is replaced by a new client regime, it seems likely that these concessions will be superseded, although there are reports that the US has offered France, Russia and China a share of post-war Iraqi oil, as an inducement to get their support in the Security Council. <5> Last September former CIA Chief Woolsey threatened in the Washington Post (9/15/02) that the price for participation by France and Russia in the post-war Iraq oil bonanza should be their support for "regime change." <6> It would not take much of such menacing talk from official sources to turn the Bush campaign against Iraq into a campaign against Europe (see Postscript).

Iraq's proven oil reserves are 113 billion barrels, the second largest in the world after Saudi Arabia, and eleven percent of the world's total. The total reserves could be 200 million barrels or more, all of it relatively easy and cheap to extract. Thus increasing Iraqi oil production will diminish the market pressure on oil-importing countries like the US. It will also weaken the power of OPEC to influence oil markets by decisions to restrict output. Indeed, were Iraqi oil production to expand to near its capacity, the quotas established by OPEC would cease to be honored in today's market. <7>

But the US is not just interested in oil from Iraq, it is concerned to maintain political dominance over all the oil-producing countries of the region. Secretary of State Colin Powell gave a glimpse of US intentions when he told the Senate Foreign Relations Committee on February 6 that success in the Iraq war "could fundamentally reshape that region in a powerful, positive way that will enhance U.S. interests." In conceding that it will be necessary to station US troops in occupied Iraq for the foreseeable future, the US is serving notice to Iran and to Saudi Arabia (both of which were once secure bases for US troops but are so no longer) that the US will reassert its presence as the dominant military power in the region.

The Unstated US Goal of Preserving Dollar Hegemony Over the Global Oil Market

Dominance of Middle Eastern oil will mean in effect maintaining dollar hegemony over the world oil economy. Given its present strategies, the US is constrained to demand no less. As I explain in this extract from my book, Drugs, Oil, and War (pp. 41-42, 53-54), the present value of the US dollar, unjustified on purely economic grounds, is maintained by political arrangements, one of the chief of which is to ensure that all OPEC oil purchases will continue to be denominated in US dollars. (This commitment of OPEC to dollar oil sales was secured in the 1970s by a secret agreement between the US and Saudi Arabia, before the two countries began to drift apart over Israel and other issues.) <8>

The chief reason why dollars are more than pieces of green paper is that countries all over the world need them for purchases, principally of oil. This requires them in addition to maintain dollar reserves to protect their own currency; and these reserves, when invested, help maintain the current high levels of the US securities markets.

As Henry Liu has written vividly in the online Asian Times (4/11/02),

"World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.

"By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets."

But central bankers around the world do not expect either the US dollar or the US stock markets to sustain their current levels. As William Greider in The Nation (9/23/02) has pointed out:

"US economy's net foreign indebtedness--the accumulation of two decades of running larger and larger trade deficits--will reach nearly 25 percent of US GDP this year, or roughly $2.5 trillion. Fifteen years ago, it was zero. Before America's net balance of foreign assets turned negative, in 1988, the United States was a creditor nation itself, investing and lending vast capital to others, always more than it borrowed. Now the trend line looks most alarming. If the deficits persist around the current level of $400 billion a year or grow larger, the total US indebtedness should reach $3.5 trillion in three years or so. Within a decade, it would total 50 percent of GDP."

There is also a major potential threat to the overpriced dollar in Japan's unresolved deflationary crisis. As observers like Lawrence A. Joyce have commented, the dollar would take a major pummeling if the Japanese government (as seems quite possible) were suddenly required to fulfil its legal obligations to bail out failed Japanese banks (which could easily happen if a sustained scarcity of oil were to keep oil prices at $40 a barrel or higher):

"There is only one place where the Japanese government can get enough money to bail out its banking system: The Japanese government owns about 15% of our U.S. Treasury securities. And it would have to start selling them if it found itself facing a major banking crisis.

"That would send the already ailing dollar down even further. And the initiation of a sale of our Treasury securities by Japan, of course, would immediately trigger a worldwide stampede to do the same before the securities become worth only a fraction of what they were purchased for. At the same time, interest rates in the U.S. would immediately go through the roof."

Washington is of course aware of these problems, and believes that overwhelming military strength and the will to use it supply the answer, persuading or forcing other countries to support the dollar at its artificial level as the key to their own security. In an article entitled "Asia: the Military-Market Link," and published by the U.S. Naval Institute in January 2002, Professor Thomas Barnett of the US Naval War College, wrote: "We trade little pieces of paper (our currency, in the form of a trade deficit) for Asia's amazing array of products and services. We are smart enough to know this is a patently unfair deal unless we offer something of great value along with those little pieces of paper. That product is a strong US Pacific Fleet, which squares the transaction nicely."

There is some merit to this argument with respect to friendly countries like Japan, whose defense costs have been lowered by the US presence in Asia. But of course the Islamic countries of the world are less likely to appreciate the "great value" of a threatening US presence. Instead they are more likely to follow the example of Malaysian Prime Minister Mahathir Mohamad, and turn to the Islamic gold dinar as a way to diminish dollar hegemony in world markets and increase the power of Islamic nations to challenge US policies.

The United States has at present little reason to fear a challenge to the dollar from Malaysia. But Malaysia is an Islamic country; and the US has every reason to fear a similar challenge from the Islamic nations in OPEC, were they to force OPEC to cease OPEC oil sales in dollars, and denominate them instead in euros.

The Unstated US Goal of Preserving Dollar Hegemony Against Competition from the Euro

As noted in a recent article by W. Clark, "The Real But Unspoken Reasons for the Iraq War", the OPEC underpinning for the US dollar has shown signs of erosion in recent years. Iraq was one of the first OPEC countries, in 2000, to convert its reserves from dollars to euros. At the time a commentator for Radio Free Europe/Radio Liberty predicted that Saddam's political act "will cost Iraq millions in lost revenue." In fact Iraq has profited handsomely from the 17 percent gain in the value of the euro against the dollar in that time. <9>

Other countries have gradually been climbing on to the euro bandwagon. An article in the Iran Financial News, 8/25/02, revealed that more than half of Iran's Forex Reserve Fund assets had been converted from dollars to euros. In 2002 China began diversifying its currency reserves away from dollars into euros. According to Business Week (2/17/03) Russia's Central Bank in the past year has doubled its euro holdings to 20 percent of its $48 billion foreign exchange reserves. And for a very good reason, according to its First Deputy Chairman Oleg Vyugin: "Returns on dollar instruments are very low now. Other currency instruments pay more."

Business Week continues:

`The story is the same across the globe. Money traders say that institutions as diverse as Bank of Canada, People's Bank of China, and Central Bank of Taiwan are giving more weight to the European currency. By the end of this year, they predict, the euro could account for 20% of global foreign currency reserves, which today amount to a cool $2.4 trillion. Little more than a year ago, the euro made up just 10%. "No one is saying that the euro's going to replace the dollar as the premier reserve currency," says Michael Klawitter, a currency strategist at WestLB Research in London. "But it will increase in importance for many central banks."...

`The shift to the euro has big implications for the foreign exchange markets and the U.S. and European economies. Currency specialists say the yawning U.S. current account deficit, now at 5%, is bound to drive the dollar down further, and the euro still higher, over the next two to four years. Although the greenback may stage a short-term recovery once the looming war with Iraq is over, predictions are that it will then continue its downward trend, and that central banks will play their part in the descent. "Even if central banks increase their euro holdings by just a few percent, it will have a major impact in the markets," says Klawitter. "We're talking many billions of dollars."'

If not deterred, OPEC could follow suit. Libya has been urging for some time that oil be priced in euros rather than dollars. Javad Yarjani, an Iranian senior OPEC official, told a European Union seminar in April 2002 that, despite the problems raised by such a conversion, "I believe that OPEC will not discount entirely the possibility of adopting euro pricing and payments in the future."

Meanwhile Hugo Chavez has been taking Venezuelan oil out of the petrodollar economy by bartering oil directly for commodities from thirteen other third world countries. Although this has not yet qualified Venezuela for official membership in Bush's "axis of evil," the heavy hand of the Bush Administration in the recent coup attempt against Chavez was only too obvious. (See "Venezuela Coup Linked to Bush Team," London Observer, 4/21/02, for details about the roles of US officials Elliot Abrams, Otto Reich, and John Negroponte.) <10>

Conclusion: How Should the US Be Addressing These Real Problems?

To conclude, the Bush administration is not threatening Iraq out of pique or whim. The recent policies of both parties have indeed made the US vulnerable to foreign oil and petrodollar pressures. But hopefully decent Americans will protest the notion that it is appropriate to rain missiles and bombs upon civilians of another country, who have had little or nothing to do with this crisis of America's own making.

Some in addition will continue to explore avenues whereby America's oil and financial vulnerabilities can be diminished without continuing down the road to Armageddon. These problems are serious, but economists have put forward proposals for diminishing them peacefully and multilaterally. With respect to oil, Ralph Nader has just written, "The demand is simple: Stop this war before it starts and immediately establish a sane national energy security strategy." In fact one key ingredient of such a strategy, restriction of demand, can be found in saner parts of the Baker Institute reports that the Bush administration has mostly chosen to ignore.

But an energy strategy for the United States must be addressed in the larger context of an economic and financial restructuring of global institutions and currency flows. With respect to the more esoteric financial problems of the dollar, the economist and futurist Hazel Henderson has written that "My recommendations for reforming current international institutions, revitalizing the UN and expanding civic society are summarized in Beyond Globalization (1999). A more balanced world order must center on reforming global finance, taxing currency exchange and reducing the dollar's unsustainable role as the world's de facto reserve currency (which is destructive for all countries -- even the US itself). I favor a global reserve currency regime based on the parity of the US dollar and the euro. The fundamentals in the USA and the EU suggest that the G-8 has an opportunity to peg the dollar and the euro into a trading band. This, together with the new issue of SDR's [Special Drawing Rights]. proposed by all the IMF country members, promoted by George Soros and opposed only by the USA, would lend to more stable currency markets."

Without endorsing these specific proposals, I wish to second two rather obvious principles:

1) The problems of global financial instability must be addressed. As George Soros, famed as the man who broke the British pound in 1992, wrote later in the Financial Times,” "To argue that financial markets in general, and international lending in particular, need to be regulated is likely to outrage the financial community. Yet the evidence for just that is overwhelming."

2) A multilateral approach to these core problems is the only way to proceed. The US is strong enough to dominate the world militarily. Economically it is in decline, less and less competitive, and increasingly in debt. The Bush peoples' intention appears to be to override economic realities with military ones, as if there were no risk of economic retribution. They should be mindful of Britain's humiliating retreat from Suez in 1956, a retreat forced on it by the United States as a condition for propping up the failing British pound.

America's influence in the world has up to now been based largely on good will generated by its willingness to resolve matters multilaterally. This legacy of good will should be acknowledged and consolidated by the Bush Administration, as it faces the difficult post-war challenge of restoring law and order in Iraq. US military might may be unchallenged, but the health of our economy and finance depends on peace and cooperation with our friends.

FOOTNOTES

<1> Ari Fleischer Press Briefing of February 6, 2003:

Q Since you speak for the President, we have no access to him, can you categorically deny that the United States will take over the oil fields when we win this war? Which is apparently obvious and you're on your way and I don't think you doubt your victory. Oil -- is it about oil?

MR. FLEISCHER: Helen, as I've told you many times, if this had anything to do with oil, the position of the United States would be to lift the sanctions so the oil could flow. This is not about that. This is about saving lives by protecting the American people....

Q There are reports that we've divided up the oil already, divvied it up with the Russians and French and so forth. Isn't that true?....

MR. FLEISCHER: No, there's no truth to that, that we would divide up the oil fields.

(Concerning Mr. Fleischer's second answer, see footnotes 4 and 5 -- PDS.)

For an exhaustive rebuttal of a similar statement by Ari Fleischer on 10/30/02, see Larry Chin, "The Deep Politics of Regime Removal in Iraq", onlinejournal.com.

<2> In an earlier draft of this essay I quoted extensively (as have many other writers) from a news story by Neil Mackay in the Scotland Sunday Herald (10/6/02). This story claimed that Vice-President Cheney himself commissioned the second Task Force Report, and that former US Secretary of State James Baker delivered the Report to Cheney. I now doubt that either claim is true.

<3> One of the Baker Task Force members was Kenneth Lay, the former chief executive of Enron, which went bankrupt after carrying out massive accountancy fraud. The Task Force Report begins with references to "recent energy price spikes" and "electricity outages in California," which we now know were engineered by Enron market manipulations for which two Enron energy traders have since pleaded guilty to conspiracy charges (Forbes, 2/5/03).

<4> An extremely interesting news item last October in Alexander's oilandgas.com revealed that the US was planning not only for the post-war exploitation of Iraq's oil reserves, but for Iraq's relationship to OPEC as well:

"30-10-02 The US State Department has pushed back its planned meeting with Iraqi opposition leaders on exploiting Iraq's oil and gas reserves after a US military offensive removes Saddam Hussein from power to early December. According to a source at the State Department, all the desired participants are not yet available.

"The Bush administration wants to have a working group of 12 to 20 people focused on Iraqi oil and gas to be able to recommend to an interim government ways of restoring the petroleum sector following a military attack in order to increase oil exports to partially pay for a possible US military occupation government -- further fuelling the view that controlling Iraqi oil is at the heart of the Bush campaign to replace Hussein with a more compliant regime. (Emphasis added -- PDS)....

"According to the source, the working group will not only prepare recommendations for the rehabilitation of the Iraqi petroleum sector post-Hussein, but will address questions regarding the country's continued membership in OPEC and whether it should be allowed to produce as much as possible or be limited by an OPEC quota, and it will consider whether to honour contracts made between the Hussein government and foreign oil companies, including the $ 3.5 b[illio]n project to be carried out by Russian interests to redevelop Iraq's oilfields, which, along with numerous other development projects, has been thwarted by United Nations sanctions.

<5> "Oil firms wait as Iraq crisis unfolds" by Robert Collier, San Francisco Chronicle,9/29/02:

`Iraqi opposition leaders suggest that unless France, Russia and China support the U.S. line in the Security Council, their oil companies may find themselves blacklisted.

`"We will examine all the contracts that Saddam Hussein has made, and we will cancel all those that are not in the interest of the Iraqi people and will reopen bidding on them," said Faisal Qaragholi, operations officer of the Iraqi National Congress, the opposition coalition based in London that plays a central role in the American anti-Hussein strategy.

`Ahmed Chalabi, the INC leader, has gone even further, proposing the creation of consortium of American companies to develop Iraq's oil fields.'

<6> As the Asia Times reported on 10/21/02,

`The war of positioning for a possible post-Saddam Iraqi environment is getting more ruthless by the minute. American oil conglomerates are openly courting representatives of the Iraqi National Congress (INC), the umbrella opposition. The darling of Exxon Mobil and Chevron Texaco is Ahmed Chalabi, US vice President Dick Cheney's pal and major contender for the title of Iraq's number one opposition figure. Chalabi, the INC leader, has already stressed on the record that he favors the creation of a "US-led consortium to develop Iraqi oil fields. American companies will have a big shot at Iraqi oil."

`To widespread doubts about how a pro-American post-Saddam government would respect contracts signed with non-American oil giants, the INC has reassured all players - mostly Russian and European - that the new post-Saddam administration will honor all its PSAs.

`The Future of Iraq Group, a State Department task force, officially is not talking about oil - which sounds like a joke. [Cf. footnote 4 -- PDS] And there's also no official confirmation that oil has been a key issue in the current hardcore Security Council negotiations between the US and Britain, on one side, and France, Russia and China on the other. But it is obviously not by historical accident that oil companies from these five permanent Security Council members are all positioning themselves for the post-Saddam environment.

`People like former CIA supremo James Woolsey are not even disguising Washington's plan to turn Iraq into an American protectorate with an Arab Hamid Karzai al-la Afghanistan eager to open the oil taps for American oil giants. Woolsey had been openly saying that if France and Russia contributed to "regime change", their oil companies would be able to "work together" with the new regime and with American companies. Otherwise, they would be left contemplating passing cargoes in the Gulf.'

<7> Note that the true issue here is not just access to Iraq oil, but control over it. As Michael Parenti reminds us, in 1998, when the UN allowed Iraq to increase its exports into an already over-supplied oil market, this was perceived as a threat to US interests:

`The San Francisco Chronicle (22 February 1998) headlined its story "IRAQ'S OIL POSES THREAT TO THE WEST." In fact, Iraqi crude poses no threat to "the West" only to Western oil investors. If Iraq were able to reenter the international oil market, the Chronicle reported, "it would devalue British North Sea oil, undermine American oil production and---much more important---it would destroy the huge profits which the United States [read, US oil companies] stands to gain from its massive investment in Caucasian oil production, especially in Azerbaijan."'

<8> "The US handled the quadrupling of oil prices in the 1970s by arranging, by means of secret agreements with the Saudis, for the recycling of petrodollars back into the US economy. The first of these deals assured a special and on-going Saudi stake in the health of the US dollar; the second secured continuing Saudi support for the pricing of all OPEC oil in dollars. See David E. Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Ithaca: Cornell UP, 1999), x, 103-1a, 121). These two deals assured that the US economy would not be impoverished by OPEC oil price hikes. The heaviest burdens would be borne instead by the economies of less developed countries" (Peter Dale Scott, Drugs, Oil, and War: The United States in Afganistan, Colombia, and Indochina, (Lanham, MD: Rowman & Littlefield, 2003), 41-42; cf. 53-54).

<9> The 17 percent gain was calculated as of February 2003, when the euro was worth $1.08. Now, as of May 2003, the euro is worth $1.16.

<10> In August 2000 Chavez met with Saddam Hussein in Baghdad, the first head of state to visit him since the 1991 Gulf War. Chavez told the press later that "We spoke at length on how to boost the role of OPEC." This was part of an extended Chavez tour to bolster OPEC uni

Energy and the US Dollar by Bill Powers

2006-12-20T16:51:00.000-08:00

Canadian Energy Viewpoint
March 1, 2004

Despite the recent rally in the US dollar against the Canadian dollar and nearly all major currencies, we are still in the early stages of a monumental decline in the value of the US dollar. The collapse of US dollar hegemony will be felt in nearly every corner of world over the next decade. Perhaps no other industry will be impacted more by the dollar’s decline than the energy industry.

Since the signing of the Maastricht Treaty, which created the Euro zone in 1992, there has been much speculation that the oil exporting world would one day consider pricing oil in euros. The world did not have to wait long after the birth of the euro in 1999 to witness Iraq’s pricing its oil in euros. Australian environmentalist Geoffrey Heard provided some unique insight into fellow OPEC members’ reaction to Iraq’s decision to price its oil for export in euros in a 2003 article entitled “Not Oil, but Dollars vs. Euros”:

“In 1999, Iraq, with the world's second largest oil reserves, switched to trading its oil in euros. American analysts fell about laughing; Iraq had just made a mistake that was going to beggar the nation. But two years on, alarm bells were sounding; the euro was rising against the dollar, Iraq had given itself a huge economic free kick by switching.

Iran started thinking about switching too; Venezuela, the 4th largest oil producer, began looking at it and has been cutting out the dollar by bartering oil with several nations including America's bete noir, Cuba. Russia is seeking to ramp up oil production with Europe (trading in euros) an obvious market.

The greenback's grip on oil trading and consequently on world trade in general, was under serious threat. If America did not stamp on this immediately, this economic brushfire could rapidly be fanned into a wildfire capable of consuming the US's economy and its dominance of world trade.”

After the US invasion of Iraq, the country’s oil exports were priced in US dollars. While Mr. Heard may have overestimated the role of the euro in the war in Iraq, there is no doubt that the falling US dollar has raised concerns over whether it is prudent for oil exporting countries to price a significant portion of their GDP in a depreciating currency.

While many have argued that pricing oil in euros will lead to higher oil prices, not much attention has been given to the possibility of oil being priced in gold. While this might seem like a fringe idea, those who have an appreciation for gold’s place in many Muslim oil exporting countries believe the pricing of oil in gold is inevitable.

The launch in late 2000 of the e-dinar, a Muslim currency that is backed by gold held in a vault in the Dubai International Airport, has allowed many Muslims an alternative to Western currencies. The e-dinar program is an electronic form of the historic Muslim gold dinar. The gold dinar dates back as far as 700 A.D. and was in circulation until 1924 A.D. when the Ottoman Empire collapsed.

One e-dinar is backed by 4.25 grams of 24K gold. E-dinars account holders can have their account balances exchanged into any major currency or take physical possession of an equivalent amount of gold. To learn more about the e-dinar program, visit website www.e-dinar.com. What I found most educational about the site is its extensive history of the dinar in Muslim society. The following was quoted from the website’s “history of the dinar” section:

“Since paper-money is a promise of payment, can it be permitted to trust the issuers while they hold the payment (our property) outside our jurisdiction? History has also demonstrated repeatedly that paper money has been a permanent instrument of default and cheating the Muslims. In addition, Islamic Law does not permit the use of a promise of payment as a medium of exchange.”

The use of e-dinars, while still very small at this time, is likely to grow rapidly as doubts over the US dollar’s value grow. Recently, Malaysia’s former Prime Minister Mahathir Mohamad visited Saudi Arabia and encouraged the country to begin pricing its oil in gold (dinars) since he felt the Saudi’s were being shortchanged due to the slide in the US dollar. (It should be noted that in 2003, Malaysia was the first country to introduce the dinar as a form of settlement for international trade.)

I am rather confident that several Muslim countries will price their oil in gold before the end of this decade. The simple reason behind this change is that the US dollar and the euro are going to steeply depreciate against the value of gold.

The oil market is not the only part of the energy complex that will be affected by the decline of the US dollar. The North American natural gas market is already witnessing the fallout from a devalued

US dollar. In limited instances, the weakening dollar is helping some energy consuming companies. For example, according to third quarter results of Agrium International (NYSE:AGU), North America’s largest producer of natural gas based fertilizers, the price of ammonia and urea are up 54% from Q3 2002 levels. High fertilizer prices, coupled with a weak US dollar, which has made imports more expensive, have allowed fertilizer producers to operate profitably despite historically high natural gas prices.

The falling US dollar will have many unforeseen consequences with regard to the increased US importation of liquefied natural gas (LNG). While a falling US dollar will certainly increase the price which LNG exporters demand for their product, the inevitable falloff in Russian natural gas exports to Europe will further boost prices. With Europe relying on Russia to provide 25% of its natural gas consumption, there is a strong likelihood that Russia's increased domestic demand and aging fields will not be able to meet Europe’s growing natural gas demand. Contrary to the widely held belief that increased reliance on LNG will allow the US to import vast amounts of cheap natural gas from overseas, I believe a combination of a falling US dollar and increased world demand will force the US into importing large amount of expensive natural gas.

It is clear that a falling US dollar contributes to higher energy prices. Astute investors should recognize this fact and adjust their portfolios accordingly.

Run, Do Not Walk

Every now and then there comes a time when it really pays to take clear and decisive action. I believe we have reached one of those times with respect to the US dollar. The recent short-term strength in the US dollar offers investors another great opportunity to move into assets denominated in other currencies.

President Bush and the US Congress continue to grow the size of the US government and its debt

and budget deficit through various homeland security initiatives, prescription drug plans and visits to the moon and Mars. According to a recent Bloomberg article, the US Treasury plans on borrowing a record $177 billion from January to March in an effort to finance a part of a projected record $521 billion 2004 federal budget deficit.

As paper currencies continue to fall as nearly all nations attempt to devalue their currencies, I believe prudent investors should direct significant portions of their portfolios towards assets denominated in commodity currencies. The Australian, the New Zealand dollar and the Canadian dollar stand out as my three favorites. However, do not just take my word for it that these are going to be the best performing currencies for the remainder of the decade. Several of the most successful investors of our time, such as Sir John Templeton, Warren Buffet, George Soros, Jim Rogers and Fred Hickey, have all indicated that they have increased their exposure to the above mentioned commodity currencies. For investors who are interested in commodity currencies or bonds, I suggest visiting www.everbank.com for more information.

Makings of an Energy Bull Market

If I were going to write a recipe for a bull market in energy shares or any investment class for that matter, I would start with three ingredients; fear, strong fundamentals and a catalyst. I believe all three are present in today’s energy market.

Fear
Investor fear over falling energy prices is the main ingredient for our energy bull market. Right now, there is tremendous fear that we have more than enough natural gas to get through the winter heating season without drawing US inventories down below the psychologically important one trillion cubic foot (tcf) mark. With the significant withdrawals we have witnessed since the last week of January, there is now substantial evidence that we will break the one tcf mark. With cold weather forecast for the US Midwest in early March, we are now nearly certain to see storage levels in the US approach the 900 billion cubic foot (bcf) mark by the end of this winter’s heating season. This should provide significant support for higher natural gas prices for the balance of 2004.

While I can understand the confusion over the equilibrium price for natural gas, based on the many conflicting data points, I am at a loss to explain the reason behind the fear that crude prices are headed lower. Despite the high prices of recent months, we have seen little to any supply response as inventories for crude and refined products remain at bottom-of-the-barrel levels.

Strong Fundamentals
Any bull market recipe must include a strong fundamental foundation. The fundamentals of the energy market (increasing demand/falling supply) are stronger now than at any time in recent memory. This has lead to a golden situation for the entire exploration and production industry. For example, until two years ago, the balance sheets of many of Canada’s junior E&P companies were highly leveraged. It was not uncommon to see debt to cash flow ratios of three or four to one. This made many investors very cautious about investing in the sector and rightfully so. A few dry holes or weak commodity prices could send a company into reorganization. Through a combination of strong commodity prices, capital discipline and low interest rates, the balance sheets of nearly every Canadian E&P firm are in excellent shape. In addition to great balance sheets, interest rates are likely to stay low and commodity prices are set to rise. This excellent situation has led to outstanding earnings and cash flow in 2003, and 2004 is shaping up to be more of the same.

Catalyst
The final ingredient for a successful energy bull market is a catalyst. On this front, we have several candidates. The most likely scenario that will form the catalyst is the continued tightening of world oil supplies as prices continue to spiral higher. With supplies at very low levels throughout the world and diminishing prospects for large new areas of production, it will soon become clear that world oil supplies will decline irrespective of price. As the calls for OPEC to increase production become deafening, the world will soon wake up to the fact that OPEC is already producing at maximum capacity and there is nothing that can be done to increase production or keep it from falling.

Another possible catalyst that is likely to set the energy bull running is the cessation of exports from Venezuela. In January, Venezuela’s embattled President Hugo Chavez devalued the country’s currency, the Bolivar, by 17% against the US dollar. This action is an unmasked attempt to support his outlandish spending programs aimed at currying votes with Venezuela’s lower income voters. Through the use of price controls, Chavez is able to temporarily hold down the pace of inflation. This has created a thriving black market for many items including US dollars. After watching the economy contract 11% in 2003, many citizens are loosing their patience with Chavez. The results of a signature drive by the opposition to force a presidential recall election are expected shortly.

The granddaddy of all catalysts would be the fall of Saudi Arabia. With growing disenchantment with the royal family and continued suppression of many freedoms, the likelihood of a change in power in Saudi Arabia is inevitable. Dr. Marc Faber has referred to Saudi Arabia as similar to France in the final days of Louis XVI. I could not agree more. One day in the not too distant future, everyone will wake up to CNN’s lead story -- the royal family has fled to London or Switzerland and the price of crude oil is trading over $100US on the NYMEX.

Not Oil, But Dollars vs. Euros

2006-12-20T16:43:00.000-08:00

March, 2003

Why is George Bush so hell bent on war with Iraq? Why does his administration reject every positive Iraqi move? It all makes sense when you consider the economic implications for the USA of not going to war with Iraq. The war in Iraq is actually the US and Europe going head to head on economic leadership of the world.

America's Bush administration has been caught in outright lies, gross exaggerations and incredible inaccuracies as it trotted out its litany of paper thin excuses for making war on Iraq. Along with its two supporters, Britain and Australia, it has shifted its ground and reversed its position with a barefaced contempt for its audience. It has manipulated information, deceived by commission and omission and frantically "bought" UN votes with billion dollar bribes.

Faced with the failure of gaining UN Security Council support for invading Iraq, the USA has threatened to invade without authorisation. It would act in breach of the UN's very constitution to allegedly enforced UN resolutions.

It is plain bizarre. Where does this desperation for war come from?

There are many things driving President Bush and his administration to invade Iraq, unseat Saddam Hussein and take over the country. But the biggest one is hidden and very, very simple. It is about the currency used to trade oil and consequently, who will dominate the world economically, in the foreseeable future -- the USA or the European Union.

Iraq is a European Union beachhead in that confrontation. America had a monopoly on the oil trade, with the US dollar being the fiat currency, but Iraq broke ranks in 1999, started to trade oil in the EU's euros, and profited. If America invades Iraq and takes over, it will hurl the EU and its euro back into the sea and make America's position as the dominant economic power in the world all but impregnable.

It is the biggest grab for world power in modern times. America's allies in the invasion, Britain and Australia, are betting America will win and that they will get some trickle-down benefits for jumping on to the US bandwagon. France and Germany are the spearhead of the European force -- Russia would like to go European but possibly can still be bought off. Presumably, China would like to see the Europeans build a share of international trade currency ownership at this point while it continues to grow its international trading presence to the point where it, too, can share the leadership rewards.

DEBATE BUILDING ON THE INTERNET

Oddly, little or nothing is appearing in the general media about this issue, although key people are becoming aware of it -- note the recent slide in the value of the US dollar. Are traders afraid of war? They are more likely to be afraid there will not be war.

But despite the silence in the general media, a major world discussion is developing around this issue, particularly on the internet. Among the many articles: Henry Liu, in the 'Asia Times' last June, it has been a hot topic on the Feasta forum, an Irish-based group exploring sustainable economics, and W. Clark's "The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth" has been published by the 'Sierra Times', 'Indymedia.org', and 'ratical.org'.

This debate is not about whether America would suffer from losing the US dollar monopoly on oil trading -- that is a given -- rather it is about exactly how hard the USA would be hit. The smart money seems to be saying the impact would be in the range from severe to catastrophic. The USA could collapse economically.

OIL DOLLARS

The key to it all is the fiat currency for trading oil. Under an OPEC agreement, all oil has been traded in US dollars since 1971 (after the dropping of the gold standard) which makes the US dollar the de facto major international trading currency. If other nations have to hoard dollars to buy oil, then they want to use that hoard for other trading too. This fact gives America a huge trading advantage and helps make it the dominant economy in the world.

As an economic bloc, the European Union is the only challenger to the USA's economic position, and it created the euro to challenge the dollar in international markets. However, the EU is not yet united behind the euro -- there is a lot of jingoistic national politics involved, not least in Britain -- and in any case, so long as nations throughout the world must hoard dollars to buy oil, the euro can make only very limited inroads into the dollar's dominance.

In 1999, Iraq, with the world's second largest oil reserves, switched to trading its oil in euros. American analysts fell about laughing; Iraq had just made a mistake that was going to beggar the nation. But two years on, alarm bells were sounding; the euro was rising against the dollar, Iraq had given itself a huge economic free kick by switching.

Iran started thinking about switching too; Venezuela, the 4th largest oil producer, began looking at it and has been cutting out the dollar by bartering oil with several nations including America's bete noir, Cuba. Russia is seeking to ramp up oil production with Europe (trading in euros) an obvious market.

The greenback's grip on oil trading and consequently on world trade in general, was under serious threat. If America did not stamp on this immediately, this economic brushfire could rapidly be fanned into a wildfire capable of consuming the US's economy and its dominance of world trade.

HOW DOES THE US GET ITS DOLLAR ADVANTAGE?

Imagine this: you are deep in debt but every day you write cheques for millions of dollars you don't have -- another luxury car, a holiday home at the beach, the world trip of a lifetime.

Your cheques should be worthless but they keep buying stuff because those cheques you write never reach the bank! You have an agreement with the owners of one thing everyone wants, call it petrol/gas, that they will accept only your cheques as payment. This means everyone must hoard your cheques so they can buy petrol/gas. Since they have to keep a stock of your cheques, they use them to buy other stuff too. You write a cheque to buy a TV, the TV shop owner swaps your cheque for petrol/gas, that seller buys some vegetables at the fruit shop, the fruiterer passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round -- but never back to the bank.

You have a debt on your books, but so long as your cheque never reaches the bank, you don't have to pay. In effect, you have received your TV free.

This is the position the USA has enjoyed for 30 years -- it has been getting a free world trade ride for all that time. It has been receiving a huge subsidy from everyone else in the world. As it debt has been growing, it has printed more money (written more cheques) to keep trading. No wonder it is an economic powerhouse!

Then one day, one petrol seller says he is going to accept another person's cheques, a couple of others think that might be a good idea. If this spreads, people are going to stop hoarding your cheques and they will come flying home to the bank. Since you don't have enough in the bank to cover all the cheques, very nasty stuff is going to hit the fan!

But you are big, tough and very aggressive. You don't scare the other guy who can write cheques, he's pretty big too, but given a 'legitimate' excuse, you can beat the tripes out of the lone gas seller and scare him and his mates into submission.

And that, in a nutshell, is what the USA is doing right now with Iraq.

AMERICA'S PRECARIOUS ECONOMIC POSITION

America is so eager to attack Iraq now because of the speed with which the euro fire could spread. If Iran, Venezuela and Russia join Iraq and sell large quantities of oil for euros, the euro would have the leverage it needs to become a powerful force in general international trade. Other nations would have to start swapping some of their dollars for euros.

The dollars the USA has printed, the 'cheques' it has written, would start to fly home, stripping away the illusion of value behind them. The USA's real economic condition is about as bad as it could be; it is the most debt-ridden nation on earth, owing about US$12,000 for every single one of it's 280 million men, women and children. It is worse than the position of Indonesia when it imploded economically a few years ago, or more recently, that of Argentina.

Even if OPEC did not switch to euros wholesale (and that would make a very nice non-oil profit for the OPEC countries, including minimising the various contrived debts America has forced on some of them), the US's difficulties would build. Even if only a small part of the oil trade went euro, that would do two things immediately:

* Increase the attractiveness to EU members of joining the 'eurozone', which in turn would make the euro stronger and make it more attractive to oil nations as a trading currency and to other nations as a general trading currency.

* Start the US dollars flying home demanding value when there isn't enough in the bank to cover them.

* The markets would over-react as usual and in no time, the US dollar's value would be spiralling down.

THE US SOLUTION

America's response to the euro threat was predictable. It has come out fighting.

It aims to achieve four primary things by going to war with Iraq:

* Safeguard the American economy by returning Iraq to trading oil in US dollars, so the greenback is once again the exclusive oil currency.

* Send a very clear message to any other oil producers just what will happen to them if they do not stay in the dollar circle. Iran has already received one message -- remember how puzzled you were that in the midst of moderation and secularization, Iran was named as a member of the axis of evil?

* Place the second largest reserves of oil in the world under direct American control.

* Provide a secular, subject state where the US can maintain a huge force (perhaps with nominal elements from allies such as Britain and Australia) to dominate the Middle East and its vital oil. This would enable the US to avoid using what it sees as the unreliable Turkey, the politically impossible Israel and surely the next state in its sights, Saudi Arabia, the birthplace of al Qaeda and a hotbed of anti-American sentiment.

* Severe setback the European Union and its euro, the only trading bloc and currency strong enough to attack the USA's dominance of world trade through the dollar.

* Provide cover for the US to run a covert operation to overturn the democratically elected government of Venezuela and replace it with an America-friendly military supported junta -- and put Venezuala's oil into American hands.

Locking the world back into dollar oil trading would consolidate America's current position and make it all but impregnable as the dominant world power -- economically and militarily. A splintered Europe (the US is working hard to split Europe; Britain was easy, but other Europeans have offered support in terms of UN votes) and its euro would suffer a serious setback and might take decades to recover.

It is the boldest grab for absolute power the world has seen in modern times. America is hardly likely to allow the possible slaughter of a few hundred thousand Iraqis stand between it and world domination. President Bush did promise to protect the American way of life. This is what he meant.

JUSTIFYING WAR

Obviously, the US could not simply invade Iraq, so it began casting around for a 'legitimate' reason to attack. That search has been one of increasing desperation as each rationalization has crumbled. First Iraq was a threat because of alleged links to al Qaeda; then it was proposed Iraq might supply al Qaeda with weapons; then Iraq's military threat to its neighbours was raised; then the need to deliver Iraqis from Saddam Hussein's horrendously inhumane rule; finally there is the question of compliance with UN weapons inspection.

The USA's justifications for invading Iraq are looking less impressive by the day. The US's statements that it would invade Iraq unilaterally without UN support and in defiance of the UN make a total nonsense of any American claim that it is concerned about the world body's strength and standing.

The UN weapons inspectors have come up with minimal infringements of the UN weapons limitations -- the final one being low tech rockets which exceed the range allowed by about 20 percent. But there is no sign of the so-called weapons of mass destruction (WMD) the US has so confidently asserted are to be found. Colin Powell named a certain north Iraqi village as a threat. It was not. He later admitted it was the wrong village.

'Newsweek' (24/2) has reported that while Bush officials have been trumpeting the fact that key Iraqi defector, Lt. Gen. Hussein Kamel, told the US in 1995 that Iraq had manufactured tonnes of nerve gas and anthrax (Colin Powell's 5 February presentation to the UN was just one example) they neglected to mention that Kamel had also told the US that these weapons had been destroyed. Parts of the US and particularly the British secret 'evidence' have been shown to come from a student's masters thesis.

America's expressed concern about the Iraqi people's human rights and the country's lack of democracy are simply not supported by the USA's history of intervention in other states nor by its current actions. Think Guatemala, the Congo, Chile and Nicaragua as examples of a much larger pool of US actions to tear down legitimate, democratically elected governments and replace them with war, disruption, starvation, poverty, corruption, dictatorships, torture, rape and murder for its own economic ends. The most recent, Afghanistan, is not looking good; in fact that reinstalled a murderous group of warlords which America had earlier installed, then deposed, in favour of the now hated Taliban.

Saddam Hussein was just as repressive, corrupt and murderous 15 years ago when he used chemical weapons, supplied by the US, against the Kurds. The current US Secretary for Defence, Donald Rumsfeld, so vehement against Iraq now, was on hand personally to turn aside condemnation of Iraq and blame Iran. At that time, of course, the US thought Saddam Hussein was their man -- they were using him against the perceived threat of Iran's Islamic fundamentalism.

Right now, as 'The Independent' writer, Robert Fisk, has noted, the US's efforts to buy Algeria's UN vote includes promises of re-arming the military which has a decade long history of repression, torture, rape and murder Saddam Hussein himself would envy. It is estimated 200,000 people have died, and countless others been left maimed by the activities of these monsters. What price the US's humanitarian concerns for Iraqis? (Of course, the French are also wooing Algeria, their former north African territory, for all they are worth, but at least they are not pretending to be driven by humanitarian concerns.)

Indonesia is another nation with a vote and influence as the largest Muslim nation in the world. Its repressive, murderous military is regaining strength on the back of the US's so-called anti-terror campaign and is receiving promises of open and covert support -- including intelligence sharing.

AND VENEZUELA

While the world's attention is focused on Iraq, America is both openly and covertly supporting the "coup of the rich" in Venezuela, which grabbed power briefly in April last year before being intimidated by massive public displays of support by the poor for democratically-elected President Chavez Frias. The coup leaders continue to use their control of the private media, much of industry and the ear of the American Government and its oily intimates to cause disruption and disturbance.

Venezuela's state-owned oil resources would make rich pickings for American oil companies and provide the US with an important oil source in its own backyard.

Many writers have noted the contradiction between America's alleged desire to establish democracy in Iraq while at the same time, actively undermining the democratically-elected government in Venezuela. Above the line, America rushed to recognise the coup last April; more recently, President Bush has called for "early elections", ignoring the fact that President Chavez Frias has won three elections and two referendums and, in any case, early elections would be unconstitutional.

One element of the USA's covert action against Venezuela is the behaviour of American transnational businesses, which have locked out employees in support of "national strike" action. Imagine them doing that in the USA! There is no question that a covert operation is in process to overturn the legitimate Venezuelan government. Uruguayan congressman, Jose Nayardi, made it public when he revealed that the Bush administration had asked for Uruguay's support for Venezuelan white collar executives and trade union activists "to break down levels of intransigence within the Chavez Frias administration". The process, he noted, was a shocking reminder of the CIA's 1973 intervention in Chile which saw General Pinochet lead his military coup to take over President Allende's democratically elected government in a bloodbath.

President Chavez Frias is desperately clinging to government, but with the might of the USA aligned with his opponents, how long can he last?

THE COST OF WAR

Some have claimed that an American invasion of Iraq would cost so many billions of dollars that oil returns would never justify such an action. But when the invasion is placed in the context of the protection of the entire US economy for now and into the future, the balance of the argument changes.

Further, there are three other vital factors:

First, America will be asking others to help pay for the war because it is protecting their interests. Japan and Saudi Arabia made serious contributions to the cost of the 1991 Gulf war.

Second -- in reality, war will cost the USA very little -- or at least, very little over and above normal expenditure. This war is already paid for! All the munitions and equipment have been bought and paid for. The USA would have to spend hardly a cent on new hardware to prosecute this war -- the expenditure will come later when munitions and equipment have to be replaced after the war. But munitions, hardware and so on are being replaced all the time -- contracts are out. Some contracts will simply be brought forward and some others will be ramped up a bit, but spread over a few years, the cost will not be great. And what is the real extra cost of an army at war compared with maintaining the standing army around the world, running exercises and so on? It is there, but it is a relatively small sum.

Third -- lots of the extra costs involved in the war are dollars spent outside America, not least in the purchase of fuel. Guess how America will pay for these? By printing dollars it is going to war to protect. The same happens when production begins to replace hardware. components, minerals, etc. are bought in with dollars that go overseas and exploit America's trading advantage.

The cost of war is not nearly as big as it is made out to be. The cost of not going to war would be horrendous for the USA -- unless there were another way of protecting the greenback's world trade dominance.

AMERICA'S TWO ACTIVE ALLIES

Why are Australia and Britain supporting America in its transparent Iraqi war ploy?

Australia, of course, has significant US dollar reserves and trades widely in dollars and extensively with America. A fall in the US dollar would reduce Australia's debt, perhaps, but would do nothing for the Australian dollar's value against other currencies. John Howard, the Prime Minister, has long cherished the dream of a free trade agreement with the USA in the hope that Australia can jump on the back of the free ride America gets in trade through the dollar's position as the major trading medium. That would look much less attractive if the euro took over a significant part of the oil trade.

Britain has yet to adopt the euro. If the US takes over Iraq and blocks the euro's incursion into oil trading, Tony Blair will have given his French and German counterparts a bloody nose, and gained more room to manouevre on the issue -- perhaps years more room. Britain would be in a position to demand a better deal from its EU partners for entering the "eurozone" if the new currency could not make the huge value gains guaranteed by a significant role in world oil trading. It might even be in a position to withdraw from Europe and link with America against continental Europe.

On the other hand, if the US cannot maintain the oil trade dollar monopoly, the euro will rapidly go from strength to strength, and Britain could be left begging to be allowed into the club.

THE OPPOSITION

Some of the reasons for opposition to the American plan are obvious -- America is already the strongest nation on earth and dominates world trade through its dollar. If it had control of the Iraqi oil and a base for its forces in the Middle East, it would not add to, but would multiply its power.

The oil-producing nations, particularly the Arab ones, can see the writing on the wall and are quaking in their boots.

France and Germany are the EU leaders with the vision of a resurgent, united Europe taking its rightful place in the world and using its euro currency as a world trading reserve currency and thus gaining some of the free ride the United States enjoys now. They are the ones who initiated the euro oil trade with Iraq.

Russia is in deep economic trouble and knows it will get worse the day America starts exploiting its take-over of Afghanistan by running a pipeline southwards via Afghanistan from the giant southern Caspian oil fields. Currently, that oil is piped northwards -- where Russia has control.

Russia is in the process of ramping up oil production with the possibility of trading some of it for euros and selling some to the US itself. Russia already has enough problems with the fact that oil is traded in US dollars; if the US has control of Iraqi oil, it could distort the market to Russia's enormous disadvantage. In addition, Russia has interests in Iraqi oil; an American take over could see them lost. Already on its knees, Russia could be beggared before a mile of the Afghanistan pipeline is laid.

ANOTHER SOLUTION?

The scenario clarifies the seriousness of America's position and explains its frantic drive for war. It also suggests that solutions other than war are possible.

Could America agree to share the trading goodies by allowing Europe to have a negotiated part of it? Not very likely, but it is just possible Europe can stare down the USA and force such an outcome. Time will tell. What about Europe taking the statesmanlike, humanitarian and long view, and withdrawing, leaving the oil to the US, with appropriate safeguards for ordinary Iraqis and democracy in Venezuela?

Europe might then be forced to adopt a smarter approach -- perhaps accelerating the development of alternative energy technologies which would reduce the EU's reliance on oil for energy and produce goods it could trade for euros -- shifting the world trade balance.

Now that would be a very positive outcome for everyone.

Geoffrey Heard is a Melbourne, Australia, writer on the environment, sustainability and human rights.

Geoffrey Heard (c) 2003

More Information on Dollarization
More Information on Oil in Iraq
More Information on Nations and States

Why the Collapse of the Dollar Is Just a Myth By Allan H. Meltzer

2006-12-15T17:50:00.000-08:00

Statements by European politicians and many others leave the impression that the dollar has "collapsed" against the euro and remains on the steep end of a roller-coaster ride heading south. Gerhard Schroder, the German chancellor, has hinted several times that the European Central Bank has been negligent, stubborn, or worse for not reducing interest rates to stop the euro's appreciation. This excitement was all based on a 5 to 10 percent appreciation of the euro above its price at launch in 1999. Of course, Mr Schroder prefers to take as his starting point the temporary floor reached two years ago, so he can claim the euro has appreciated as much as 50 percent against the dollar. That is true, but very misleading--like using the coldest day in January to dictate the clothing that you wear every day. The chancellor would be wise to take a longer-term perspective. I converted monthly average D-Mark/dollar exchange rates before the launch of the single European currency into euros at the official conversion rate of DM 1.95583 to the euro. The resulting series shows fluctuations around a monthly average value of Euros 0.83 per dollar from January 1990 to December 1998. This January and February the value was Euros 0.79 to the dollar, the equivalent of DM 1.55. This value is Euros 0.04 lower than the average exchange rate during the 1990s--and the euro has since declined. Current values are well within the range experienced in the 1990s--Euros 0.71 to Euros 0.94. The big change came with the appreciation of the dollar against all currencies that began in about 1999. By October 2000, euro holders had to pay Euros 1.17 per dollar. Between 1999 and 2002, the monthly average exchange rate was Euros 1.05, a 22 percent appreciation of the dollar from its average value in the 1990s. The dollar was overvalued, as the flood of imports and the big increase in the U.S. trade deficit suggest. The dollar has not collapsed against the euro, or any other currency. It has returned to the range it was in before 1999. I cannot recall either Mr Schroder or any other prominent eurozone politician complaining about the dollar/D-Mark exchange rate when it was at its current rate in the 1990s. The big change is not so much an appreciation of the euro as a reduction in the overvaluation of the dollar following the financial crises of the late 1990s. Other factors include replacement of the growing surplus in the U.S. budget by a large deficit. Differences in interest rates and expected inflation rates may also have contributed. Dollar assets were a safe haven in the late 1990s for foreigners who bought bonds, and seemed an attractive investment for those who bought equities to own a share of the new economy. When the dollar floated up to a peak early in 2002, Mr Schroder did not propose that the ECB should tighten policy to help the euro appreciate. Mercantilism lives on and is certainly not confined to Germany. In truth, the ECB may choose to lower its interest rate, but it has no more reason to ease policy now to manage its exchange rate than it did in the mid-1990s. What about the future? The U.S. presses China and Japan to stop buying its bills and bonds and to let their currencies float freely. Freely floating rates are desirable for many countries that have financial systems strong enough to absorb the fluctuations in asset values that accompany exchange rate changes. That certainly does not describe China or Japan. Japan's policy has at last allowed monetary expansion to support economic expansion and reduce deflation. The correct policy for Japan is to continue its long-delayed effort to end deflation. The correct policy for China is to prevent an increase in inflation. The correct policy for the U.S. is to let other countries decide on their preferred policy. The dollar has fallen, but it has not collapsed. Now that it is back in its former range, there are lots of willing buyers for its debt. If the U.S. continues to report some of the fastest productivity growth rates in its history, and profit rates remain high, there should be no shortage of buyers of U.S. assets and equities. The strong response to last Friday's U.S. jobs report also shows that the dollar remains attractive. Predicting exchange rates is no better than flipping a coin. It is hazardous to believe such forecasts or to act on them. That goes for governments and central banks that want to second-guess or "correct" the market's judgment. It also goes for those who predict the dollar will collapse. Allan H. Meltzer is visiting scholar at the American Enterprise Institute.


AEI Print Index No. 16574

Gold ... On Hold?

2006-12-15T12:02:00.000-08:00

by Alex Wallenwein, Editor & Publisher
http://www.financialsense.com/editorials/wallenwein/2005/0119.html
January 19, 2005

Is the $60.3 billion November trade deficit now "paid for" as recent foreign capital-inflow numbers ($81 billion) suggest? Is the dollar's bear market over? Are we in a gold-holding pattern again?

The Dollar: Turning on a Dime

Without any change in fundamentals or even news about exchange rates the dollar turned on a dime as soon as the new year hit. On Friday, December 31, the dollar still fell to an all time low of 1.36 to the euro. On Monday, January 3, the rebound started without any advance notice whatsoever.

What caused that?

Manipulation? Investor psychology? A technical rebound? An "oversold condition"? Which is it?

Forex news reports cited all of the above in one instance or another, but what was the real reason? Are there any "real reasons" for anything anymore in financial-land?

We got a sudden repeat performance of the 2003 dollar collapse during September last year without any fundamental change in financial news or economic outlook from the earlier month dollar rebound and gold stagnation period. Now we get a sudden change back to the dollar-upside without any fundamental change in outlook. Fed rates had been rising and had been expected to rise further throughout the September-December dollar collapse, but as soon as New Years Eve revelers had slept off their hangovers, the dollar began to climb again.

Where are these things coming from? What is happening?

Who cares anymore? There's only one thing that seems to be certain: when the dollar is falling, the Dow goes up. When the dollar stabilizes, the Dow stagnates. When the dollar rises, the Dow falls.

Such has been the case since September 2003 with mind-boggling accuracy - and such is still the case now. The dollar-Dow inversion is alive and well, and is best depicted by looking at a chart showing the Dow and the dollar's main "foe": the euro:

Why does this happen?

The ordinary thinking goes that a low dollar is good for US exporting companies because their products become less expensive abroad. But the effects of this usually lag by at least a matter of months, if not an entire year or longer. So, how come there is this uncanny, almost instantaneous inverse relationship? What accounts for that?

There are no textbooks on this subject. You will find nothing online or in your local library. Ask your College economics professor, and he will be stumped for an answer. So, what's up?

Since September 2003, it almost appears as if the dollar now has the same adverse relationship to the Dow as it has to gold itself. Why is that so? What changed from before 9/03?

If so, what does that say about the current stock rebound? Is it just a reflection of the falling dollar, and no more? If this is so, then investors in US stocks should take note: if they are still skeptical of gold because the current gold-bull is "just the shadow of the falling dollar", then their cherished Dow Jones average has recently fared no better.

Here is another thought: what does that say about the confidence foreign investors have in US stocks? If they only buy them when the cheaper dollar makes them more affordable, then a stronger dollar becomes an economic no-no for US policy makers. If this is the perception of US markets, the US cannot afford a strong dollar policy any longer, any comments from the administration through it's snowy mouthpiece notwithstanding.

If this is true, then the situation we face also instructs us that the dollar has become adverse to even the confounded, rigged, and artificial representation of economic value we all call "the US stock markets." In short: the dollar is now absolutely value-adverse. An increase in the price of anything that has any kind of value to Americans now has to be purchased at the expense of a falling dollar!

The evidence appears striking. There seem to be no two ways about it. It's not so much that a strong dollar is bad for US assets, as it is that only a weak dollar can induce foreign investment in US or dollar-denominated assets anymore.

Or, seen the other way around: if higher prices for US assets can only be bought at the expense of a lower dollar, then we simply have a wash. We are treading water. We are going nowhere. The only thing we have is an illusion of an increase in the value of US assets tailor made for the domestic US population.

At least one thing still remains of the old pillars of economic reality: There is at least that one perception of "value" left in investors' minds. At least they still do buy US assets (or dollar-denominated assets) when the dollar tanks. If and when that ever stops, if and when the international estimation of the value of US assets sinks so low that they won't even consider buying them when they are cheap, that is going to be the day when US economic supremacy is simply over.

How does all of this jibe with today's report of the huge November rise in net foreign investment?

It jibes perfectly.

Even if the figures are correct and not skewed at all, the dollar-Dow scenario explains perfectly why foreign investment has increased so much. Look how the Dow shot up after the election. Look how the dollar dived during the same time. If foreigners are simply scavenging for cheap US assets, then this points to one sad but undeniable truth: they will only continue to do so when the dollar is falling, making US assets cheaper for them.

At this point, it's time to make a prediction: If this explanation is correct, then the December TIC figures to be released in February should show a far lower net increase in foreign capital inflows. And if the dollar keeps climbing during January and boasts a significant increase at the end of the month, then we should see a reversal of net inflows during January when those figures are released in March.

Now, if this scenario holds true, then how far can the dollar rise?

Better question: how far can the dollar-faction afford to let the Dow to fall (as a result of the rising dollar) before foreigners will jump off the train and look elsewhere for bargains? A rebounding dollar will act like insect-repellant for foreign investors. They simply won't go anywhere near US assets if a rising dollar makes these assets ‘smell bad' (more expensive) to them.

And that means that the trade deficit will continue to loom large on the investment horizon, no matter what these (now no longer so surprising) capital inflow figures showed in November. Only a seriously falling dollar can attract enough foreign investment to "pay" for the US trade deficit. That means a rising dollar will simply crush the US equities markets.

There is another possible explanation for this upward explosion in foreign asset inflows:

I have seen people talking about covert US Fed buying of longer term treasuries to keep long rates manageable so that consumers won't get scared out of their pants by the two-prong pinchers of rising US prices and the rising cost of debt-repayments. Some astute analysts have observed that there is a lot of activity in the bond market coming out of the Caribbean money centers. These same traders have observed that an unidentified but huge entity acting through the Caribbean money centers keeps coming in to buy treasuries as soon as a sell-off begins to develop. Could that be the Fed?

Is it possible that the Fed is making good on Bernanke's threat and is buying long term treasuries? Are those the "foreign investment inflows" we have been told about today so boisterously? Here is a snippet from a Reuters article of today:

Michael Woolfolk, senior currency strategist at Bank of New York, reckoned however that much of November's asset inflow was speculative, given an increase in investments from Caribbean money center banks. These banks are known to be financing channels for most hedge funds, which have become major players in the daily $1.3 trillion turnover of the global foreign exchange market.

Looks like they may also be financing channels for the US Fed.

A rising dollar's seemingly inevitable negative effect on the Dow will force US insiders to do whatever they need to do to prop up their beloved stock-market con game. As the Dow goes, so goes investor psychology. When the Dow finally folds, we will get Prechter's predicted (but so far not occurring) deflation scenario. Individuals and businesses will pull in their horns. Credit will contract, not because rates are high but because everybody gets scared. Then, the Fed may be forced to reverse course and drop its interest-rate pants again, exposing the nakedness underneath for all the world to see.

But the above still doesn't explain why the dollar turned on a dime in the new year.

What we have witnessed so far does not appear to be a major dollar support action by anyone - unless it's an act of covert dollar-buying by the ECB and/or euro-zone member nations. If I were to go way out on a limb I'd say that, just as the US is trying to undermine the euro by dropping the dollar too far too fast, the euro-members may have figured out they can "mess" with the US by covert dollar-support. In doing so, they can apply a fair amount of pressure on the Dow, as is evident from this chart:

Funny world, isn't it, where nations and power-blocs now appear to try and hurt each other by supporting the opponent's currency?!!!

But it doesn't have to be covert EU dollar-support that drove this reversal. It may very well be that Japan is finally acquiescing to longstanding EU demands to stop selling yen to buy dollars, which in the past forced the euro to take the brunt of the ongoing dollar-depreciation.

It is too early to tell whether this represents a definitive policy shift by the Japanese, but it is interesting to note that, although the dollar bounced against both the euro and the yen in early January, its bounce against the euro has been sustained and continues, while it fell back against the yen to levels that are now lower than they were at the beginning of the bounce. And that despite the lift it got from the foreign capital inflows data.

So, is gold "on hold" again? Yes, for the time being - but that's a good thing if you are consistently buying and saving gold (as the Chinese and other Asians do) to align yourself with the coming changes in the world monetary system. Those changes are detailed only in the Euro vs Dollar Currency War Monitor.

If you are only trading gold or gold shares for paper-profits, your long-term priorities may be a bit off. If you end up selling gold in the face of a sustained rise in the dollar, you will be doing those who truly save gold a huge favor. They'll be glad to buy it from you - for even less paper cash than it takes to do that now!

Death and Resurrection of the US Dollar - A Review Article by Adrian Salbuchi

2006-12-07T15:23:00.000-08:00

Analysts the world over are starting to recognize the early warning signs of a gathering storm regarding the strength of the international financial system in general, and the stability of the United States Dollar, in particular.

This essay provides an alternative view on this impending crisis, written from the viewpoint of an Argentine analyst whose country has undergone recurrent monetary and financial crises over the past forty years, albeit on a domestic rather than an international scale.

Argentina experienced banking system collapses, inflation, hyperinflation, public debt defaults, stock market crashes and just about anything else you may care to imagine in terms of financial and monetary crises. Chronic inflation was so bad that since 1970 the Argentine currency – the Peso – was revamped four times and had a total of 13 zeroes knocked off in order to cope with inflation, the result being that One Peso which today will just barely buy you a bus ride in Buenos Aires City, is equivalent to 10.000.000.000.000 pesos from 1970, which at that time would have allowed you to purchase the entire country and left some change in your pocket.

In this country, we therefore have a lot of practical first-hand experience on these matters and we believe that we have much added value to contribute if we apply our practical knowledge and experience to what seems to be a cross-roads situation afflicting the global financial and monetary systems.

Today’s financial turmoil rings a lot of familiar bells to us and the sickly US Dollar is certainly looking a whole lot like the old Argentine Pesos and “Australes” of yore. Perhaps too, some lessons can still be learned and the damage from these enormous risks can be somewhat mitigated.

Adrian Salbuchi, June 2005[1]

Getting the Job Done

Last January, US President George W. Bush began his second term in office by declaring foreign policy objectives with clear imperial overtones that seem to promise increasing violence and disruption on a worldwide scale. Aside from the on-going illegal military occupations of Iraq and Afghanistan, we can most certainly expect other major crises and convulsions of a military, political, economic and financial character. One of these has specifically to do with the use and abuse of the US Dollar as an instrument of Imperial World Power by the Bush Administration.

In today’s “globalized” and “interdependent” world, hi-tech applied to geopolitics, economy and finance have transformed all of us into potential victims of a vast number of virtual tsunamis which do not involve oceanic waves but rather waves of technology-driven social catastrophes, financial collapse and artificial crises resulting in civil wars, external invasions, genocides and collective disruption on a scale never seen before. And even though these may be virtual tsunami, the harm and suffering they cause are very real.

The world is on the verge of experiencing the controlled destabilization and collapse of the US Dollar, which will be replaced by a “New Dollar” backed by Official “Good Gold.” The primary driving forces behind this global process are the Bush Administration allied to major private financial-industrial interests in the United States and elsewhere, focused on private Overworld geopolitical planning emanating from a network of think tanks, primarily the New York-based Council on Foreign Relations.

The Controlled Destabilizing and Collapse of the US Dollar.

“The King is dead! Long Live the King!” Such has been since Medieval times, the cry announcing the demise of an English Monarch and the immediate enthroning of the chosen Royal Successor. If the US Dollar is the “king of world currencies” and governs today’s usury-based international financial system, it is no doubt an old, decrepit, tired and sickly sovereign. Since the Empire will never allow his throne to remain empty and subject to unpredictable forces, we can be sure that old and sickly King Dollar already has an appointed blue-blooded royal successor, with rosy cheeks, golden locks and solid health. (... read on)

Crisis of the U.S. Dollar System by F. William Engdahl

2006-12-06T00:56:00.000-08:00

Text of author's presentation at an international conference held in Feldkirch, Austria, September 2003.

It's accepted wisdom that the United States, despite recent problems, is still the strongest growth locomotive for the world economy, the pillar of the global system. What if we were to discover that, instead of being the pillar, that the United States was, in fact, the heart of a dysfunctional economic system, which is spreading instability, unemployment, and depression globally?

No other nation on earth comes near to the commanding US military superiority in smart bombs, military IT, or in sheer force capabilities. The US position in the world since 1945, and especially since 1971, has rested on two pillars, however: The superiority of the US military over all, and, the role of the dollar as world reserve currency. That dollar is the Achilles heel of American hegemony today.

In my view, the world has entered a new, highly dangerous phase since the collapse of the US stock market bubble in 2001. I am speaking about the unsustainable basis of the very Dollar System itself. What is that Dollar System?

How the Dollar System works

After 1945, the US emerged from war with the world's gold reserves, the largest industrial base, and a surplus of dollars backed by gold. In the 1950's into the 1960's Cold War, the US could afford to be generous to key allies such as Germany and Japan, to allow the economies of Asia and Western Europe to flourish as a counter to communism. By opening the US to imports from Japan and West Germany, a stability was reached. More importantly, from pure US self-interest, a tight trade area was built which worked also to the advantage of the US.

That held until the late 1960's, when the costly Vietnam war led to a drain of US gold reserves. By 1968 the drain had reached crisis levels, as foreign central banks holding dollars feared the US deficits would make their dollars worthless, and preferred real gold instead.

In August 1971, Nixon finally broke the Bretton Woods agreement, and refused to redeem dollars for gold. He had not enough gold to give. That turn opened a most remarkable phase of world economic history. After 1971 the dollar was fixed not to an ounce of gold, something measurable. It was fixed only to the printing press of the Treasury and Federal Reserve.

The dollar became a political currency—do you have "confidence" in the US as the defender of the Free World? At first Washington did not appreciate what a weapon it had created after it broke from gold. It acted out of necessity, as its gold reserves had got dangerously low. It used its role as the pillar of NATO and free world security to demand allies continue to accept its dollars as before.

Currencies floated up and down against the dollar. Financial markets were slowly deregulated. Controls were lifted. Offshore banking was allowed, with unregulated hedge funds and financial derivatives. All these changes originated from Washington, in coordination with New York banks.

The dollar debt paradox

What soon became clear to US Treasury and Federal Reserve circles after 1971, was that they could exert more global influence via debt, US Treasury debt, than they ever did by running trade surpluses. One man's debt is the other's credit. Because all key commodities, above all, oil, were traded globally in dollars, demand for dollars would continue, even if the US created more dollars than its own economy justified.

Soon, its trade partners held so many dollars that they feared to create a dollar crisis. Instead, they systematically inflated, and actually weakened their own economies to support the Dollar System, fearing a global collapse. The first shock came with the 1973 increase in oil by 400%. Germany, Japan and the world was devastated, unemployment soared. The dollar gained.

This Dollar System is the real source of a global inflation which we have witnessed in Europe and worldwide since 1971. In the years between 1945 and 1965, total supply of dollars grew a total of only some 55%. Those were the golden years of low inflation and stable growth. After Nixon's break with gold, dollars expanded by more than 2,000% between 1970 and 2001!

The dollar is still the only global reserve currency. This means other central banks must hold dollars as reserve to guarantee against currency crises, to back their export trade, to finance oil imports and such. Today, some 67% of all central bank reserves are dollars. Gold is but a tiny share now, and Euros only about 15%. Until creation of the Euro, there was not even a theoretical rival to the dollar reserve currency role.

What is little understood, is how the role of US trade deficits and the Dollar System are connected. The United States has followed a deliberate policy of trade deficits and budget deficits for most of the past two decades, so-called benign neglect, in effect, to lock the rest of the world into dependence on a US money system. So long as the world accepts US dollars as money value, the US enjoys unique advantage as the sole printer of those dollars. The trick is to get the world to accept. The history of the past 30 years is about how this was done, using WTO, IMF, World Bank and George Soros to name a few.

What has evolved is a mechanism more effective than any the British Empire had with India and its colonies under the Gold Standard. So long as the US is the sole military superpower, the world will continue to accept inflated US dollars as payment for its goods. Developing countries like Argentina or Congo or Zambia are forced to get dollars to get the IMF seal of approval. Industrial trading nations are forced to earn dollars to defend their own currencies. The total effect of US financial and political and trade policy has been to maintain the unique role of the dollar in the world economy. It is no accident that the greatest financial center in the world is New York. It's the core of the global Dollar System.

It works so: A German company, say BMW, gets dollars for its car sales in the USA. It turns the dollars over to the Bundesbank or ECB in exchange for Marks or Euros it can use.

The German central bank thus builds up its dollar currency reserves. Since the oil shocks of the 1970's, the need to have dollars to import oil became national security policy for most countries, Germany included. Boosting dollar exports was a national goal. But since the Bundesbank no longer could get gold for their dollars, the issue became what to do with the mountain of dollars their trade earned. They decided to at least earn an interest rate by buying safe, secure US Treasury bonds. So long as the US had a large Budget deficit, there were plenty of bonds to buy.

Today, most foreign central banks hold US Treasury bonds or similar US government assets as their "currency reserves." They in fact hold an estimated $1 trillion to $1.5 trillion of US Government debt. Here is the devil of the system. In effect, the US economy is addicted to foreign borrowing, like a drug addict. It is able to enjoy a far higher living standard than were it to have to use its own savings to finance its consumption. America lives off the borrowed money of the rest of the world in the Dollar System. In effect, the German workers at BMW build the cars and give it away to Americans for free, when the central bank uses the dollars to buy US bonds.

Today, the US trade deficit runs at an unbelievable $500 billion, and the dollar does not collapse. Why? In May and June alone, the Bank of China and Bank of Japan bought $100 billion of US Treasury and other government debt! Even when the value of those bonds was falling. They did it to save their exports by manipulating the Yen to dollar to prevent a rising yen.

Because the world payments system, and most importantly, the world capital markets---stocks, bonds, derivatives—are dollar markets, the dollar overwhelms all others. The European Central Bank could offer an alternative. So far it does not. It only reacts to a dollar world. German banks destroy the German economy as they rush to imitate US banks. The Dollar System is destroying the German industrial base. German national economic policy as well as Bundesbank and now ECB policy is oriented on the far smaller export sector, to maximize trade surplus dollars, or to the big banks, to attract as many dollars as possible.

China plays a key role today

The biggest dollar surplus country today is China. Globalization is in fact just a code word for dollarization. The Chinese Yuan is fixed to the dollar. The US is being flooded with cheap Chinese goods, often outsourced by US multinationals. China today has the largest trade surplus with the US, more than $100 billion a year. Japan is second with $70 billion. Canada with $48 bn, Mexico with $37 bn and Germany with $36 bn make the top 5 trade deficit countries, a total deficit of almost $300 billion of the colossal $480 deficit in 2002. This gives a clue to US foreign policy priorities.

What is perverse about this system is the fact that Washington has succeeded in getting foreign surplus countries to invest their own savings, to be a creditor to the US, buying Treasury bonds. Asian countries like Indonesia export capital to the US instead of the reverse!

The US Treasury and Greenspan are certain that its trade partners will be forced to always buy more US debt to prevent the global monetary system from collapsing, as nearly happened in 1998 with the Russia default and the LTCM hedge fund crisis.

Washington Treasury officials have learned to be masters at the psychology of "monetary chicken." Treasury Secretary Snow used an implied threat of letting the dollar collapse, after the Iraq war, to warn Germany about the risk of trying to be too close to France with the Euro. Some weeks after the dollar had fallen sharply, and German export industry was screaming pain, Snow reversed his stand and the dollar stabilized. Now the dollar again rises as foreign money flows back in.

But debt must be repaid you say? Does it ever? The central banks just keep buying new debt, rolling the old debts over. The debts of the USA are the assets of the rest of the world, the basis of their credit systems!

The second key to the Dollar System deals with poorer debtor countries. Here the US influence is strategic in the key multilateral institutions of finance—World Bank and IMF, WTO. Entire countries like Argentina or Brazil or Indonesia are forced to devalue currencies relative to the dollar, privatize key state industries, cut subsidies, all to repay dollar debt, most often to private US banks. When they resist selling off their best assets, tehy are charged with being corrupt. The growth of offshore money centers in the Caribbean, a key part of the drug money cycle, is also a direct consequence of the decisions in Washington in the 1970's and after, to deregulate financial markets and banks. As long as the dollar is the global currency, the US gains, or at least its big banks.

This is a kind of Dollar Imperialism more slick than anything the British Empire even dreamed of. It is a part of the current America "Empire" debate no one mentions. Instead of the US investing in colonies like England to earn profits on the trade, the money comes from the client states into the US economy. The problem is that Washington has allowed this perverse system to get out of all control to the point today it threatens to bring the entire world to the point of collapse. Had the US instead promoted long-term policy of investing in the economic growth and self-sufficiency of countries like Argentina or Congo, rather than bleeding them in repayment of unpayable dollar debts, the world would look far less unstable today.

The internal debt bomb in the USA

The question is if the Dollar System is reaching its real limits? The Dollar System for the past 30 years has been built on growing dollar debt. What if the rest of the world decides it no longer wants to give its savings to the US Treasury to finance its deficits or its wars? What if China decides that it should diversify its risk by buying Euro debt? Or Japan or Russia? That day may come sooner than we think.

In addition to colossal debts to the rest of the world, the US internal debt burdens have reached alarming levels in the past three decades, especially the past decade.

The total US debt—public and private—has more than doubled since 1995. It is now officially over $34 trillion. It was just over $16 trillion in 1995, and "only" $7 trillion in 1985. Most alarming it has grown faster than income to service it, or GDP.

Since the Asia crisis in 1998, the US debt situation has exploded. The heart of the debt explosion is in US private consumer debt. And the heart of consumer debt is the home mortgage debt growth, helped by two semi-government agencies—Fannie Mae and Freddie Mac. Since 2001 and the collapse of the stock market wealth, the Federal Reserve has cut interest rates 13 times to a 45 year low.

US Households took on new home mortgage debt in the first six months this year at an annual rate of $700 billion, double the debt growth in 2000. Total mortgage debt in the US totals just under $5 trillion, double the debt in 1996. It has grown far faster than personal income per capita. That is larger than the GDP of most nations.

The aim has been to inflate a housing speculation market in order to keep the economy rolling. The cost has been staggering new debt levels. Because it was created with record low interest rates, when rates again rise, millions of Americans will suddenly find the burden impossible, especially as unemployment rises. Fannie Mae and Freddie Mac combined guarantee $3 trillion in US home mortgages. The US banking system holds much of their bonds. When the housing bubble collapses, a new banking crisis is pre-programmed as well, with JP Morgan/Chase, Wells Fargo and BankAmerica the worst.

The US economy has only managed to avoid a severe recession since the collapse of the stock market three years ago, by a record amount of consumer borrowing. "Shop until you drop" is a popular American expression. The Federal Reserve has pushed interest rates down to 1%, the lowest in 45 years. The aim is to keep the cost of the debt low such that families continue to borrow, in order to spend! Some 76% of the US economy GDP today is consumer spending. And most of that is tied to a record boom in home buying.

But the rate of new debt growth among families is rapidly reaching alarm levels, while the overall manufacturing economy continues to stagnate or decline. Today US factories only operate at 74% of capacity, near historic lows. With so much unused capacity, there is little chance companies will soon invest in new factories or jobs. They are going to China.

So Greenspan continues to rely on foreign money to prop up his consumer debt bubble, at low interest rates. Were foreign money to stop propping the US economy, now at some $2.5 billion daily, the Federal Reserve would be forced to raise its interest rates to make dollar investments more attractive. Higher rates would trigger a crisis in consumer debt, mortgage defaults, credit card and car loan failures. Higher rates would plunge the US economy into a depression. This may be about to happen, despite poor George Bush's desires to get reelected.

There is a limit how much debt US families can pay to keep the economy afloat.

There is no US recovery, merely a debt spending boom based on this home buying explosion.

Total US household debt reached a high in June of $8.7 trillion, double that of 1994. Families are agreeing to longer debt payments for basics like homes or cars. The length of new car loans now averages 60.7 months, and the amount of car debt financed increased to $27,920, and the average new home costs $243,000.

With rapidly rising unemployment and a real economy that is not growing, at some point there will come a violent reality clash, as the market for home lending reaches its limit. At that point the danger is the consumer will stop buying, and the manufacturing economy will not be able to create new jobs and a real recovery. The jobs have gone to China!

We might already be at or very close to that point. In the past six weeks, US interest rates have risen sharply, as owners of US bonds have started to sell in panic levels, fearing the bonanza in real estate may be over, and trying to get out with some profit before bond prices collapse. The European Central Bank is advising member banks to not buy any more US Freddie Mac or government agency debts.

The problem is this process of creating debt, domestic and foreign, to keep the US economy going, has gathered so much momentum it risks destroying what remains of the US manufacturing and technology base. Henry Kissinger warned in a conference of Computer Associates in June, that the US risked destroying its own middle class, and its key strategic industries via outsourcing to China, India and other cheap areas. Today only 11% of the total workforce is in manufacturing. In 1970, it was 30%. Post-industrial America is a bubble economy about to pop.

Fed chief Greenspan even warned China about the rate of its trade increase with the US, pressuring China to upvalue the Renminbi to make its goods less competitive in dollar markets, and slow the job loss. But this is dangerous. China holds $340 billion in US Treasury bonds and other reserve assets. The US needs the Chinese dollar savings to finance its soaring deficits.

It is caught in its own web: American jobs, hi-tech jobs as well as factory jobs, are vanishing permanently as US factories source to China, India or other cheap areas. If Washington pressures China and others to cut back exports they risk to kill the goose that lays golden dollar eggs. Who will buy that growing Government dollar debt? Private bond traders are desperately trying to sell their US bonds. Germany can only buy so much dollar debt, also Japan.

The US waged war in Iraq not out of fundamental strength but fundamental weakness. It is economic weakness however, not military.

Oil and food, and money as strategic weapon

The fundamental reason for the Iraq war, beyond agendas of Richard Perle or other hawks, is hence, strategic in my view. US economic hegemony in this distorted Dollar System increasingly depends on a rising rate of support from the rest of the world to sustain US debt levels. Like the old Sorcerers' Apprentice. But the point is past where this can be gotten easily. That is the real significance of the US shift to unilateralism and military threats as foreign policy. Europe can no longer be given a piece of the Third World debt pie as in the 1980's. Japan has to cough up even more, as does China now.

Even ordinary Americans have to give up their pension promises. If the Dollar System is to remain hegemonic, it must find major new sources of support. That spells likely destabilization and wars for the rest of the world.

Could it be that in this context, some long-term thinkers in Washington and elsewhere have devised a strategy of establishing US military control of all strategic sources of oil for the one potential power rival, Eurasia, from Brussels to Berlin to Moscow and Beijing? The dollar vulnerability and debt problems are well known in leading policy circles.

As Henry Kissinger once noted, "Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world."

F. William Engdahl is a Global Research Contributing Editor and author of the book, ‘A Century of War: Anglo-American Oil Politics and the New World Order,’ Pluto Press Ltd. He has completed a soon-to-be published book on GMO titled, ‘Seeds of Destruction: The Hidden Political Agenda Behind GMO’. He may be contacted through his website, www.engdahl.oilgeopolitics.net.

F. William Engdahl is a frequent contributor to Global Research. Global Research Articles by F. William Engdahl

Billions for the Bankers, Debts for the People

2006-12-05T22:37:00.000-08:00

The Real Story of the Money-Control Over America

by Pastor Sheldon Emry, circa 1980*

Posted at Bull Not Bull on May 1, 2005.

Comments and discussion on this article are welcomed and encouraged. Click here.

Editor's note: This piece is an internet classic, outlining the terrible flaws in our current banking system, and how it enriches bankers and powers-that-be at the expense of common people like us. If you have never seen it, you are in for an eye opener! If you have read it before, read it again - it is well worth it. Although originally written in 1980, the article is especially timely today in light of the new bankruptcy law that has been passed by the Senate and will surely be passed by the Congress soon. Read it and think about the world that we live in! Opening yourself to new information is the first step in awakening to the truth about the road we are traveling.

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If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.

-- Thomas Jefferson

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Americans, living in what is called the richest nation on earth, seem always to be short of money. Wives are working in unprecedented numbers, husbands hope for overtime hours to earn more, or take part-time jobs evenings and weekends, children look for odd jobs for spending money, the family debt climbs higher, and psychologists say one of the biggest causes of family quarrels and breakups is "arguments over money." Much of this trouble can be traced to our present "debt-money" system. Too few Americans realize why our founding fathers wrote into Article I of the U.S. Constitution: Congress shall have the Power to Coin Money and Regulate the Value Thereof.

They did this, as we will show, in prayerful hope it would prevent "love of money" from destroying the Republic they had founded. We shall see how subversion of Article I has brought upon us the horrors of which Jefferson had warned.

MONEY IS MAN'S ONLY "CREATION"

Economists use the term "create" when speaking of the process by which money comes into existence. Now, creation means making something that did not exist before. Lumbermen make boards from trees, workers build houses from lumber, and factories manufacture automobiles from metal, glass and other materials. But in all these they did not "create," they only changed existing materials into a more usable and, therefore, more valuable form. This is not so with money. Here, and here alone, man actually "creates" something out of nothing. A piece of paper of little value is printed so that it is worth a piece of lumber. With different figures it can buy the automobile or even the house. Its value has been "created" in the true meaning of the word

MONEY "CREATING" PROFITABLE

As is seen by the above, money is very cheap to make, and whoever does the "creating" of money in a nation can make a tremendous profit! Builders work hard to make a profit of 5% above their cost to build a house.

Auto makers sell their cars for 1% to 2% above the cost of manufacture and it is considered good business. But money "manufacturers" have no limit on their profits, since a few cents will print a $1 bill or a $10,000 bill.

That profit is part of our story, but first let us consider another unique characteristic of the thing - money, the love of which is the "root of all evil."

ADEQUATE MONEY SUPPLY NEEDED

An adequate supply of money is indispensable to civilized society. We could forego many other things, but without money industry would grind to a halt, farms would become only self-sustaining units, surplus food would disappear, jobs requiring the work of more than one man or one family would remain undone, shipping, and large movements of goods would cease, hungry people would plunder and kill to remain alive, and all government except family or tribe would cease to function.

An overstatement, you say? Not at all. Money is the blood of civilized society, the means of all commercial trade except simple barter. It is the measure and the instrument by which one product is sold and another purchased. Remove money or even reduce the supply below that which is necessary to carry on current levels of trade, and the results are catastrophic. For an example, we need only look at America's Depression of the early 1930's.

THE BANKERS DEPRESSION OF THE 1930's

In 1930 America did not lack industrial capacity, fertile-farm land, skilled and willing workers or industrious farm families. It had an extensive and highly efficient transportation system in railroads, road networks, and inland and ocean waterways. Communications between regions and localities were the best in the world, utilizing telephone, teletype, radio, and a well-operated government mail system. No war had ravaged the cities or the countryside, no pestilence weakened the population, nor had famine stalked the land. The United States of America in 1930 lacked only one thing: an adequate supply of money to carry on trade and commerce. In the early 1930's, Bankers, the only source of new money and credit, deliberately refused loans to industries, stores and farms.

Payments on existing loans were required however, and money rapidly disappeared from circulation. Goods were available to be purchased, jobs waiting to be done, but the lack of money brought the nation to a standstill. By this simple ploy America was put in a "depression" and the greedy Bankers took possession of hundreds of thousands of farms, homes, and business properties. The people were told, "times are hard," and "money is short." Not understanding the system, they were cruelly robbed of their earnings, their savings, and their property.

MONEY FOR PEACE? NO! MONEY FOR WAR? YES!

World War II ended the "depression." The same Bankers who in the early 30's had no loans for peacetime houses, food and clothing, suddenly had unlimited billions to lend for Army barracks, K-rations and uniforms! A nation that in 1934 couldn't produce food for sale, suddenly could produce bombs to send free to Germany and Japan! (More on this riddle later.)

With the sudden increase in money, people were hired, farms sold their produce, factories went to two shifts, mines re-opened, and "The Great Depression" was over! Some politicians were blamed for it and others took credit for ending it. The truth is the lack of money (caused by the Bankers) brought on the depression, and adequate money ended it. The people were never told that simple truth and in this article we will endeavor to show how these same Bankers who control our money and credit have used their control to plunder America and place us in bondage.

POWER TO COIN AND REGULATE MONEY

When we can see the disastrous results of an artificially created shortage of money, we can better understand why our Founding Fathers insisted on placing the power to "create" money and the power to control it ONLY in the hands of the Federal Congress. They believed that ALL citizens should share in the profits of its "creation" and therefore the national government must be the ONLY creator of money. They further believed that ALL citizens, of whatever State or Territory, or station in life would benefit by an adequate and stable currency and therefore, the national government must also be, by law, the ONLY controller of the value of money.

Since the Federal Congress was the only legislative body subject to all the citizens at the ballot box, it was, to their minds, the only safe depository of so much profit and so much power. They wrote it out in the simple, but all-inclusive: "Congress shall have the Power to Coin Money and Regulate the Value Thereof."

HOW THE PEOPLE LOST CONTROL TO THE FEDERAL RESERVE

Instead of the Constitutional method of creating our money and putting it into circulation, we now have an entirely unconstitutional system. This has resulted in almost disastrous conditions, as we shall see.

Since our money was handled both legally and illegally before 1913, we shall consider only the years following 1913, since from that year on, ALL of our money has been created and issued by an illegal method that will eventually destroy the United States if it is not changed. Prior to 1913, America was a prosperous, powerful, and growing nation, at peace with its neighbors and the envy of the world. But - in December of 1913, Congress, with many members away for the Christmas holidays, passed what has since been known as the FEDERAL RESERVE ACT. (For the full story of how this infamous legislation was forced through our Congress, read The Creature from Jekyll Island, by G. Edward Griffin or Conquest or Consent, by W. B. Vennard). Omitting the burdensome details, it simply authorized the establishment of a Federal Reserve Corporation, with a Board of Directors (The Federal Reserve Board) to run it, and the United States was divided into 12 Federal Reserve "Districts."

This simple, but terrible, law completely removed from Congress the right to "create" money or to have any control over its "creation," and gave that function to the Federal Reserve Corporation. This was done with appropriate fanfare and propaganda that this would "remove money from politics" (they didn't say "and therefore from the people's control") and prevent "Boom and Bust" from hurting our citizens. The people were not told then, and most still do not know today, that the Federal Reserve Corporation is a private corporation controlled by bankers and therefore is operated for the financial gain of the bankers over the people rather than for the good of the people. The word "Federal" was used only to deceive the people.

MORE DISASTROUS THAN PEARL HARBOR

Since that "day of infamy," more disastrous to us than Pearl Harbor, the small group of "privileged" people who lend us "our" money have accrued to themselves all of the profits of printing our money' - and more! Since 1913 they have "created" tens of billions of dollars in money and credit, which, as their own personal property, they then lend to our government and our people at interest. "The rich get richer and the poor get poorer" had become the secret policy of our National Government. An example of the process of "creation" and its conversion to people's "debt" will aid our understanding.

THEY PRINT IT - WE BORROW IT AND PAY THEM INTEREST

We shall start with the need for money. The Federal Government, having spent more than it has taken from its citizens in taxes, needs, for the sake of illustration, $1,000,000,000. Since it does not have the money, and Congress has given away its authority to "create" it, the Government must go the "creators" for the $1 billion. But, the Federal Reserve, a private corporation, doesn't just give its money away! The Bankers are willing to deliver $1,000,000,000 in money or credit to the Federal Government in exchange for the Government's agreement to pay it back - with interest! So Congress authorizes the Treasury Department to print $1,000,000,000 in U.S. Bonds, which are then delivered to the Federal Reserve Bankers.

The Federal Reserve then pays the cost of printing the $1,000,000,000 (about $1,000) and makes the exchange. The Government then uses the money to pay its obligations. What are the results of this fantastic transaction? Well, $1 billion in Government bills are paid all right, but the Government has now indebted the people to the Bankers for $1 billion on which the people must pay interest! Tens of thousands of such transactions have taken place since 1913 so that by the 1980's, the U.S. Government is indebted. to the Bankers for over $1,000,000,000,000 (trillion) on which the people pay over $100 billion a year in interest alone with no hope of ever paying off the principal. Supposedly our children and following generations will pay forever and forever!

AND THERE'S MORE

You say, "This is terrible!" Yes, it is, but we have shown only part of the sordid story. Under this unholy system, those United States Bonds have now become "assets" of the Banks in the Reserve System which they then use as "reserves" to "create" more "credit" to lend. Current "fractional reserve" requirements allow them to use that $1 billion in bonds to "create" as much as $15 billion in new "credit" to lend to States, Municipalities, to individuals and businesses. Added to the original $1 billion, they could have $16 billion of "created credit" out in loans paying them interest with their only cost being $1,000 for printing the original $1 billion! Since the U.S. Congress has not issued Constitutional money since 1863 (over 100 years), in order for the people to have money to carry on trade and commerce they are forced to borrow the "created credit" of the Monopoly Bankers and pay them usury-interest!

AND THERE'S STILL MORE

In addition to the vast wealth drawn to them through this almost unlimited usury, the Bankers who control the money at the top are able to approve or disapprove large loans to large and successful corporations to the extent that refusal of a loan will bring about a reduction in the price that that Corporation's stock sells for on the market. After depressing the price, the Bankers' agents buy large blocks of the stock, after which the sometimes multi-million dollar loan is approved, the stock rises, and is then sold for a profit. In this manner billions of dollars are made with which to buy more stock. This practice is so refined today that the Federal Reserve Board need only announce to the newspapers an increase or decrease in their "rediscount rate" to send stocks up and down as they wish. Using this method since 1913, the Bankers and their agents have purchased secret or open control of almost every large corporation in America. Using that control, they then force the corporations to borrow huge sums from their banks so that corporation earnings are siphoned off in the form of interest to the banks. This leaves little as actual "profits" which can be paid as dividends and explains why stock prices are often depressed, while the banks reap billions in interest from corporate loans. In effect, the bankers get almost all of the profits, while individual stockholders are left holding the bag.

The millions of working families of America are now indebted to the few thousand Banking Families for twice the assessed value of the entire United States. And these Banking Families obtained that debt against us for the cost of paper, ink, and bookkeeping!

THE INTEREST AMOUNT IS NEVER CREATED

The only way new money (which is not true money, but is "credit" representing a debt), goes into circulation in America is when it is borrowed from Bankers. When the State and people borrow large sums, we seem to prosper. However, the Bankers "create" only the amount of the principal of each loan, never the extra amount needed to pay the interest. Therefore. the new money never equals the new debt added. The amounts needed to pay the interest on loans is not "created," and therefore does not exist!

Under this kind of a system, where new debt always exceeds the new money no matter how much or how little is borrowed, the total debt increasingly outstrips the amount of money available to pay the debt. The people can never, ever get out of debt!

An example will show the viciousness of this usury-debt system with its "built-in" shortage of money.

IF $60,000 IS BORROWED, $255,931.20 MUST BE PAID BACK

When a citizen goes to a Banker to borrow $60,000 to purchase a home or a farm, the Bank clerk has the borrower agree to pay back the loan plus interest. At 14% interest for 30 years, the Borrower must agree to pay $710.92 per month for a total of $255,931.20. The clerk then requires the citizen to assign to the Banker the right of ownership of the property if the Borrower does not make the required payments. The Bank clerk then gives the Borrower a $60,000 check or a $60,000 deposit slip crediting the Borrower's checking account with $60,000.

The Borrower then writes checks to the builder, subcontractors, etc., who in turn write checks. $60,000 of new "checkbook" money is thereby added to "money in circulation."

However, and this is the fatal flaw in a usury system, the only new money created and put into circulation is the amount of the loan, $60,000. The money to pay the interest is NOT created, and therefore was NOT added to "money in circulation."

Even so, this Borrower (and those who follow him in ownership of the property) must earn and TAKE OUT OF CIRCULATION $255,931, almost $200,000 MORE than he put IN CIRCULATION when he borrowed the original $60,000! (By the way, it is this interest which cheats all families out of nicer homes. It is not that they can't afford them; it is because the Banker's usury forces them to pay for 4 homes to get one!)

Every new loan puts the same process in operation. Each borrower adds a small sum to the total money supply when he borrows, but the payments on the loan (because of interest) then deduct a much LARGER sum from the total money supply.

There is therefore no way all debtors can pay off the money-lenders. As they pay the principal and interest, the money in circulation disappears. All they can do is struggle against each other, borrowing more and more from the money-lenders each generation. The money-lenders (Bankers), who produce nothing of value, slowly, then more rapidly, gain a death grip on the land, buildings, and present and future earnings of the whole working population.

SMALL LOANS DO THE SAME THING

If you haven't quite grasped the impact of the above, let us consider a small auto loan for 3 years at 18% interest. Step 1: Citizen borrows $5,000 and pays it into circulation (it goes to the dealer, factory, miner, etc.) and signs a note agreeing to pay the Banker $6,500. Step 2: Citizen pays $180 per month of his earnings to the Banker. In 3 years he will take OUT of circulation $1,500 more than he put IN circulation.

Every loan of Banker "created" money (credit) causes the same thing to happen. Since this has happened millions of times since 1913 (and continues today), you can see why America has gone from a prosperous, debt-free nation to a debt-ridden nation where practically every home, farm and business is paying usury-tribute to some Banker. The usury-tribute to the Bankers on personal, local, State and Federal debt totals more than the combined earnings of 25% of the working people. Soon it will be 50% and continue up.

THIS IS WHY BANKERS PROSPER IN GOOD TIMES OR BAD

In the millions of transactions made each year like those above, little actual currency changes hands, nor is it necessary that it do so. 95% of all "cash" transactions in the U.S. are by check, so the Banker is perfectly safe in "creating" that so-called "loan" by writing the check or deposit slip, not against actual money, but AGAINST YOUR PROMISE TO PAY IT BACK! The cost to him is paper, ink and a few dollars in salaries and office costs for each transaction. It is "check-kiting" on an enormous scale. The profits increase rapidly, year after year, as shown below.

These are a few taken from Arizona newspapers in January, 1979:

Valley Bank posts 49% gain in profits

Gains of 49 percent in net income and 51 percent in operating income were posted last year by Valley National Bank.

Those gains brought net income to $33,969,-000' in the year ended Dec..31 and operating income to $34,459.000. The year before those totals were $22,836.000 and $22,807,000 respectively.

Bank's profits rise 21% Arizona Bank announced on Monday it had achieved a 21.2 percent increase in net income in 1978 over 1977. On the basis of operating income, excluding the 1977 sale of the Arizona Bank Building for $l,336,369, the bank said the increase was 43.9 percent.

Tostenrud said loans and deposits increased in the last year: Deposits 18.8 percent to $1.353 billion and loans 21.9 percent to $951 million.

THE COST TO YOU? EVENTUALLY, EVERYTHING!

In 1910 the U.S. Federal debt was only $1 billion, or $12.40 per citizen. State and local debts were practically non-existent.

By 1920, after only 6 years of Federal Reserve shenanigans, the Federal debt had jumped to $24 billion, or $226 per person.

In 1960 the Federal debt reached $284 billion, or $1,575 per citizen and State and local debts were mushrooming.

By 1981 the Federal debt passed $1 trillion and was growing exponentially as the Banker's tripled the interest rates. State and local debts are now MORE than the Federal, and with business and personal debts totaled over $6 trillion, 3 times the value of all land and buildings in America.

If we signed over to the money-leaders all of America we would still owe them 2 more Americas (plus their usury, of course!)

However, they are too cunning to take title to everything. They will instead leave you with some "illusion of ownership" so you and your children will continue to work and pay the Bankers more of your earnings on ever-increasing debts. The "establishment" has captured our people with their ungodly system of usury and debt as certainly as if they had marched in with a uniformed army.

FOR THE GAMBLERS AMONG MY READERS

To grasp the truth that periodic withdrawal of money through interest payments will inexorably transfer all wealth in the nation to the receiver of interest, imagine yourself in a poker or dice game where everyone must buy the chips (the medium of exchange) from a "banker" who does not risk chips in the game, but watches the table and every hour reaches in and takes 10% to 15% of all the chips on the table. As the game goes on, the amount of chips in the possession of each player will go up and down with his "luck."

However, the TOTAL number of chips available to play the game (carry on trade and business) will decrease rapidly.

The game will get low on chips, and some will run out. If they want to continue to play, they must buy or borrow them from the "banker." The "banker" will sell (lend) them ONLY if the player signs a "mortgage" agreeing to give the "banker" some real property (car, home, farm, business, etc.) if he cannot make periodic payments to pay back all of the chips plus some EXTRA ones (interest). The payments must be made on time, whether he wins (makes a profit) or not.

It is easy to see that no matter how skillfully they play, eventually the "banker" will end up with all of his original chips back, and except for the very best players, the rest, if they stay in long enough, will lose to the "banker" their homes, their farms, their businesses, perhaps even their cars, watches, rings, and the shirts off their backs!

Our real-life situation is MUCH WORSE than any poker game. In a poker game none is forced to go into debt, and anyone can quit at any time and keep whatever he still has. But in real life, even if we borrow little ourselves from the Bankers, the local, State, and Federal governments borrow billions in our name, squander it, then confiscate our earnings from us and pay it back to the Bankers with interest. We are forced to play the game, and none can leave except by death. We pay as long as we live, and our children pay after we die. If we cannot pay, the same government sends the police to take our property and give it to the Bankers. The Bankers risk nothing in the game; they just collect their percentage and "win it all." In Las Vegas and at other gambling centers, all games are "rigged" to pay the owner a percentage, and they rake in millions. The Federal Reserve Bankers' "game" is also rigged, and it pays off in billions!

In recent years Bankers added real "cards" to their ‘game. "Credit" cards are promoted as a convenience and a great boon to trade. Actually, they are ingenious devices by which Bankers collect 2% to 5% of every retail sale from the seller and 18% interest from buyers. A real "stacked" deck!

YES, IT'S POLITICAL, TOO!

Democrat, Republican, and Independent voters who have wondered why politicians always spend more tax money than they take in should now see the reason. When they begin to study our "debt-money" system, they soon realize that these politicians are not the agents of the people but are the agents of the Bankers, for whom they plan ways to place the people further-in debt. It takes only a little imagination to see that if Congress had been "creating," and spending or issuing into circulation the necessary increase in the money supply, THERE WOULD BE NO NATIONAL DEBT, and the over $4 Trillion of other debts would be practically non-existent. Since there would be no ORIGINAL cost of money except printing, and no CONTINUING costs such as interest, Federal taxes would be almost nil. Money, once in circulation, would remain their and go on serving its purpose as a medium of exchange for generation after generation and century after century, just as coins do now, with NO payments to the Bankers whatever!

MOUNTING DEBTS AND WARS

But instead of peace and debt-free prosperity, we have ever-mounting debt and periodic wars. We as a people are now ruled by a system of Banker-owned Mammon that has usurped the mantle of government, disguised itself as our legitimate government, and set about to pauperize and control our people. It is now a centralized, all-powerful political apparatus whose main purposes are promoting war, spending the peoples' money, and propagandizing to perpetuate itself in power. Our two large political parties have become its servants, the various departments of government its spending agencies, and the Internal Revenue its collection agency.

Unknown to the people, it operates in close cooperation with similar apparatuses in other nations. which are also disguised as "governments." Some, we are told, are friends. Some, we are told, are enemies. "Enemies" are built up through international manipulations and used to frighten the American people into going billions of dollars more into debt to the Bankers for "military preparedness," "foreign aid to stop communism," "minority rights," etc. Citizens, deliberately confused by brainwashing propaganda, watch helplessly while our politicians give our food, goods, and money to Banker-controlled alien governments under the guise of "better relations" and "easing tensions." Our Banker-controlled government takes our finest and bravest sons and sends them into foreign wars with obsolete equipment and inadequate training, where tens of thousands are murdered, and hundreds of thousands are crippled. Other thousands are morally corrupted, addicted to drugs, and infected with venereal and other diseases, which they bring back to the United States. When the "war" is over, we have gained nothing, but we are scores of billions of dollars more in debt to the Bankers, which was the reason for the "war" in the first place!

BUT WAIT… THERE'S STILL MORE

The profits from these massive debts have been used to erect a complete and almost hidden economic and political colossus over our nation. They keep telling us they are trying to do us "good," when in truth they work to bring harm and injury to our people. These would-be despots know it is easier to control and rob an ill, poorly-educated and confused people than it is a healthy and intelligent population, so they deliberately prevent real cures for diseases, they degrade our educational systems, and they stir up social and racial unrest. For the same reason they favor drug use, alcohol, sexual promiscuity, abortion, pornography, and crime. Everything which debilitates the minds and bodies of the people is secretly encouraged, as it makes the people less able to oppose them or even to understand what is being done to them.

Family, morals, love of Country, the Christian religion, all that is honorable is being swept away, while they try to build their new, subservient man. Our new "rulers" are trying to change our whole racial, social, religious, and political order, but they will not change the debt-money economic system by which they rob and rule. Our people have become tenants and "debt-slaves" to the Bankers and their agents in the land our fathers conquered. It is conquest through the most gigantic fraud and swindle in the history of mankind. And we remind you again: The key to their wealth and power over us is their ability to create "money" out of nothing and lend it to us at interest. If they had not been allowed to do that, they would never have gained secret control of our nation. "The rich ruleth over the poor, and the borrower is servant to the lender" (Proverbs 22:7).

Let us now consider the correct method of providing the medium of exchange (money) needed by our people.

INTEREST-FREE MONEY

History tells us of debt-free and interest-free money issued by governments. The American colonies did it in the 1700's and their wealth soon rivaled England and brought restrictions from Parliament, which led to the Revolutionary War. Abraham Lincoln did it in 1863 to help finance the Civil War. He was later assassinated by an agent of the Rothschild Bank. No debt-free or interest-free money has been issued in America since then. Several Arab nations issue interest-free loans to their citizens today. The Saracen Empire for bad interest on money for 1,000 years, and its wealth outshone even Saxon Europe. Mandarin China issued its own money, interest-free and debt-free, and historians and collectors of art today consider those centuries to be China's time of greatest wealth, culture and peace.

Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years. Germany financed its entire government and war operation from 1935 to 1945 without debt, and it took the whole Capitalist and Communist world to destroy the German power over Europe and bring Europe back under the heel of the Bankers. Such history of money does not even appear in the textbooks of public (government) schools today.

Issuing money which doesn't have to be paid back in interest leaves the money available to use in the exchange of goods and services and its only continuing cost is replacement as the paper wears out. Money is the paper ticket by which such transfers are made and should always be in sufficient quantity to transfer all possible production of the nation to ultimate consumers.

It is as ridiculous for a nation to say to its citizens, "You must consume less because we are short of money," as it would be for an Airline to say "Our planes are flying, but we can't take you because we are short of tickets."

NO MORE BANKERS' PLUNDER

Under the present debt-usury system, the extra burden of usury forces workers and businesses to demand more money for the work and goods to pay their ever-increasing debts and taxes. This increase in prices and wages is called "inflation." Bankers, politicians and "economists" blame it on everything but the real cause, which is the usury levied on money and debt by the Bankers. This "inflation" benefits the money-lenders, since it wipes out savings of one generation so they cannot finance or help the next generation, who must then borrow from the money-lenders, and pay a large part of their life's labor to the usurer.

With an adequate supply of interest-free money, little borrowing would be required and prices would be established by people and goods, not by debts and usury.

CITIZEN CONTROL

If the Federal Congress failed to act, or acted wrongly, in the supply of money, the citizens would use the ballot or recall petition to replace those who prevented correct action with others whom the people believe would pursue a better money policy. Since the creation of money and its issuance in sufficient quantity would be one of the few functions of Congress, the voter could decide on a candidate by his stand on money, instead of the hundreds of lesser, and deliberately confusing, subjects which are presented to us today. And since money is, and would remain, a national function, local differences or local factions would not be able to sway the people from the nation's (citizens') interest. All other problems, except the nation's defense, would be taken care of in the State, County, or City governments where they are best handled and most easily corrected.

An adequate national defense would be provided by the same citizen-controlled Congress, and there would be no Bankers behind the scenes, bribing politicians to give $200 billion of American military equipment to other nations, disarming us, while alien nations prepare to attack and invade the United States of America.

A DEBT-FREE AMERICA

With debt-free and interest-free money, there would be no high and confiscatory taxation, our homes would be mortgage free with no $10,000-a-year payments to the Bankers, nor would they get $1,000 to $2,500 per year from every automobile on our roads. We would need no "easy payment" plans, "revolving" charge accounts, loans to pay medical or hospital bills, loans to pay taxes, loans to pay for burials, loans to pay loans, nor any of the thousand and one usury-bearing loans which now suck the life-blood of American families. There would be no unemployment, divorces caused by debt, destitute old people, or mounting crime, and even the so-called "deprived" classes would be deprived of neither job nor money to buy the necessities of life.

Criminals could not become politicians, nor would politicians become criminals in the pay of the Money-lenders. Our officials, at all government levels, would be working for the people instead of devising means to spend more money to place us further in debt to the Bankers. We would get out of the entangling foreign alliances that have engulfed us in four major wars and scores of minor wars since the Federal Reserve Act was passed, alliances which are now used to prevent America from preparing her own defense in the face of mounting danger from alien powers.

A debt-free America would mean mothers would not have to work. With mother at home, juvenile delinquency would decrease rapidly. The elimination of the usury and debt would be the equivalent of a 50% raise in the purchasing power of every worker. With this cancellation of all debts, the return to the people of all the property and wealth the parasitic Bankers and their quasi-legal agents have stolen by usury and fraud, and the ending of their theft of $300 Billion (or more) every year from the people, America would be prosperous and powerful beyond the wildest dreams of its citizens today. And we would be at peace! (For a Bible example of cancellation of debts to money lenders and restoration of property and money to the people, read Nehemiah 5: 1-13.)

WHY YOU HAVEN'T KNOWN

We realize this small, and necessarily incomplete, article on money may be charged with oversimplification. Some may say that if it is that simple the people would have known about it, and it could not have happened. But this MONEY-LENDERS' consPIRACY is as old as Babylon, and even in America it dates far back before the year 1913. Actually, 1913 may be considered the year in which their previous plans came to fruition, and the way opened for complete economic conquest of our people. The consPIRACY is old enough in America so that its agents have been, for many years, in positions such as newspaper publishers, editors, columnists, church ministers, university presidents, professors, textbook writers, labor union leaders, movie makers, radio and TV commentators, politicians from school board members to U.S. presidents, and many others.

CONTROLLED NEWS AND INFORMATION

These agents control the information available to our people. They manipulate public opinion, elect whom they will locally and nationally, and never expose the crooked money system. They promote school bonds, municipal bonds, expensive and detrimental farm programs, "urban renewal," foreign aid, and many other schemes which will put the people more into debt to the Bankers. Thoughtful citizens wonder why billions are spent on one program and billions on another which may duplicate it or even nullify it, such as paying some farmers not to raise crops, while at the same time building dams or canals to irrigate more farm land. Crazy or stupid? Neither. The goal is more debt. Thousand of government-sponsored ways to waste money go on continually. Most make no sense, but they are never exposed for what they really are, builders of "billions for the bankers and debts for the people."

So-called "economic experts" write syndicated columns in hundreds of newspapers, craftily designed to prevent the people from learning the simple truth about our money system. Commentators on radio and TV, preachers, educators, and politicians blame the people as wasteful, lazy, or, spend-thrift, and blame the workers, and consumers for the increase in debts and the inflation of prices, when they know the cause is the debt-money system itself. Our people are literally drowned in charges and counter-charges designed to confuse them and keep them from understanding the unconstitutional and evil money-system that is so efficiently and silently robbing the farmers, the workers, and the businessmen of the fruits of their labors and of their freedoms.

When some few Patriotic people or organizations who know the truth begin to expose them or try to stop any of their mad schemes, they are ridiculed and smeared as "right-wing extremists," "super-patriots," "ultra-rightists," "bigots," "racists," even "fascists" and "anti-Semites." Any name is used which will cause them to shut up or will at least stop other people from listening to the warning they are giving. Articles and books such as you are now reading are kept out of schools, libraries, and book stores.

Some, who are especially vocal in their exposure of the treason against our people, are harassed by government agencies such as the EPA, OSHA, the IRS, and others, causing them financial loss or bankruptcy. Using the above methods, they have been completely successful in preventing most Americans from learning the things you have read in this pamphlet. However, in spite of their control of information, they realize many citizens are learning the truth. Therefore, to prevent violence or armed resistance to their plunder of America, they plan to register all firearms and eventually to disarm all citizens. They have to eliminate most guns, except those in the hands of their government police and army.

TELL THE PEOPLE

The "almost hidden" conspirators in politics, religion, education, entertainment, and the news media are working for a Banker-owned United States in a Banker-owned world under a Banker-owned World Governments!

Love of Country and concern for your children should make you deeply interested in this, America's greatest problem, for our generation has not suffered under the "yoke" as the coming generations will. Usury and taxes will continue to take a larger and larger part of the annual earnings of the people and put them into the pockets of the Bankers and their political Agents. Increasing "government" regulations will prevent citizen protest and opposition to their control. Is it possible that your grandchildren will own neither home nor car, but will live in "government-owned" apartments and ride to work in "government-owned" buses (both paying usury to the Bankers), AND BE ALLOWED TO KEEP JUST ENOUGH OF THEIR EARNINGS TO BUY A MINIMUM OF FOOD AND CLOTHING while their Rulers wallow in luxury? In Asia and eastern Europe it is called "communism;" in America it is called "Democracy" and "Capitalism."

America will not shake off her Banker-controlled dictatorship as long as the people are ignorant of the hidden controllers. International financiers, who control most of the governments of the nations, and most sources of information, seem to have us completely within their grasp. They are afraid of only one thing: an awakened Patriotic Citizenry, armed with the truth, and with a trust, in Almighty God for deliverance. This article has given you the truth about their iniquitous system. What you do with it is in your hands.

AUDIT THE FEDERAL RESERVE SYSTEM? The Federal Reserve has never been audited by the government since it took over our money and credit in 1913. In 1975 a bill, H.R. 4316, to require an audit was introduced in Congress.

During the April, 1975 hearings, this author submitted a statement favoring the audit, as did many others. Due to pressure from the money controllers, it was not passed. No audit of the Fed has ever been made.

WHY HAVEN'T THEY TOLD YOU? Why haven't they told you about this scandal - the greatest fraud in history which has caused Americans and others to spill oceans of blood, pay trillions of dollars interest on fraudulent loans and burden themselves with unnecessary taxes?

Who are "they"? "They" are most of the politicians of the two old parties and elected officials. Most "educational" groups like the League of Women Voters, the Heritage Foundation and the American Civil Liberties Union (ACLU). All mainstream news services, such as the Associated Press and the United Press International. All mainstream daily newspapers, including the New York Times and Los Angeles Times. All mainstream weekly "news" magazines, such as "Time" and "Newsweek." All of the above and more have been hiding the truth from you.

WHAT SOME LEARNED MEN HAVE SAID ABOUT THE MONEY QUESTION

ALAN GREENSPAN: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

PRESIDENT THOMAS JEFFERSON: "The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction… I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity… is but swindling futurity on a large scale."

PRESIDENT JAMES A. GARFIELD: "Whoever controls the volume of money in any country is absolute master of all industry and commerce".

CONGRESSMAN LOUIS McFADDEN: "The Federal Reserve(Banks) are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this Nation is run by the International Bankers".

HORACE GREELEY: "While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.

THOMAS A. EDISON: "People who will not turn a shovel full of dirt on the project (Muscle Shoals Dam) nor contribute a pound of material, will collect more money from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest …But here is the point: If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People."

PRESIDENT WOODROW WILSON: "A great industrial Nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men". (Just before he died, Wilson is reported to have stated to friends that he had been "deceived" and that "I have betrayed my Country". He referred to the Federal Reserve Act passed during his Presidency.)

SIR JOSIAH STAMP,(President of the Bank of England in the 1920's, the second richest man in Britain): "Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits".

MAJOR L .L. B. ANGUS: "The modern Banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banks can in fact inflate, mint and unmint the modern ledger-entry currency".

RALPH M. HAWTREY: (Former Secretary of the British Treasury): "Banks lend by creating credit. They create the means of payment out of nothing".

ROBERT HEMPHILL: (Credit Manager of Federal Reserve Bank, Atlanta, Ga.): "This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon".

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Pastor Sheldon Emry, circa: 1980